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SECURITIES AND EXCHANGE COMMISSION20549
FORM 10-KSB
ANNUAL REPORT
PURSUANT TO SECTION 13 OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
-----------------
Skylands Financial Corporation
(Name of small business issuer in its charter)
New Jersey
(State or other jurisdiction of incorporation or organization)
22-3644018
(IRS Employer Identification Number)
176 Mountain Avenue
Hackettstown, New Jersey 07840
(Address of principal executive offices) (Zip Code)
908-850-9010
(Issuer's telephone number, including area code)
Securities registered under Section 12(b) of the Act: None
Securities registered under Section 12(g) of the Act: None
Check if no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-KSB or any amendments to this Form 10 -KSB. |_|
For the fiscal year ended December 31, 1999, the Issuer had total revenues of
$16,574,000. The aggregate market value of the voting stock held by
non-affiliates of the Issuer as of February 28, 2000 was $24,025,084.
The number of shares of the Issuer's Common Stock, $2.50 par value, outstanding
as of March 27, 2000 was 2,533,869.
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DOCUMENTS INCORPORATED BY REFERENCE
10-KSB Item Document Incorporated
Item 10. Directors and Executive Proxy Statement for 2000
Officers of the Company; Annual Meeting of
Compliance with Section 16(a) Shareholders to be filed no
Of the Exchange Act later than April 29, 2000.
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Item 11. Executive Compensation Proxy Statement for 2000
Annual Meeting of
Shareholders to be filed no
later than April 29, 2000.
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Item 12. Security Ownership of Certain Proxy Statement for 2000
Beneficial Owners and Annual Meeting of
Management Shareholders to be filed no
later than April 29, 2000.
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Item 13. Certain Relationships and Proxy Statement for 2000
Related Transactions Annual Meeting of
Shareholders to be filed no
later than April 29, 2000.
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TABLE OF CONTENTS
PAGE
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PART I
Item 1. Description of Business 4
Item 2. Description of Property 9
Item 3. Legal Proceedings 10
Item 4. Security Ownership of Certain Beneficial Owners
and Management 10
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters 10
Item 6. Selected Consolidated Financial Data 10
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
Item 8. Financial Statements and Supplementary Data 32
Item 9. Changes In and Disagreements with Accountants
on Accounting and Financial Disclosures 54
PART III
Item 10. Directors and Executive Officers of the Registrant 54
Item 11. Executive Compensation 54
Item 12. Security Ownership of Certain Beneficial 54
Owners and Management
Item 13. Certain Relationships and Related Transactions 56
PART IV
Item 14. Reports On Form 8-K And Exhibits 55
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Item 1 - Business
General
Skylands Financial Corporation (the "Company") is a one-bank holding
company incorporated under the laws of the sate of New Jersey in February 1999
to serve as a holding company for Skylands Community Bank (the "Bank"). Unless
the context otherwise requires, all references to the "Company" in this Annual
Report shall be deemed to refer also to the Bank. All prior period references
and financial comparisons are to Skylands Community Bank and its subsidiary,
Skylands Community Investment Company, Inc.
At its Annual Meeting of Shareholders on April 20, 1999, a proposal was
considered to form a one-bank holding company by adopting a Plan of Acquisition,
which had been executed on February 18, 1999 between the Bank and Skylands
Financial Corporation. The Plan, which provided for the acquisition of all of
the stock of the Bank by Skylands Financial Corporation, a newly formed New
Jersey corporation, was approved by a two-thirds majority of shareholders
eligible to vote. As of August 9, 1999, all of the required approvals had been
obtained from the relevant regulatory authorities (the Securities and Exchange
Commission, the New Jersey Department of Banking and Insurance, NASDAQ and the
Federal Reserve Bank). On September 17, 1999 the Plan of Acquisition was
consummated. All of the then outstanding shares of the Bank were exchanged for
an equal number of shares of Skylands Financial Corporation common stock and
Skylands Financial Corporation acquired all of the outstanding shares of the
Bank. This exchange of shares has been accounted for as a reorganization of
entities under common control resulting in no changes in the underlying amount
of assets and liabilities.
The Bank, the operating entity of Skylands Financial Corporation, is a
full service commercial bank located in northern New Jersey. The principal
offices of the Company and the Bank are located at 176 Mountain Avenue,
Hackettstown, NJ. The Company assumed occupancy of these premises on February
23, 2000. Prior to that date, the principal offices were at 24-26 Crossroads
Center, Independence, NJ. There are currently seven branches in the principal
service area, which is in Warren, Sussex and Morris Counties, New Jersey. The
branches are located at 24-26 Crossroads Center, Independence, NJ, 9 Ledgewood
Avenue, Netcong, NJ, 262 Route 10, Succasunna, NJ, 157 Route 31 North, Oxford,
NJ, 694 Route 15 South, Suite 101, Lake Hopatcong, NJ, in the Shop-Rite
supermarket at Byram, 90-80 Route 206, Stanhope, NJ and 272 Route 46, Rockaway,
NJ. The Bank was formed under the laws of New Jersey in 1989 and commenced
operations on October 9, 1990. As a full-service community bank, the Company
believes that the establishment of branch offices is an important step in its
continued growth and that these branches provide access to new markets, which
allow it to expand its deposit base and present new lending opportunities.
The Company 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 Company 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 Company also bids for tax anticipation notes and bond anticipation notes. In
consumer lending, the Company offers personal, automobile, credit card, home
equity and home improvement
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loans and makes one-to-four family residential real estate loans available for
its customers. The Company 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 Company's credit and non-credit
services.
On February 23, 2000, the Skylands Financial Corporation entered into a
definitive Agreement and Plan of Merger with Fulton Financial Corporation, under
the terms of which the Company will be merged with and into Fulton Financial
Corporation. See the Proposed Merger section of this Management Discussion and
Analysis and Footnote 20 of the Financial Statements.
Services
The Company engages in the general business of commercial banking. The
Company offers traditional commercial banking services such as savings and
checking accounts and provides commercial, consumer and mortgage loans. Bank
deposits are insured by the Federal Deposit Insurance Corporation ("FDIC") up to
its applicable limits. The Company provides a wide range of commercial banking
products and services, including personal and business checking accounts,
certificates of deposit, money market accounts and regular savings accounts. The
Company does not presently have any trust powers and, therefore, does not offer
any trust services.
The Company 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 its service areas. As
a general rule, specific banking services are offered only on a basis believed
to be profitable. Extensions of credit are made only in instances in which the
Company believes they will be sound and collectible. 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 Company engages in a wide range of lending activities and offers
commercial, consumer, mortgage, construction and personal loans. All lending
decisions are made primarily on the basis of soundness and in compliance with
all applicable laws. The Company has also participated in multi-bank credit
arrangements in order to take part in loans for amounts, which are in excess of
the Company's lending limit. In commercial lending, the Company offers loans for
equipment and working capital needs, as well as New Jersey Economic Development
Authority and Small Business Administration loans. The Company also bids for tax
anticipation notes and bond anticipation notes. In consumer lending, the Company
offers cash reserve credit lines and personal, automobile, bridge, home equity,
home improvement and community development loans. The Company also makes
available a portion of its funds for one- to four-family residential real estate
loans.
The Company believes it offers competitive rates for its services, thereby
enabling consumers and business entities in its service areas to avail
themselves of the Company's credit and non-credit services. See "Competition"
below.
The Company is fully computerized and uses the data processing services of
The National Bank of Sussex County. All Company departments are automated, and
the Company believes the data processing services available to Company customers
compare favorably with those of competing
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financial institutions. The Company is also a member of the MAC(TM) Money Access
Service, a regional automated teller network system.
As of March 9, 2000, the Company had 60 full-time employees and 12
part-time employees.
Competition
The Company 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 Company. There are
approximately eleven such institutions in the Company's service area. The
Company 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 Company.
The Company 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 Company 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 requirements of individuals residing, working and shopping in the
Company's service areas by extending consumer loans and by offering depository
services. The Company believes that the following attributes of the Company have
made the Company attractive to local business people and residents.
o Competitively priced services.
o Direct and easy access to the Company's management by members of the
community, whether during or after business hours.
o Local conditions and needs are taken into account by the Company
when deciding loan applications and making other business decisions
affecting members of the community.
o Responsiveness of the Company's personnel for requests for
information and services by depositors and others.
o Depositors' funds are invested back into the community.
o Positive involvement of the Company in the community affairs of
Warren and Morris Counties.
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Supervision and Regulation
As a bank holding company, the Company is subject to the regulation,
supervision and control of the Federal Reserve Bank. As a New Jersey-chartered
commercial bank, the Bank is subject e 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 Company, including the minimum level of capital the Bank must maintain, the
ability of the Bank to pay dividends, the ability of the Company to expand
through new branches or acquisitions and various other matters.
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 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 assessment of the Federal
Finance Corporation, or FICO, relating to the re-capitalization described below
under "Recent Regulatory Enactments."
Dividend Rights. Under the Banking Act, a bank may declare and pay
dividends only if, after payment of the dividend, the capital stock of the bank
will be unimpaired and either the bank will have a surplus of not less than 50%
of its capital stock or the payment of the dividend will not reduce the bank's
surplus.
Recent Regulatory Enactment's On November 12, 1999, President Clinton
signed into law legislation that allows bank holding companies to engage in a
wider range of non-banking activities, including greater authority to engage in
securities and insurance activities. Under the Gramm-Leach-Bliley Act (the "GLB
Act"), a bank holding company that elects to become a financial holding company
may engage in any activity that the Federal Reserve Board, in consultation with
the Secretary of the Treasury, determines by regulation or order is (1)
financial in nature, (2) incidental to any such financial activity, or (3)
complementary to any such financial activity and does not pose a substantial
risk to the safety or soundness of depository institutions or the financial
system generally. The GLB Act makes significant changes in U.S. banking law,
principally by repealing the restrictive provisions of the 1933 Glass-Steagall
Act. The GLB Act specifies certain activities that are deemed to be financial in
nature, including lending, exchanging, transferring, investing for others, or
safeguarding money or securities; underwriting and selling insurance; providing
financial, investment, or economic advisory services; underwriting, dealing in
or making a market in, securities; and any activity currently permitted for bank
holding companies by the Federal Reserve Board under section 4(c)(8) of the Bank
Holding Company Act. The GLB Act does not authorize banks or their affiliates to
engage in commercial activities that are not financial in nature. A bank holding
company may elect to be treated as a financial holding company only if
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all depository institution subsidiaries of the holding company are well
capitalized, well managed and have at least a satisfactory rating under the
Community Reinvestment Act.
The GLB Act also provides that state banks may invest in financial
subsidiaries (assuming they have the requisite investment authority under
applicable state law) subject to the same conditions that apply to national bank
investments in financial subsidiaries. National banks are also authorized by the
GLB Act to engage, through "financial subsidiaries," in any activity that is
permissible for a financial holding company (as described above) and any
activity that the Secretary of the Treasury, in consultation with the Federal
Reserve Board, determines is financial in nature or incidental to any such
financial activity, except (1) insurance underwriting, (2) real estate
development or real estate investment activities (unless otherwise permitted by
law), (3) insurance company portfolio investments, and (4) merchant banking. The
authority of a national bank to invest in a financial subsidiary is subject to a
number of conditions, including, among other things, requirements that the bank
must be well managed and well capitalized (after deducting from the bank's
capital outstanding investments in financial subsidiaries).
The GLB Act also contains a number of other provisions that will affect
the Company's operations and the operations of all financial institutions. One
of the new provisions relates to the financial privacy of consumers, authorizing
federal banking regulators to adopt rules that will limit the ability of banks
and other financial entities to disclose non-public information about consumers
to non-affiliated entities. These limitations are expected to require more
disclosure to consumers, and in some circumstances, to require consent by the
consumer before information is allowed to be provided to a third party. At this
time, the Company does not have any plans to become a financial holding company,
and is unable to predict the impact the GLB Act may have upon its or its
subsidiaries' financial condition or results of operations.
The Company's Common Stock is registered under the Securities Exchange Act
of 1934. As a result, the Company is subject to the SEC's rules regarding, among
other things, the filing of periodic public reports, the solicitation of
proxies, and the conduct of tender offers.
Profitability, Monetary Policy and Economic Conditions
Most of the Company's assets consist of individual and commercial loans
and investments in government obligations, and most of its liabilities consist
of customers' deposit balances. The Company does not at this time intend to rely
on large denomination certificates of deposit because of the liquidity risk such
deposits pose. The Company therefore derives the largest portion of its gross
income from the interest rate differential between its loan and investment
income and the interest it must pay its depositors. Since virtually all customer
deposits are insured by the federal government, the rates that the Company must
pay to attract deposits will largely be a function of competition in the local
banking market. Interest rates on individual and commercial loans are, usury
ceilings excepted, also unregulated and determined in the market place. Deposit
and loan rates of interest, however, also move in response to regional, national
and, increasingly, international economic conditions in general, and in step
with specific actions taken by the Federal Reserve with respect to the money
supply. The Federal Reserve influences the supply of money, and its cost,
through its open market purchase and sale of government obligations, through
changes in the discount rate it charges member banks to borrow from it, and
through the reserve requirements it imposes upon bank deposits.
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In a banking environment, where the rates of interest banks charge on
loans and pay on deposits generally "float" (i.e., are readjusted over
relatively short time intervals), the Company's ability to generate income from
its lending and investment activities depends in large part on its success in
managing its assets and liabilities. Asset and liability management, in turn,
means matching, to the degree possible, the maturities of the Company's deposits
and income-earning assets (its loans and investments). Since most deposits have
short maturities (i.e., maturities of less than one year), the Company maintains
a relatively consistent, positive interest rate differential by pricing most
loans on a variable rate basis and by keeping the maturities of its loan and
investment portfolio relatively short.
Item 2 - Properties
The Company's principal offices are located at 176 Mountain Avenue,
Hackettstown, NJ. The Company assumed occupancy of these premises on February
23, 2000. Prior to that date, the principal offices were at 24-26 Crossroads
Center, Independence, NJ. The Company leases the offices at 176 Mountain Avenue.
Pursuant to the lease, the Company rents approximately 10,000 square feet, which
constitutes 66% of the rentable space in the building. The lease is for a term
of five years with options for two additional terms of five years each. The
lease for this property is presented in Exhibit 10(m) to this report.
The Company leases its Crossroads branch (the former principal offices).
Pursuant to the lease, the Company rents approximately 3,198 square feet, which
constitutes 10.16% of the rentable space in the center. The term of the lease
expires February 28, 2002. The lease for this property is presented in Exhibit
10(a) to this report.
The Company 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 ended on September 30, 1999. The Company
exercised 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 Company
assumed the obligations under the existing lease agreement with Ten Properties,
LP, 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 Company
purchased the branch for a purchase price of $400,000. There are no encumbrances
on this property.
The Company 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 Company with an option to extend the lease for an additional five-year term
ending November 30, 2007.
The Company 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
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the Shop-Rite 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. The lease for this property is presented in Exhibit
10(l) to this report.
During 1999, the Company paid aggregate rentals under the foregoing leases
of approximately $280,000. The average remaining term of these leases is
approximately 3.6 years (without giving effect to any right of the Company to
renew these leases).
The Company also owns the property and building located at 157 Route 31
North, Oxford, New Jersey, which the Company acquired in March 1996. The
building at this location consists of approximately 1,400 square feet. There are
no encumbrances on this property.
The Company also owns the property and building located at 272 Route 46,
Rockaway, New Jersey, which the Company acquired on November 10, 1998. The
building at this location consists of approximately 7,900 square feet, of which
the Company 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
Company's present operations.
Item 3 - Legal Proceedings.
The Company is not a party to any legal proceedings, other than routine
litigation incidental to the Company's business, which management does not
believe would have a material effect on the Company if determined adversely.
Item 4 - Security Ownership of Certain Beneficial Owners and Management.
No matters were submitted for a vote of the Registrant's shareholders
during the Fourth Quarter of fiscal 1999.
Part II
Item 5 - Market for the Company's Common Stock and Related Security Holder
Matters.
The Company hereby incorporates by reference the information set forth
under the captions "Market Information", "Holders" and "Dividends", respectively
of the Management Discussion and Analysis presented in Item 7 of this Form
10-KSB.
Item 6 - Selected Financial Data.
The Company hereby incorporates by reference the "Statement of Operations
Data" and "Balance Sheet Data" set forth on page 14 in Item 7 of the Management
Discussion and Analysis in this Form 10-KSB.
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Item 7 - Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Business
This report presents the consolidated financial statements of Skylands
Financial Corporation and its subsidiary Skylands Community Bank and Skylands
Community Investment Company, Inc., a subsidiary of Skylands Community Bank. The
term "Company" refers to Skylands Financial Corporation and Skylands Community
Bank, (the "Bank") as a consolidated entity. The Company is a one-bank holding
company. All prior period references and financial comparisons are to Skylands
Community Bank and its subsidiary, Skylands Community Investment Company, Inc.
Unless specifically stated to the contrary, these references will identify the
"Company."
At its Annual Meeting of Shareholders on April 20, 1999, a proposal was
considered to form a one-bank holding company by adopting a Plan of Acquisition,
which had been executed on February 18, 1999 between the Bank and Skylands
Financial Corporation. The Plan, which provided for the acquisition of all of
the stock of the Bank by Skylands Financial Corporation, a newly formed New
Jersey corporation, was approved by a two-thirds majority of shareholders
eligible to vote. As of August 9, 1999, all of the required approvals had been
obtained from the relevant regulatory authorities (the Securities and Exchange
Commission, the New Jersey Department of Banking and Insurance, NASDAQ and the
Federal Reserve Bank). On September 17, 1999 the Plan of Acquisition was
consummated. All of the then outstanding shares of the Bank were exchanged for
an equal number of shares of Skylands Financial Corporation common stock and
Skylands Financial Corporation acquired all of the outstanding shares of the
Bank. This exchange of shares has been accounted for as a reorganization of
entities under common control resulting in no changes in the underlying amount
of assets and liabilities.
The Bank, the operating entity of Skylands Financial Corporation, is a
full service commercial bank located in northern New Jersey with locations in
Hackettstown, Independence, Roxbury, Netcong, Oxford, Jefferson, Byram and
Rockaway. The Bank was formed under the laws of New Jersey in 1989 and commenced
operations on October 9, 1990. As a full-service community bank, the Bank
believes that the establishment of branch offices is an important step in its
continued growth. The Bank believes that these branches provide access to new
markets and allow it to expand its deposit base and present new lending
opportunities for the Bank.
The Company 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 Company 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 Company also bids for tax anticipation notes and bond anticipation notes. In
consumer lending, the Company 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 Company 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 Company's
credit and non-credit services.
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On February 23, 2000, Skylands Financial Corporation entered into a
definitive Agreement and Plan of Merger with Fulton Financial Corporation, under
the terms of which the Company will be merged with and into Fulton Financial
Corporation. See the Proposed Merger section of this Management Discussion and
Analysis and Footnote 20 of the Financial Statements.
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 Company'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 to conform with 1999 data.
The following table presents selected financial data as of December 31,
1999, 1998, 1997, 1996, and 1995, respectively, and for the years then ended.
This table should be read in conjunction with the Company'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 12/31/99 12/31/98 12/31/97 12/31/96 12/31/95
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<S> <C> <C> <C> <C> <C>
Net Interest Income $9,497,000 $7,367,000 $6,038,000 $4,525,000 $2,856,000
Provision for Loan and Lease Losses 871,000 665,000 632,000 488,000 266,000
Net Interest Income after Provision 8,626,000 6,702,000 5,406,000 4,037,000 2,590,000
for Loan Losses
Total Other Income 1,042,000 889,000 673,000 508,000 377,000
Total Other Expenses 5,881,000 4,727,000 3,838,000 3,325,000 2,533,000
Net Income $2,372,000 $1,831,000 $1,424,000 $ 750,000 $ 270,000
========== ========== ========== ========== ==========
Basic Earnings per Common Share (1) $ 0.95 $ 0.74 $ 0.58 $ 0.31 $ 0.14
Diluted Earnings per Common Share (1)(3) $ 0.92 $ 0.71 $ 0.57 $ 0.30 $ 0.14
Net Interest Margin (tax equivalent basis) 4.98% 4.78% 4.87% 4.43% 3.79%
</TABLE>
<TABLE>
<CAPTION>
At At At At At
BALANCE SHEET DATA 12/31/199 12/31/98 12/31/97 12/31/96 12/31/95
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<S> <C> <C> <C> <C> <C>
Total Assets $ 219,528,000 $ 179,535,000 $ 147,088,000 $ 119,916,000 $ 99,587,000
Total Loans 149,451,000 117,323,000 90,441,000 67,219,000 45,601,000
Allowance for Loan and Lease Losses (2,390,000) (1,873,000) (1,374,000) (973,000) (600,000)
Total Deposits 198,100,000 165,259,000 134,917,000 106,191,000 88,242,000
Total Shareholders' Equity $ 15,832,000 $ 13,619,000 $ 11,694,000 $ 10,166,000 $ 9,557,000
Book Value per Common Share (1) 6.26 5.47 4.74 4.14 3.89
Tangible Book Value per Common Share (1)(2) 5.76 4.82 4.03 3.44 3.08
Allowance for Possible Loan Losses as a % of 1.60% 1.60% 1.52% 1.45% 1.32%
Total Loans
Allowance for Possible Loan Losses as a % of 161% 195% 716% 388% 84%
Non-accrual Loans
Allowance for Possible Loan Loss as a % of 132% 140% 221% 132% 84%
Non-accrual and Impaired Loans
Leverage Ratio 6.61% 6.84% 6.81% 7.02% 7.78%
</TABLE>
(1) All per share data has been restated to reflect the five percent stock
dividends paid in the first quarter of fiscal year 1998 and the second
quarter of fiscal year 1999.
(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.
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Financial Overview
During 1999, the Company 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 Company to increase
the percentage of loans to assets and loans to deposits at December 31, 1999 to
68.1% and 75.4%, respectively, from 65.3% and 71.0% respectively at December 31,
1998. The security portfolio in turn, declined to 26.5% of total assets at
December 31, 1999 versus 28.1% of total assets at December 31, 1998. These
changes in the composition of the Company's balance sheet contributed to the
positive financial results that the Company recorded in 1999. In 1999, the
Company reported net income of $2,372,000 as compared to $1,831,000 in 1998 and
$1,424,000 in 1997. This represents annual increases in net income of 29.5% and
28.6% for 1999 and 1998, respectively. Net interest income before the loan loss
provision increased by $2,130,000 or 28.9% to $9,497,000 at December 31, 1999.
The provision for possible loan losses was $871,000 in 1999 as compared to
$665,000 in 1998 and $632,000 in 1997. These provisions contributed to the
increase in the year-end balance of the allowance fol loan losses (ALL) for each
period. The perceived need to increase the ALL is primarily attributable to
increases in total loans and also from an increase in non-performing assets
during the year. The Company's ratio of the allowance for loan losses to total
loans at December 31, 1999 and 1998 was 1.60% and 1.52% in 1997.
Total assets as of December 31, 1999 were $219,528,000, as compared to
$179,535,000 at year-end 1998 and $147,088,000 at year-end 1997, for increases
of 22.3% and 22.1%, respectively. Total loans as of December 31, 1999 were
$149,451,000, as compared to $117,323,000 in 1998 and $90,441,000 in 1997, for
increases of 27.4% and 29.7%, respectively. Total deposits as of December 31,
1999 were $198,100,000 as compared to $165,259,000 in 1998 and $134,917,000 in
1997, for increases of 19.9% and 22.5%, respectively. The increases in total
assets, loans and deposits were attributable to the continued growth of the main
office in Independence and the existing branches at Netcong, Roxbury, Oxford,
Jefferson and, Byram as well as having the Rockaway branch, which opened in
December of 1998, open for the entire year. Although the percentage of
non-accrual loans to total loans increased to 1.0% at December 31, 1999, versus
0.8% in 1998, asset quality remained strong.
Results of Operations
The Company'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,
primarily 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 1999 both 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 in balances
outstanding in the
13
<PAGE> 14
loan portfolio, which is the primary source of interest income to the Company.
Net income is also affected by the amount of non-interest income and other
expenses.
In 1999, the Company's net interest income was $9,497,000, as compared to
$7,367,000 in 1998, an increase of 28.9%. Interest income increased $2,815,000
or 22.5% in 1999, primarily due to the increase in the volume of the Company'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 Company to
generate new loans. The investment portfolio is used primarily to enhance the
Company's yield on funds that are in excess of the Company's loan demand and to
provide liquidity for future loan growth or decreases in deposits. Interest
expense increased by $685,000 or 13.2% in 1999 versus an increase in interest
expense of $845,000, or 19.5%, in 1998. The Company's increase in net interest
income during 1999 was partially offset by an increase of $1,154,000, or 24.4%,
in other expenses resulting primarily from the expansion of the branch network,
an increase of $206,000, or 31.0%, in the provision for loan losses and
augmented by an increase in other income of $153,000 or 17.2%.
In 1998, the Company'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 increases in the Company's loan
portfolio, and secondarily by increases in the investment portfolio. Interest
expense rose $845,000, or 19.5%, in 1998 when compared to 1997. The Company's
increase in net interest income during 1998 was partially offset by increases of
$889,000, or 23.2%, in other expenses, 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%.
14
<PAGE> 15
Net Interest Income Summary
The following table reflects the components of the Company's net interest
income for 1999, 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 Company'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 Company'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 Company's loan portfolio. All averages disclosed
herein are daily averages.
<TABLE>
<CAPTION>
1999 1998 Average
Interest Interest Rates
Average Rates
Average Income/ Earned/ Average Income/ Earned/
Balance Expense Paid Balance Expense Paid
--------- --------- --------- --------- --------- ---------
(in thousands, except percentages)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Taxable Loans (net of unearned
income) $ 131,419 $ 11,562 8.80% $ 102,399 $ 9,276 9.06%
Tax exempt loans 965 96 9.95% 982 98 9.98%
Taxable investment securities 54,588 3,488 6.39% 48,201 3,029 6.28%
Tax exempt securities 933 61 6.54% 0 0 0.00%
Interest-bearing deposits 801 32 4.00% 893 41 4.59%
Federal funds sold at banks 3,259 172 5.28% 2,375 130 5.47%
--------- --------- --------- --------- --------- ---------
Total interest earning assets 191,965 15,411 8.03% 154,850 12,574 8.12%
--------- --------- --------- --------- --------- ---------
Non-interest earning assets 14,452 11,170
Allowance for loan losses (2,092) (1,558)
Total Assets $ 204,325 $ 164,462
========= =========
LIABILITIES AND SHAREHOLDERS EQUITY
Interest -bearing liabilities
NOW deposits $ 23,836 $ 330 1.38% $ 19,336 $ 344 1.78%
Savings deposits 55,266 1,814 3.28% 44,695 1,643 3.68%
Time deposits 69,726 3,568 5.12% 57,283 3,143 5.49%
Borrowings 2,725 143 5.25% 767 40 5.22%
--------- --------- --------- --------- --------- ---------
Total interest-bearing liabilities 151,553 5,855 3.86% 122,081 5,170 4.23%
--------- --------- --------- --------- --------- ---------
Non-interest-bearing liabilities:
Demand Deposits 37,016 29,116
Other Liabilities 1,169 750
--------- ---------
Total non-interest-bearing
liabilities 38,185 29,866
Shareholders' Equity: 14,587 12,515
--------- ---------
Total liabilities and shareholders'
equity $ 204,325 $ 164,462
========= =========
Tax equivalent adjustment (59) (37)
--------- --------
Net interest differential $ 9,497 4.17% $ 7,367 3.89%
========= ========= ======== =========
Net yield on interest-earning
assets (tax equivalent basis) 4.98% 4.78%
========= =========
</TABLE>
15
<PAGE> 16
<TABLE>
<CAPTION>
1997
Average
Interest Rates
Average Income/ Earned/
Balance Expense Paid
- --------------------------------------------------------------------------------
ASSETS (in thousands, except percentages)
<S> <C> <C> <C>
Interest-earning assets:
Taxable Loans (net of unearned income) $ 78,595 $ 7,309 9.30%
Tax exempt loans 930 72 7.74%
Taxable investment securities 41,279 2,802 6.79%
Tax exempt securities 0 0 0.00%
Interest-bearing deposits at banks 583 36 6.17%
Federal funds sold 2,923 164 5.61%
--------- --------- ----
Total interest earning assets 124,310 10,383 8.35%
--------- --------- ----
Non-interest earning assets 9,746
Allowance for loan losses (1,170)
Total Assets $ 132,886
=========
LIABILITIES AND SHAREHOLDERS EQUITY
Interest-bearing liabilities
NOW deposits $ 13,815 $ 285 2.06%
Savings deposits 30,874 1,037 3.36%
Time deposits 51,538 2,862 5.55%
Borrowings 2,422 141 5.82%
--------- --------- ----
Total interest-bearing liabilities 98,649 4,325 4.38%
--------- --------- ----
Non-interest-bearing liabilities:
Demand Deposits 22,876
Other Liabilities 645
---------
Total non-interest-bearing liabilities 23,521
---------
Shareholders' Equity: 10,716
---------
Total liabilities and shareholders' equity $ 132,886
=========
Tax equivalent adjustment (20)
---------
Net interest differential $ 6,038 3.97%
========= ====
Net yield on interest-earning assets
(tax equivalent basis) 4.87%
====
</TABLE>
16
<PAGE> 17
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>
1999 versus 1998 1998 versus 1997
- ----------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) Total Total
DUE TO CHANGE IN: 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) $ 2,553 ($ 267) $ 2,286 $ 2,156 ($ 189) $ 1,967
Tax exempt loans (2) (0) (2) 5 21 26
Taxable investment securities 408 51 459 435 (208) 227
Tax Exempt securities 61 0 61 0 0 0
Interest-bearing deposits at banks (4) (5) (9) 14 (9) 5
Federal funds sold 47 (5) 42 (30) (4) (34)
------- ------- ------- ------- ------- -------
Total interest-income 3,063 (226) 2,837 2,580 (389) 2,191
------- ------- ------- ------- ------- -------
Interest Expense
NOW deposits 62 (76) (14) 98 (39) 59
Savings deposits 347 (176) 171 508 98 606
Time deposits 637 (212) 425 315 (34) 281
Total borrowings 103 0 103 (86) (15) (101)
------- ------- ------- ------- ------- -------
Total interest expense 1,149 (464) 685 835 10 845
------- ------- ------- ------- ------- -------
Net interest income $ 1,914 $ 238 $ 2,152 $ 1,745 ($ 399) $ 1,346
======= ======= ======= ======= ======= =======
</TABLE>
During 1999, net interest income of the Company increased. On a tax
equivalent basis it increased by $2,152,000, or 29.1%. The increase in the
average volume of interest earning assets and, in particular, the growth of the
loan portfolio was a significant factor in this increase. Despite the modest
interest rate increases in the latter part of 1999, the yield on
interest-earning assets declined during the year due to an overall lower
interest rate environment for the entire year and also due to the competitive
pressures experienced with loan pricing. However, the decline in the yield of
earning assets of 9 basis points was compensated for by the decline in the
average cost of interest-bearing liabilities of 37 basis points. Together these
two factors resulted in an increase in the Net Yield (tax equivalent basis) on
Interest-Earning Assets of 20 basis points to 4.98% for 1999.
Interest income from tax exempt loans in the foregoing tables is
calculated on a tax equivalent basis using the Company's 37% marginal tax rate.
Interest-Earning Assets
Total average interest-earning assets in 1999 increased $37,115,000, or
24.0%, to $191,965,000 as compared to $154,850,000 in 1998. In 1998, total
average interest earning assets had increased $30,540,000, or 24.6%, versus
$124,310,000 in 1997. Growth in earning assets was primarily attributable to
increases in average loan balances, which grew $29,003,000, or 28.1% in 1999
versus 1998, and $23,856,000 or 30.0% in 1998 versus 1997. 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 $7,320,000 or
15.2% over 1998 versus growth of $6,922,000, or 16.8 %, in average volume in
1998 over 1997. In 1999 the ratio of average earning assets to average total
assets was 94.0% versus 94.2% and 93.5% in 1998 and 1997 respectively.
17
<PAGE> 18
The growth of the loan portfolio during 1999 contributed significantly to
the increase in interest income. Income derived from increases in average
taxable loan volume as displayed in the table above was $2,553,000. Income
derived from the increase in the combined average volume of taxable and
tax-exempt securities was $469,000. This was partially offset by declines in the
yields associated with loans, which resulted in a net decline in interest income
of $267,000. The net effect of these changes was an increase of $2,837,000 in
the Company's interest income, which had a positive impact on the income
statement.
Interest-Bearing Liabilities
Total average interest-bearing liabilities increased to $151,553,000 in
1999, a 24.1% increase over the $122,081,000 average balance in 1998. In 1998,
average interest-bearing liabilities increased 23.8% over the average balance of
$98,649,000 in 1997. Interest expense during these same periods was $5,855,000
in 1999, $5,170,000 in 1998 and $4,325,000 in 1997. Increases in interest
expense, when comparing 1999 to 1998 and 1998 to 1997, were primarily
attributable to increases in the average interest bearing balances maintained on
deposit. However, in 1999, the decline in the average cost of deposits, as noted
in the Net Interest Income Summary, had a greater impact on the decline in
interest expense than was the case in 1998.
In 1999, the Company's average cost of interest-bearing liabilities was
3.86 %, as compared to 4.23% in 1998 and 4.38% in 1997. The decline in the
Company's average cost of interest-bearing liabilities in 1999 was attributable
to closely monitoring the interest rates paid on deposits both by the Company
and the competition in the Company's market area and interest rate changes in
the market. In 1999 the Company acted promptly to change interest rates as the
local and national market changed and as the Company's earning assets also
re-priced. The table displaying the effects of the changes in changes in total
interest expense based on the volume of deposits versus changes in interest
rates indicates that decreases in the average cost (rates paid) associated with
deposits resulted in a decline of $464,000 in interest expense.
During 1999, the average cost of interest bearing liabilities declined in
all categories, with the exception of borrowings, which increased by 3 basis
points. The average cost of time deposits, the largest single component of
interest bearing liabilities, declined to 5.12% from 5.49% in 1998. In 1999 time
deposits were the most expensive category of deposits and are second to
borrowings as the most expense category of interest bearing liabilities. The
volume of time deposits, as a percentage of average interest-bearing deposits
and average interest-bearing liabilities declined to 46.9% and 46.0% in 1999
from 47.2% and 46.9% in 1998. These factors made a significant contribution to
net interest income in 1999.
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 $1,042,000
in 1999, as compared to $889,000 in 1998. This represented a gain of $153,000,
or 17.2%. In 1998, other income grew $216,000 over the total of $673,000 in
1997, an increase of 32.1%. This illustrates the increased earnings generated
from both services and fees related to deposit accounts and other fee income
activities resulting from the overall expansion
18
<PAGE> 19
of the Company's customer base. It is believed that other income will continue
to grow as the Company expands into new market areas and current markets
continue to grow.
Other Expenses
Due to significant increases in the Company's asset size, customer base
and the increase in the number of branches, other expenses increased in 1999. In
1999, the Byram Branch was open for the full year, as was the Rockaway Branch.
The increase in Total Other Expenses in 1999 was $1,154,000 or 24.4% versus an
increase of $889,000 or 23.2% in 1998. 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 $2,771,000 in 1999 increased by $488,000 or
21.4% versus total expense in 1998 of $2,283,000 for an increase of $497,000 or
27.8% over 1997. Full time equivalent employees increased from 60.5 at December
31, 1998 to 66.0 at December 31, 1999, primarily due to the additional support
staff required to continue to provide superior customer service. Occupancy
expense increased by $124,000 to $591,000 in 1999. Management believes that
future increases in occupancy expense are inevitable, particularly with the
continued expansion of the branch network.
Data processing fees were $297,000 in 1999, while the cost of FDIC
insurance increased to $19,000 as a result of growth in the deposit base.
Examination, audit and legal fees increased by $35,000 while the cost associated
with operating ATM's increased by $30,000. During 1999, the Company incurred
$2,000 in expenses associated with the maintenance and disposition of Other Real
Estate Owned. This compares to expenses of $32,000 incurred in 1998 for a
decrease of $30,000 or 93.8% in this category.
Deposits
Deposits are the Company's primary source of funds. The Company offers a
variety of deposit accounts, and seeks to obtain its deposits primarily from the
communities it serves. In 1999, the Company experienced growth in average
deposit balances of $35,414,000, or 23.5%, when compared to 1998. In 1998, the
Company experienced growth in average deposits of $31,327,000, or 26.3%, when
compared to 1997. The growth in average deposits experienced in 1999 was
accomplished through deposits received at the Rockaway branch, in addition to
increases in deposits at the Company's existing offices. The deposit increases
are primarily the result of the Company's ongoing emphasis on customer service,
extended hours of operation, competitive rate structures and selective
marketing. The Company offered an introductory interest rate on savings accounts
at its Rockaway branch that contributed to the growth of the branch and savings
accounts in general.
The components of the increase in average deposits when comparing 1999 to
1998, include average NOW deposits which grew $4,500,000, or 23.3%, average
savings deposits which grew $10,571,000, or 23.7%, average time deposits which
grew $12,443,000, or 21.7%. Average demand deposits, which are non-interest
bearing, grew $7,900,000, or 27.1%. During the period of 1998 to 1997, average
NOW deposits grew 40.0% or $5,521,000, average savings deposits grew 44.8%, or
$13,821,000, average time deposits grew 11.1%, or $5,745,000, and average demand
deposits grew 27.3%, or $6,240,000. 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 80.5% of average total
deposits.
19
<PAGE> 20
Average municipal deposits in 1999, 1998 and 1997 were $18,260,000, $16,571,000
and $12,431,000, respectively. As of December 31, 1999, the Company had no
foreign deposits.
The average amounts of deposits and average rates paid on deposits for
1999 and 1998, respectively, are summarized below:
<TABLE>
<CAPTION>
1999 1998
----------------------------------------------------------
Average Average Average Average
Balance Rate Balance Rate
----------------------------------------------------------
(in thousands, except percentages)
<S> <C> <C> <C>
Demand deposits $ 37,016 -- $ 29,116 --
NOW deposits 23,836 1.38% 19,336 1.78%
Savings deposits 55,266 3.28% 44,695 3.68%
Time deposits 69,726 5.12% 57,283 5.49%
-------- --------
Total $185,844 $150,430
======== ========
</TABLE>
The Company 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, 1999:
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
Time deposits ($100,000 and over)
Three months or less $ 7,644
Over three months through twelve months 6,093
Over twelve months 1,364
-------
Total $15,101
=======
</TABLE>
Short Term Borrowings
At December 31, 1999, the Company had borrowed funds in the amount of
$4,500,000. These consisted of $1,500,000 in overnight federal funds purchased
and $3,000,000 in other term borrowings, which matured on February 12, 2000.
Short-term borrowings are used, when required, to meet daily liquidity needs for
a specific period of time.
Loan Portfolio
The Company's loan portfolio at December 31, 1999 totaled $149,451,000, as
compared to $117,323,000 and $90,441,000 at December 31, 1998 and 1997,
respectively. Total loans at December 31,1999 represented an increase of
$32,128,000, or 27.4%, when compared to year-end 1998. Total loans at year-end
1998 represented an increase of $26,882,000, or 29.7%, when compared to year-end
1997.
The Company'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
20
<PAGE> 21
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 Company's loans are primarily to businesses and individuals located in
northwest New Jersey. The Company has not made any loans to borrowers outside
the United States. Commercial lending activities are focused primarily on
lending to small and medium-sized corporate borrowers engaged in various
businesses. The Company 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 Company to gain market
entry to local loans. Company mergers and lending curtailments at the larger
banks have also contributed to the Company's efforts to attract borrowers.
The following table sets forth the classification of the Company's loans
by major category as of December 31, 1999 and 1998, respectively:
Loan Classifications
<TABLE>
<CAPTION>
1999 1998
-------- --------
(in thousands)
<S> <C> <C>
Commercial and industrial $ 63,713 $ 47,708
Real Estate -
Construction mortgages 6,338 4,746
Nonresidential properties 17,691 18,114
Residential properties 55,655 40,117
Installment loans to individuals 6,054 6,638
-------- --------
Total Loans $149,451 $117,323
======== ========
</TABLE>
The following table sets forth fixed and adjustable rate loans as of
December 31, 1999 in terms of interest rate sensitivity:
<TABLE>
<CAPTION>
Fixed & Adjustable Loans Within 1 to 5 After
1 Year Years 5 Years Total
-----------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
Loans with fixed rate $ 17,520 $ 49,722 $ 35,036 $102,278
Loans with adjustable rate 38,797 21 8,355 47,173
-------- -------- -------- --------
Total Loans $ 56,317 $ 49,743 $ 43,391 $149,451
-------- -------- -------- --------
</TABLE>
Asset Quality
The Company'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-accrual 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
21
<PAGE> 22
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 Company's holdings in other real
estate owned ("OREO"). At December 31, 1999 the Company had no OREO. The Company
had one OREO property at December 31, 1998 totaling $105,000, and two OREO
properties at December 31, 1997, totaling $266,000. Amounts are transferred to
OREO 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 loan 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
Company'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 1999, the Company incurred expenses related to OREO
properties of $2,000.
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, 1999 and 1998,
impaired loans consisted of non-accrual loans and one loan totaling $332,000 in
1999 and $383,000 in 1998 that was previously on a non-performing status and
which had been renegotiated by the Company in the fourth quarter of 1996. At
December 31, 1999 and 1998 the loan was performing in accordance with the agreed
upon terms. The loan has been returned to a performing status.
The Company attempts to minimize overall credit risk through loan
diversification and its loan approval procedures. The Company's due diligence
begins at the time a borrower and the Company 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 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 Losses" below.
22
<PAGE> 23
The following table sets forth the total of non-performing assets as of
December 31, 1999 and 1998, respectively:
<TABLE>
<CAPTION>
December 31,
NON-PERFORMING ASSETS 1999 1998
--------------------
(in thousands)
<S> <C> <C>
Non-accrual loans $1,485 $ 959
Impaired loans - performing in
accordance with renegotiated terms 332 383
------ ------
Total non-accrual and impaired loans 1,817 1,342
Other real estate owned 0 105
------ ------
Total non-performing and
impaired assets $1,817 $1,447
====== ======
Allowance for loan losses
as a percentage of non-accrual loans 161% 195%
Allowance for loan losses
as a percentage of non-accrual and
impaired loans 132% 140%
</TABLE>
The following sets forth the gross interest income that would have been
recorded during the 1999 fiscal year had non-accruing loans been current and the
amount of interest income actually recognized on these loans:
Contractual interest due $ 169,000
Interest recognized 11,000
Allowance for Loan Losses
The allowance for loan losses is established to provide for potential
losses in the Company's loan portfolio and off balance sheet risks, such as
unused lines of credit and letters of credit. As of December 31, 1999, the
Company had established $2,390,000 as an allowance for loan losses, as compared
to an allowance of $1,873,000 as of December 31, 1998 and an allowance of
$1,374,000 as of December 31, 1997. The increase in the allowance is primarily
due to an increase in the Company's total loan portfolio and for the reasons
enumerated below. The Company maintains an allowance for loan 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.
The loan portfolio is reviewed on a quarterly basis to determine the
adequacy of the ALL. The level of the ALL is based on the results of the
quarterly review. The methodology used to calculate the ALL utilizes percentages
that are assigned to performing credits based upon loan types. Specific reserve
allocations are also assigned to loans that are internally classified by
management and which are placed on the Company's internal watchlist. There are
also other factors that management considers when determining that a specific
reserve is warranted.
The reserve percentage utilized to determine the adequacy of the reserve
by loan category for the general reserve is listed below:
23
<PAGE> 24
The reserve percentage utilized to determine the adequacy of the reserve
by loan category for the general reserve is listed below:
<TABLE>
<CAPTION>
Reserve
Loan Category Percentage
------------- ----------
<S> <C>
Commercial Loans/Leases 1.50%
Commercial Mortgages 1.50%
Residential Mortgages .20%
Home Equity Loans .25%
Unsecured Loans (including Credit Cards) 5.00%
Auto Loans - Direct .50%
Auto Loans - Indirect 1.75%
</TABLE>
The reserve percentages are based upon various factors including but not
limited to the following:
1. Historical Loan Loss. The loan loss experience of the Company from its
inception in 1990 has been tracked to provide the historical sources of
risk in the portfolio.
2. Growth of the Loan Portfolio. The loan portfolio has experienced
significant growth. At December 31, 1999, gross loans totaled
$149,451,000. This represented a 27.4% increase or $32,128,000 during
1999. In 1998, the portfolio increased by 29.7% to $117,323,000 which
represented an increase of $26,882,000 when compared to year-end 1997.
There is inherent risk in the portfolio associated with this rapid growth
and the continuing expansion of the portfolio. This is evidenced by the
increase in non-accrual loans. At December 31, 1999, non-accrual and
impaired loans were $1,817,000 compared to $1,342,000 at December 31,
1998. This represents a 35.4% increase in non-accrual and impaired loans.
The increase in charged off loans is also indicative of the rapid growth
of the loan portfolio. During 1999 net charge offs were $354,000 versus
$166,000 reported in 1998. As a percentage of average loans, these amount
were .27% and .16% respectively. These items are attributed to the growth
of the loan portfolio.
3. The Aging of the Loan Portfolio. As discussed in number 2 above, the rapid
growth of the loan portfolio does not provide an adequate amount of time
for the portfolio to age. The credit classifications assigned to a
relatively new or young portfolio are more subject to downward revisions
until the financial stability and a successful record of operations has
been established by the borrowers. The lack of aging required to determine
credit quality and ongoing performance, therefore, requires that adequate
reserves be maintained.
4. Concentration with Geographic Areas. There is significant concentration in
Northwest New Jersey and particularly in various towns and townships
within Morris, Sussex and Warren Counties. As the result of this
geographic concentration, a downturn in the local economy in the Company's
market area could have an adverse impact on credit quality.
5. New Products. The Company has recently introduced two new products to the
commercial loan customers. These new products are Commercial Leasing and
Business Manager
24
<PAGE> 25
Accounts (accounts receivable financing). Due to the inherent nature of
risk associated with these products, additional reserve requirements are
warranted.
6. Other Factors. The specific reserve allocations are determined on a
loan-by-loan analysis of non-performing, impaired and other special
mentioned loans. This analysis is inclusive of repayment ability
(according to original terms) and collateral evaluation. If the book value
of a loan is in excess of the underlying collateral and it cannot be
covered by expected cash flow, the excess amount is specifically reserved
or charged-off. The level of specific reserves has increased with the
increase in non-performing and impaired loan.
Risks within the loan portfolio are analyzed on a continuous basis by the
Company's management. The results are reviewed quarterly with the Board of
Directors. A risk system, consisting of multiple grading categories, is utilized
as an analytical tool to assess risk and appropriate level of the ALL. Along
with the risk system, management further evaluates risk characteristics of the
loan portfolio as described above. The factors contributing to the risks in the
loan portfolio are the current and anticipated economic conditions of the
overall economy, the economy of the Company's market area, the financial
condition of the borrower and past and expected loss experience. All of these
facts are considered by management and are recognized 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. The allowance is reduced by net charge-offs (i.e., loans judged to be
uncollectable and charged against the reserve, less any recoveries on loans
previously charged off). Based on the results of the analysis performed by
management, the ALL level of $2,390,000 at December 31, 1999 was deemed
appropriate.
The following is a summary of the reconciliation of the allowance fol loan
losses for fiscal years 1999 and 1998, respectively:
<TABLE>
<CAPTION>
Year Ended December 31,
- --------------------------------------------------------------------------------
1999 1998
- --------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Balance at beginning of year $ 1,873 $ 1,374
Recoveries:
Commercial 27 15
Installment 4 4
Charge-offs:
Commercial (320) (164)
Installment (65) (21)
Provision charged to expense 871 665
------- -------
Balance of allowance at end of year $ 2,390 $ 1,873
======= =======
Ratio of net charge-offs to average
loans outstanding 0.27% 0.16%
</TABLE>
25
<PAGE> 26
The following table sets forth, for each of the Company's major lending
areas, the amount and percentage of the Company's allowance for loan losses
attributable to such category, and the percentage of total loans represented by
such category, as of December 31, 1999 and 1998:
<TABLE>
<CAPTION>
ALLOCATION OF ALL BY CATEGORY 12/31/99 12/31/98
- -------------------------------------------------------------------------------------------------
% of % of % of % of
Amount ALL Total Loans Amount ALL Total Loans
- -------------------------------------------------------------------------------------------------
(in thousands, except percentages)
<S> <C> <C> <C> <C> <C> <C>
Balance applicable to:
Commercial and industrial $1,045 43.72% 42.63% $ 754 40.26% 40.66%
Real estate -
Non-residential properties 783 32.76% 16.08% 540 28.83% 19.49%
Residential properties 106 4.44% 37.24% 64 3.42% 34.19%
Consumer 108 4.52% 4.05% 67 3.58% 5.66%
------ ------ ------ ------ ------ ------
Subtotal 2,042 85.44% 100.00% 1,425 76.09% 100.00%
------ ------ ------ ------ ------ ------
Impaired loan valuation
Allowance in accordance
with SFAS 114 290 12.13% 0.00% 166 8.85% 0.00%
------ ------ ------ ------ ------ ------
Unallocated reserves 58 2.43% 0.00% 282 15.06% 0.00%
------ ------ ------ ------ ------ ------
Total $2,390 100.00% 100.00% $1,873 100.00% 100.00%
====== ====== ====== ====== ====== ======
</TABLE>
Securities
The Company 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 Company does not engage in trading activities.
The following table sets forth the carrying value of the Company'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, 1999 31, 1998
-------------------------
(in thousands)
<S> <C> <C>
US Treasury securities $ 4,567 $ 3,025
Mortgage backed securities 48,314 46,193
US Agency securities 500 500
Tax exempt securities 3,709 0
Other securities (1) 1,094 664
------- -------
Total $58,184 $50,382
======= =======
</TABLE>
(1) Represents equity investments.
In accordance with SFAS 115, securities available for sale at December 31,
1999 have been recorded at their fair value with the gross unrealized loss of
$99,000 ($60,000 net income tax effect) reflected as a decrease to shareholders'
equity.
The following table sets forth as of December 31, 1999 the maturity
distribution and weighted average yields of the Company's securities portfolio
(calculated on the basis of the stated yields to maturity
26
<PAGE> 27
and book value which considers 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.
Maturities and Weighted Average Yields of Securities Portfolio
<TABLE>
<CAPTION>
Stated Maturities
Within 1 - 5 5 - 15 Over 15
1 Year Years Years Years Total
- ----------------------------------------------------------------------------------------------------
(in thousands, except percentages)
<S> <C> <C> <C> <C> <C>
US Treasury Securities:
Amortized cost $ 1,500 $ 3,092 $ 0 $ 0 $ 4,592
Yield 5.52% 5.58% 0% 0% 5.56%
US Government Mortgage-backed Securities:
Amortized cost 67 0 33,657 14,722 48,446
Yield 6.09% 0% 6.72% 6.53% 6.66%
US Government Agency Securities:
Amortized cost 0 500 0 0 500
Yield 0% 6.01% 0% 0% 6.01%
Tax Exempt Securities:
Amortized cost 2,947 0 762 0 3,709
Yield 6.22% 0.00% 7.84% 0.00% 6.55%
Other Securities:
Amortized cost 0 0 0 1,094 1,094
Yield 0% 0% 0% 5.12% 5.12%
</TABLE>
Liquidity
The Company'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 Company's principal sources of funds are deposits,
scheduled amortization and prepayments of loan principal, sales, maturities and
pay-downs of investment securities and funds provided by operations. The Bank is
a member of the Federal Home Loan Bank (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 and prepayments on mortgage backed securities
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 Company's investment portfolio, the Company has generally
sought to obtain a safe yet slightly higher yield than would have been available
to the Company as a net seller of overnight Federal Funds. Through the
investment portfolio, the Company attempts to manage, in part through principal
pay-downs of mortgage backed securities and through the sale of available for
sale securities when necessary, the Company's liquidity needs to meet
anticipated loan demand and maturities of deposits.
Interest Rate Risk
The Company's Investment and Liquidity and Funds Management Committee (the
"Committee') manages the Company's interest rate sensitivity, the re-pricing
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
27
<PAGE> 28
of risk. The management of interest rate risk is accomplished by analyzing the
maturity and re-pricing 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 to facilitate the management of the re-pricing intervals, which exist
between assets and liabilities. An imbalance in re-pricing 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 Company pays particular
attention to the cumulative gap at the one-year time frame. An asset sensitive
gap indicates that assets re-price faster than liabilities and a liability
sensitive gap indicates that liabilities re-price faster than assets. The
one-year cumulative gap of -17.33% falls within guidelines established by the
Committee.
Rate Sensitive
Balance Sheet December
31, 1999
(Thousands of dollars, except percentage)
<TABLE>
<CAPTION>
Less than 3 to 12 1 to 3 3 to 5 Over 5 All
Re-pricing Frequency 3 Months Months Years Years Years Others Total
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Earning Assets:
Deposits with banks $ 566 $ 0 $ 0 $ 0 $ 0 $ 0 $ 566
Total investments 4,925 12,060 26,708 12,673 1,818 0 58,184
Loans 45,008 11,298 26,134 23,084 43,927 0 149,451
Non-interest-bearing assets 0 0 0 0 0 11,327 11,327
-------- -------- -------- -------- -------- -------- --------
Total Assets $ 50,499 $ 23,358 $ 52,842 $ 35,757 $ 45,745 $ 11,327 $219,528
======== ======== ======== ======== ======== ======== ========
Source of Funds:
Interest-bearing deposits $ 49,655 $ 57,738 $ 42,230 $ 7,111 $ 40 $ 0 $156,774
Non interest-bearing deposits 0 0 0 0 0 41,326 41,326
Borrowings 4,500 0 0 0 0 0 4,500
Other Liabilities 0 0 0 0 0 1,096 1,096
Shareholders' Equity 0 0 0 0 0 15,832 15,832
-------- -------- -------- -------- -------- -------- --------
Total Source of Funds $ 54,155 $ 57,738 $ 42,230 $ 7,111 $ 40 $ 58,254 $219,528
======== ======== ======== ======== ======== ======== ========
Gap (3,656) (34,380) 10,612 28,646 45,705 (46,927)
Cumulative Gap (3,656) (38,036) (27,424) 1,222 46,927 0
Cumulative Gap to Assets -1.67% -17.33% -12.49% 0.56% 21.38% 0.00%
</TABLE>
This analysis is based on assumptions as to the re-pricing opportunities
of the assets and liabilities. The average monthly payments on mortgage backed
securities for the year have been calculated and applied across the maturity
time frames. Municipal deposits in NOW, money market and savings accounts
re-price in the less than three-month time frame. All other NOW and Money Market
accounts which have no contractual maturity have been scheduled to re-price over
twenty four months. Savings deposits which also have no contractual maturity
have been scheduled to re-price over forty eight months. It is believed that
these groupings reflect the re-pricing sensitivity of these deposits.
28
<PAGE> 29
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 re-pricing behavior based on the
actions taken by the Company's customers (borrowers and depositors) and also the
borrowers who comprise the pools of mortgage backed securities. The gap analysis
provided from the rate sensitive balance sheet is a static measure of future
re-pricing 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 re-pricing characteristics of assets and liabilities may vary
substantially within a given period of time and do not recognize the fact that
the re-pricing 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 Company 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 Company'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
re-pricing opportunities of assets and liabilities, which include maturities and
payments for fixed rate instruments, and re-pricing 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
change, parallel to the driver rate, which is national prime. The results are
measured at the one-year time frame. Income amounts are 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 31, 2000
(thousands of dollars, except percentages)
<TABLE>
<CAPTION>
Interest Rate Net Interest
Change Income $ Change % Change
------ ------ -------- --------
<S> <C> <C> <C>
+3 % $11,079 ($480) -4.15%
+2% 11,242 (317) -2.75%
+1% 11,401 (158) -1.37%
Flat 11,559 0 0.00%
-1% 11,659 100 .87%
-2 % 11,652 93 .80%
-3% 11,475 (84) -.73%
</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 minus 4.15% and a minus .73%
change in net interest income respectively. The results of this analysis
indicate that the Company's net interest income and net income, while affected
negatively by changes in interest rates would continue to be positive. The
Company 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
29
<PAGE> 30
management of interest rate changes by the Company 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 Company's regulators (primarily the FDIC and the Federal
Reserve Board) have classified and defined 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 loan losses, certain qualifying
long-term debt and preferred stock which does not qualify for Tier I capital.
These two classes of capital serve as the basis for two measures of capital
adequacy: risk-based capital adequacy and leverage ratios.
Risk based capital guidelines require banks and bank holding companies to
maintain certain minimum capital as a percent of risk adjusted assets, which is
total assets plus certain off balance sheet items that are adjusted for
pre-defined credit risk factors. Specifically, bank holding companies and banks
must maintain, at a minimum, Tier I capital as a percent of risk adjusted assets
of 4.0%, and combined Tier I and Tier II capital as a percent of risk adjusted
assets of 8.0%. As of December 31, 1999, the Company's Tier I capital ratio was
10.56% and its combined Tier I and Tier II capital ratio was 11.81%. As of
December 31, 1998, the Bank's Tier I capital ratio was 10.61% and its combined
Tier I and Tier II capital ratio was 11.87%.
The leverage ratio is Tier I capital as a percent of tangible assets.
Leverage ratio requirements vary with the condition of the financial
institution. Regulators for the Company and the Bank require bank holding
companies and banks that meet the regulator's highest performance and
operational standards to maintain a minimum leverage ratio of 3.0%. Bank holding
companies and banks with higher levels of risk, and those that are experiencing
or anticipating significant growth must maintain higher minimum leverage ratios
that regulators prescribe and adjust during the ongoing regulatory process. The
Federal Reserve Board, which is Skylands Financial Corporation's regulator and
the FDIC, which is Skylands Community Bank's regulator, have not prescribed
minimum leverage ratio requirements for the Company or the Bank. As of December
31, 1999 the Company has a leverage ratio of 6.61% and the Bank has a leverage
ratio of 6.53%.
At December 31, 1999, the Company's shareholders' equity was $15,832,000,
an increase of $2,213,000 over shareholders' equity of $13,619,000 at December
31, 1998. The increase was attributable to net income of $2,372,000, a decrease
in unrealized gains on securities available for sale, net of tax effect, of
$229,000, an addition of $248,000 from the exercise of stock options,
investments received through the Dividend Reinvestment Plan of $77,000 and a
decrease of $255,000 resulting from the payment of cash dividends.
Market Information
On December 7, 1994, the Company's Common Stock was listed for trading on
the National Association of Securities Dealers Automated Quotation System
("NASDAQ") SmallCap Market under the symbol "SKCB".
30
<PAGE> 31
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
--------------------------------------------------------
<S> <C> <C>
1999
First Quarter $12.75 $10.50
Second Quarter 13.63 11.63
Third Quarter 12.25 9.75
Fourth Quarter 12.63 9.63
1998
First Quarter $14.29 $12.38
Second Quarter 16.08 12.68
Third Quarter 16.90 11.55
Fourth Quarter 12.98 10.71
</TABLE>
Holders
As of December 31, 1999, the Company had approximately 695 shareholders of
record.
Dividends
During 1999 the Company paid two cash dividends of $.02 per share each and
two dividends of $.03 per share each. They were paid on April 16, June 30,
September 30 and December 31, 1999. The future dividend policy of the Company 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. A 5% stock dividend was also paid in 1999. All
prior year share and per share data has been restated to reflect the dividend.
The New Jersey Department of Banking and Insurance places certain
restrictions regarding the ability of the Bank to transfer funds to Skylands
Financial Corporation (SFC) in the form of cash dividends, loans or advances. In
this regard, 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 (the sum of additional paid in capital and
retained earnings) of not less than fifty percent of its capital stock. SFC will
also be guided in its cash dividend policy by the requirements of the Federal
Reserve Bank.
Proposed Merger
On February 23, 2000, SFC entered into a definitive Agreement and Plan of
Merger (the "Agreement") with Fulton Financial Corporation ("FFC"), under the
terms of which SFC will be merged with and into FFC ("Merger"), and all of the
outstanding shares of the common stock of SFC will be converted into shares of
the common stock of FFC.
31
<PAGE> 32
Under the terms of the Agreement, shares of SFC Common Stock will be
exchanged for shares of FFC Common Stock on the effective date of the Merger,
based on a conversion ratio of 0.78 shares of FFC Common Stock for each share of
SFC Common Stock Each holder of an option to acquire SFC Common Stock which is
outstanding on the effective date of the acquisition is to receive an option to
acquire shares of FFC Common Stock, with the number of shares subject to such
option and the exercise price adjusted to take the conversion ratio into
consideration. By separate Warrant Agreement and Warrant, FFC has the right to
acquire 625,000 shares of SFC Common Stock under certain conditions.
Consummation of the Agreement is subject to various conditions, including,
among others, (i) the approval of the Merger by the Federal Reserve Board and
the New Jersey Department of Banking and Insurance; (ii) the approval of the
Merger by the shareholders of SFC; and (iii) the absence of any material adverse
change in the financial condition or operating results of SFC. SFC and FFC have
the right to terminate the Agreement based on a decline or an increase,
respectively, in the market value of FFC Common Stock as stipulated in the terms
in the Agreement. It is anticipated that the effective date of the Merger will
occur during the third quarter of 2000.
Item 8 - Financial Statements and Supplementary Data
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of Skylands Financial Corporation:
We have audited the accompanying consolidated balance sheets of Skylands
Financial Corporation (a New Jersey State Chartered Company) and its subsidiary
as of December 31, 1999 and 1998, and the related consolidated statements of
income, changes in shareholders' equity and cash flows for each of the three
years in the period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Skylands Financial Corporation
and subsidiary as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with generally accepted accounting principles
in the United States.
/s/ ARTHUR ANDERSEN LLP
Roseland, New Jersey
January 12, 2000 (except with respect
to the matter discussed in Note 20, as
to which the date is February 23, 2000)
32
<PAGE> 33
SKYLANDS FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
ASSETS 1999 1998
------------- -------------
<S> <C> <C>
CASH AND DUE FROM BANKS (Notes 2 and 14):
Noninterest bearing $ 7,040,000 $ 4,367,000
Interest bearing 566,000 592,000
FEDERAL FUNDS SOLD -- 2,500,000
------------- -------------
Total cash and cash equivalents 7,606,000 7,459,000
------------- -------------
SECURITIES (Notes 2 and 4):
Available for sale, at market value 14,090,000 18,816,000
Held to maturity, at amortized cost (market value
of $42,891,000 in 1999 and $31,771,000 in 1998) 44,094,000 31,566,000
------------- -------------
Total securities 58,184,000 50,382,000
------------- -------------
LOANS (Notes 2, 5 and 6): 149,451,000 117,323,000
Less-
Unearned income (199,000) (182,000)
Allowance fol loan losses (2,390,000) (1,873,000)
------------- -------------
Net loans 146,862,000 115,268,000
------------- -------------
PREMISES AND EQUIPMENT, net (Notes 2 and 7) 3,103,000 2,865,000
------------- -------------
ACCRUED INTEREST RECEIVABLE 1,083,000 906,000
------------- -------------
OTHER REAL ESTATE (Note 2) -- 105,000
------------- -------------
OTHER ASSETS (Notes 2 and 9) 2,690,000 2,550,000
------------- -------------
Total assets $ 219,528,000 $ 179,535,000
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY 1999 1998
------------- -------------
LIABILITIES:
Deposits (Note 8)
Demand-
Noninterest bearing $ 41,326,000 $ 30,234,000
Interest bearing 26,412,000 22,357,000
Savings 54,161,000 53,636,000
Time 76,201,000 59,032,000
------------- -------------
Total deposits 198,100,000 165,259,000
FEDERAL FUNDS PURCHASED 1,500,000 --
OTHER BORROWINGS 3,000,000 --
INCOME TAXES PAYABLE (Note 9) 72,000 130,000
ACCRUED EXPENSES AND OTHER LIABILITIES 1,024,000 527,000
------------- -------------
Total liabilities 203,696,000 165,916,000
------------- -------------
COMMITMENTS AND CONTINGENCIES (Notes 14)
SHAREHOLDERS' EQUITY (Notes 2, 3, 10 and 11):
COMMON STOCK, par value $2.50 per share; 10,000,000 shares
authorized; 2,530,994 and 2,490,004 shares issued
and outstanding in 1999 and 1998, respectively 6,328,000 5,929,000
ADDITIONAL PAID-IN CAPITAL 6,424,000 4,998,000
RETAINED EARNINGS 3,179,000 2,562,000
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) (99,000) 130,000
------------- -------------
Total shareholders' equity 15,832,000 13,619,000
------------- -------------
Total liabilities and shareholders' equity $ 219,528,000 $ 179,535,000
============= =============
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
33
<PAGE> 34
SKYLANDS FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
INTEREST INCOME (Note 2):
Interest and fees on loans $ 11,622,000 $ 9,337,000 $ 7,361,000
Interest on securities 3,558,000 3,070,000 2,838,000
Interest on Federal funds sold 172,000 130,000 164,000
------------ ------------ ------------
Total interest income 15,352,000 12,537,000 10,363,000
INTEREST EXPENSE 5,855,000 5,170,000 4,325,000
------------ ------------ ------------
Net interest income 9,497,000 7,367,000 6,038,000
PROVISION FOR POSSIBLE LOAN LOSSES
(Notes 2 and 6) 871,000 665,000 632,000
------------ ------------ ------------
Net interest income after provision
for possible loan losses 8,626,000 6,702,000 5,406,000
------------ ------------ ------------
OTHER INCOME:
Service charges and other fees 769,000 647,000 554,000
Gain (loss) on sale of securities 47,000 62,000 (10,000)
Other 226,000 180,000 129,000
------------ ------------ ------------
Total other income 1,042,000 889,000 673,000
------------ ------------ ------------
OTHER EXPENSES:
Salaries and employee benefits (Note 13) 2,771,000 2,283,000 1,786,000
Occupancy expense 591,000 467,000 348,000
Equipment expense 209,000 149,000 107,000
Other operating expenses (Note 15) 2,310,000 1,828,000 1,597,000
------------ ------------ ------------
Total other expenses 5,881,000 4,727,000 3,838,000
------------ ------------ ------------
Income before provision for income taxes 3,787,000 2,864,000 2,241,000
PROVISION FOR INCOME TAXES (Note 9) 1,415,000 1,033,000 817,000
------------ ------------ ------------
Net income $ 2,372,000 $ 1,831,000 $ 1,424,000
============ ============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING (Notes 2, 3, 10 and 11):
Basic 2,509,645 2,473,631 2,462,305
Diluted 2,579,186 2,598,716 2,513,339
============ ============ ============
BASIC EARNINGS PER SHARE $ .95 $ .74 $ .58
============ ============ ============
DILUTED EARNINGS PER SHARE $ .92 $ .71 $ .57
============ ============ ============
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
34
<PAGE> 35
SKYLANDS FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
Accumula
ted
Other
Comprehe
Additional nsive
Common Paid-in Retained (Loss)
Stock Capital Earnings Income
----- ------- -------- ------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1996 $ 5,573,000 $ 3,490,000 $ 1,140,000 ($ 37,000)
Exercise of stock options 20,000 24,000 -- --
Cash dividend ($.05 per share) -- -- (112,000) --
Unrealized gain on securities available for sale, net of
income taxes -- -- -- 172,000
Net income - 1997 -- -- 1,424,000 --
------------ ------------ ------------ ------------
Comprehensive income
BALANCE, December 31, 1997 5,593,000 3,514,000 2,452,000 135,000
Exercise of stock options 28,000 73,000 --
5% Stock dividend 279,000 1,297,000 (1,576,000)
Dividend reinvestment plan 29,000 114,000 --
Cash dividends ($.06 per share) and payments for
fractional shares -- (145,000)
Unrealized loss on securities available for sale, net of
income taxes -- -- -- (5,000)
Net income - 1998 -- -- 1,831,000
------------ ------------ ------------ ------------
Comprehensive income
BALANCE, December 31, 1998 5,929,000 4,998,000 2,562,000 130,000
Exercise of stock options 85,000 163,000
5% Stock dividend 297,000 1,203,000 (1,500,000)
Dividend reinvestment plan 17,000 60,000 --
Cash dividends ($.10 per share) and payments for
fractional shares -- -- (255,000) --
Unrealized loss on securities available for sale, net of
income taxes -- -- -- (229,000)
Net income - 1999 -- -- 2,372,000 --
------------ ------------ ------------ ------------
Comprehensive income
BALANCE, December 31, 1999 $ 6,328,000 $ 6,424,000 $ 3,179,000 ($ 99,000)
============ ============ ============ ============
<CAPTION>
Comprehensive Total Shareholders'
Income Equity
------ ------
<S> <C> <C>
BALANCE, December 31, 1996 $ -- $ 10,166,000
Exercise of stock options -- 44,000
Cash dividend ($.05 per share) -- (112,000)
Unrealized gain on securities available for sale, net of
income taxes 172,000 172,000
Net income - 1997 1,424,000 1,424,000
------------ ------------
Comprehensive income $ 1,596,000
============
BALANCE, December 31, 1997 11,694,000
Exercise of stock options $ -- 101,000
5% Stock dividend --
Dividend reinvestment plan -- 143,000
Cash dividends ($.06 per share) and payments for
fractional shares -- (145,000)
Unrealized loss on securities available for sale, net of
income taxes (5,000) (5,000)
Net income - 1998 1,831,000 1,831,000
------------ ------------
Comprehensive income $ 1,826,000
============
BALANCE, December 31, 1998 -- 13,619,000
Exercise of stock options $ -- 248,000
5% Stock dividend -- --
Dividend reinvestment plan 77,000
Cash dividends ($.10 per share) and payments for
fractional shares -- (255,000)
Unrealized loss on securities available for sale, net of
income taxes (229,000) (229,000)
Net income - 1999 2,372,000 2,372,000
------------ ------------
Comprehensive income $ 2,143,000
BALANCE, December 31, 1999 $ 15,832,000
============
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
35
<PAGE> 36
SKYLANDS FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 2,372,000 $ 1,831,000 $ 1,424,000
Adjustments to reconcile net income to net cash
Provided by (used in) operating
activities-
Provision for possible loan losses 871,000 665,000 632,000
Provision for other real estate valuation allowance -- -- (21,000)
Depreciation and amortization 413,000 359,000 290,000
(Gain) loss on sale of securities (47,000) (62,000) 10,000
Premium amortization on securities, net 196,000 334,000 250,000
Deferred tax benefit (111,000) (122,000) (148,000)
Increase in accrued interest receivable (177,000) (30,000) (138,000)
Increase in other assets (18,000) (119,000) (6,000)
Decrease in other real estate 105,000 -- --
Increase (decrease) in Federal funds purchased 1,500,000 -- (2,900,000)
Increase in other borrowings 3,000,000 -- --
(Decrease) increase in taxes payable (58,000) 130,000 (406,000)
Increase in accrued expenses and other liabilities 497,000 49,000 224,000
------------ ------------ ------------
Net cash provided by (used in) operating activities 8,543,000 3,035,000 (789,000)
------------ ------------ ------------
INVESTING ACTIVITIES:
Purchases of securities-
Available for sale (3,520,000) (6,163,000) (5,136,000)
Held to maturity (21,320,000) (18,870,000) (11,035,000)
Maturities of securities-
Available for sale 2,192,000 5,902,000 5,546,000
Held to maturity 9,638,000 10,179,000 2,780,000
Sales of securities-
Available for sale 4,689,000 5,213,000 3,706,000
Net increase in loans (32,465,000) (27,023,000) (23,201,000)
Capital expenditures (521,000) (1,468,000) (194,000)
------------ ------------ ------------
Net cash used in investing activities (41,307,000) (32,230,000) (27,534,000)
------------ ------------ ------------
FINANCING ACTIVITIES:
Increase in deposits 32,841,000 30,342,000 28,726,000
Proceeds from the issuance of common stock, net 325,000 244,000 44,000
Dividends paid (255,000) (145,000) (112,000)
------------ ------------ ------------
Net cash provided by financing activities 32,911,000 30,441,000 28,658,000
------------ ------------ ------------
Increase in cash and cash equivalents 147,000 1,246,000 335,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 7,459,000 6,213,000 5,878,000
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 7,606,000 $ 7,459,000 $ 6,213,000
============ ============ ============
</TABLE>
36
<PAGE> 37
SKYLANDS FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES:
Cash paid during the year for-
Interest $5,561,000 $5,070,000 $4,314,000
Income taxes 1,577,000 942,000 1,392,000
Loans reclassified to other real estate -- -- 121,000
========== ========== ==========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
37
<PAGE> 38
1. ORGANIZATION AND PRINCIPLES OF CONSOLIDATION
At the Annual Meeting of Shareholders of Skylands Community Bank (the
"Bank") held on April 20, 1999, a proposal to form a one-bank holding company by
adopting a Plan of Acquisition (the "Plan") whereby all of the stock of the Bank
would be acquired by Skylands Financial Corporation ("SFC"), a newly formed New
Jersey corporation, was approved by a two thirds majority of shareholders
eligible to vote. The Plan was executed on February 18, 1999 between the Bank
and SFC. As of August 9, 1999, all required approvals were obtained from the
relevant regulatory authorities (the Securities and Exchange Commission, the New
Jersey Department of Banking and Insurance, NASDAQ and the Federal Reserve
Bank). On September 17, 1999 the Plan was consummated. All of the then
outstanding shares of the Bank were exchanged for an equal number of shares of
SFC common stock and SFC acquired all of the outstanding shares of the Bank.
This exchange of shares has been accounted for as a reorganization of entities
under common control resulting in no changes in the underlying amount of assets
and liabilities.
This report presents the consolidated financial statements of SFC and its
subsidiary, the Bank, and Skylands Community Investment Company, Inc., a
subsidiary of the Bank. The term "Company" refers to SFC and the Bank, as a
consolidated entity. The Company is a one-bank holding company. All prior period
references and financial comparisons are to Skylands Community Bank and its
subsidiary, Skylands Community Investment Company, Inc. Unless specifically
stated to the contrary, these references will identify the "Company." All
inter-company transactions have been eliminated.
The Bank, the operating entity of SFC, is a full service community bank
located in northern New Jersey with convenient locations in Hackettstown,
Independence, Roxbury, Netcong, Oxford, Jefferson, Byram and Rockaway.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The accompanying consolidated financial statements, which are prepared in
conformity with generally accepted accounting principles, require the use of
management estimates. The most significant estimate with regard to these
financial statements relates to the allowance for possible loan losses, the
carrying value of other real estate and the fair value of financial instruments,
as discussed in Notes 4, 6 and 16. Actual results may differ from those assumed
in management's estimates.
Securities
The Company classifies its securities into three categories, as follows:
(1) held for investment purposes (held to maturity), (2) available for sale and
(3) held for trading purposes.
Securities for which the Company has the ability and intent to hold to
maturity are classified as held to maturity. These securities are carried at
cost adjusted for amortization of premiums and accretion of discounts using the
interest method. Securities which are held for indefinite periods of time which
management intends to use as part of its asset/liability strategy, or that may
be sold in response to changes in interest rates, changes in prepayment risk,
increased capital requirements or other similar factors, are classified as
available for sale and are carried at their fair value. Differences between a
security's amortized cost and fair value is credited/charged directly to
shareholders' equity, net of income taxes. The cost of securities sold is
determined on a specific identification basis. Gains and losses on sales of
securities are recognized in the statement of income upon sale.
The Company has no securities held for trading purposes as of December 31,
1999 or 1998.
Allowance for Possible Loan Losses
The allowance for possible loan losses is maintained at a level considered
adequate to provide for potential loan losses, although, ultimate losses may
vary from current estimates. Adjustments to the allowance are reflected in
operations in the period in which they become known. The allowance is increased
by provisions charged to expense and reduced by net charge-offs. The level of
the allowance is based on management's evaluation of potential losses in the
loan portfolio, after consideration of appraised collateral values, financial
condition of the borrowers, as well as prevailing and anticipated economic
38
<PAGE> 39
conditions. Credit reviews of the loan portfolio, designed to identify potential
charges to the allowance, are made on a periodic basis during the year by senior
management.
Impaired Loans
Accounting standards require that certain impaired loans be measured based
on the present value of expected future cash flows discounted at the loan's
original, effective interest rate. As a practical expedient, impairment may be
measured based on the loan's observable market price or the fair value of the
collateral if the loan is collateral dependent. When the measure of the impaired
loan is less that the recorded investment in the loan, the impairment is
recorded through a valuation allowance. Large groups of smaller-balance
homogeneous loans, such as residential mortgage loans, credit card loans and
consumer loans are collectively evaluated for impairment.
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation
and amortization. Depreciation is computed primarily on the straight-line method
over the estimated useful lives (or the lease term, if shorter for leasehold
improvements) of the assets.
Other Real Estate
Other real estate includes loan collateral that has been formally
foreclosed. All amounts have been transferred into and carried in other real
estate at the lower of the loan value or fair market value less estimated costs
to sell the underlying collateral. The Company incurred expenses related to such
properties and made adjustments to their carrying values resulting in net
expenses of $2,000, $26,000 and $74,000 in 1999, 1998 and 1997, respectively,
which is included in other operating expenses in the accompanying financial
statements.
Intangibles
Core deposit intangibles relating to premiums paid on the acquisition of
deposits are amortized on a straight-line basis over 15 years.
Income Taxes
Deferred income taxes are recognized for tax consequences of temporary
differences by applying enacted statutory tax rates, applicable to future years,
to differences between the financial reporting and the tax basis of existing
assets and liabilities.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, non-interest and
interest-bearing amounts due from banks and Federal Funds Sold. Generally,
Federal Funds are sold for a one-day period.
Interest Income and Fees on Loans
Interest on loans is credited to operations primarily based upon the
principal amount outstanding. When management believes there is sufficient doubt
as to the ultimate collectibility of interest on any loan, the accrual of
applicable interest is discontinued. Net loan origination fees are deferred and
amortized over the life of the related loan as an adjustment to the loan yield.
Earnings Per Share
Basic earnings per share is computed based on the weighted average number
of shares outstanding for the periods presented. Diluted earnings per share is
computed based on the weighted average number of shares outstanding for the
period presented adjusted for the effect of the stock options and warrants
outstanding, if dilutive.
39
<PAGE> 40
New Financial Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
No. 133"). SFAS No. 133 establishes accounting and reporting standards for
derivative instruments, certain derivative instruments imbedded in other
contracts, and hedging activities. In particular, SFAS No. 133 requires, among
other things, a reporting company to record every covered derivative instrument
on its balance sheet as either an asset or liability measured at fair value. In
June 1999, the Financial Accounting Standards Board issued Statement No. 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB No. 133," which deferred the effective date of SFAS No.
133 to fiscal quarters of fiscal year beginning after June 15, 2000. The Company
does not believe that application of this statement will have a material effect
on the Company's financial statements.
Reclassifications
Certain prior year amounts have been reclassified to conform with current
year presentation.
3. DIVIDENDS
During 1999 the Company paid two cash dividends of $.02 per share and two
cash dividends of $.03 per share. The future dividend policy of the Company is
subject to the discretion of the Board of Directors and will depend upon a
number of factors, including future earnings, financial condition, cash needs
and general business conditions.
The New Jersey Department of Banking and Insurance places certain
restrictions regarding the ability of the Bank to transfer funds to SFC in the
form of cash dividends, loans or advances. In this regard, 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
(the sum of additional paid in capital and retained earnings) of not less than
fifty percent of its capital stock. SFC will also be guided in its cash dividend
policy by the requirements of the Federal Reserve Bank.
On March 10, 1999, the Board of Directors declared a 5% stock dividend for
shareholders of record as of March 31, 1999, payable on April 16, 1999. Share
and per share data for all periods have been restated to reflect this stock
dividend.
4. SECURITIES
Information with regard to the Company's securities portfolio at December
31, 1999 and 1998 are as follows-
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Estimated Fair
1999 Cost Gains Losses Value
- ---- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C>
Available for Sale
U. S. Treasury Securities $ 4,592,000 $ -- $ (25,000) $ 4,567,000
Mortgage-backed securities
(U. S. Agency issued) 8,561,000 -- (132,000) 8,429,000
Corporate securities 1,094,000 -- -- 1,094,000
------------ ---------- ------------ ------------
$ 14,247,000 $ -- $ (157,000) $ 14,090,000
============ ========== ============ ============
Held to Maturity
U. S. Agency Securities $ 500,000 $ -- $ (14,000) $ 486,000
Mortgage-backed securities
(U. S. Agency issued) 39,885,000 -- (1,189,000) 38,696,000
Tax Exempt Securities 3,709,000 -- -- 3,709,000
------------ ---------- ------------ ------------
$ 44,094,000 $ -- $ (1,203,000) $ 42,891,000
============ ========== ============ ============
</TABLE>
40
<PAGE> 41
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Estimated Fair
1998 Cost Gains Losses Value
- ---- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C>
Available for Sale
U. S. Treasury Securities $ 2,999,000 $ 26,000 $ -- $ 3,025,000
Mortgage-backed securities
(U. S. Agency issued) 14,942,000 185,000 -- 15,127,000
Corporate Securities 664,000 -- -- 664,000
------------ ------------ ------------ ------------
$ 18,605,000 $ 211,000 $ -- $ 18,816,000
============ ============ ========== ============
Held to Maturity
U.S. Agency Securities $ 500,000 $ 2,000 $ -- $ 502,000
Mortgage-backed securities
(U. S. Agency issued) 31,066,000 238,000 (35,000) 31,269,000
------------ ------------ ------------ ------------
$ 31,566,000 $ 240,000 $ (35,000) $ 31,771,000
============ ============ ========== ============
</TABLE>
The amortized cost and estimated market value of securities at December
31, 1999 by contractual maturity, are shown below for securities held to
maturity and available for sale. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Estimated Fair
Amortized Cost Value
-------------- --------------
<S> <C> <C>
Available for Sale
Due in one year through five years $ 4,592,000 $ 4,567,000
Due in more than five years 1,094,000 1,094,000
Mortgage-backed Securities 8,561,000 8,429,000
----------- -----------
$14,247,000 $14,090,000
=========== ===========
Held to Maturity
Due in one year through five years $ 3,448,000 $ 3,433,000
Due in more than five years 761,000 762,000
Mortgage-backed Securities 39,885,000 38,696,000
----------- -----------
$44,094,000 $42,891,000
=========== ===========
</TABLE>
Proceeds from sales of securities available for sale were $4,689,000 in
1999 resulting in gross gains of $47,000 and gross losses of $0. Proceeds from
sales of available for sale in 1998 were $5,213,000 resulting in gross gains of
$65,000 and gross losses of $3,000. Proceeds from sales of securities available
for sale in 1997 were $3,706,000 resulting in gross gains of $4,000 and gross
losses of $14,000.
At December 31, 1999, securities having a book value of $17,176,000 were
pledged to secure public deposits and for other purposes required by law.
5. LOANS
Loans outstanding by classification at December 31, 1999 and 1998 are as
follows-
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Loans secured by real estate-
Construction Mortgages $ 6,338,000 $ 4,746,000
Nonresidential properties 17,691,000 18,114,000
Residential properties 55,655,000 40,117,000
Commercial and industrial loans 63,713,000 47,708,000
Loans to individuals 6,054,000 6,638,000
------------ ------------
$149,451,000 $117,323,000
============ ============
</TABLE>
41
<PAGE> 42
Loans made by the Company are generally made in the local and surrounding
communities in which it operates. As a result, the operations of the Company
could be adversely effected by changes in the local economy in which it
operates.
Loans to related parties have been granted under terms and
conditions in accordance with the Company's normal lending policies. These loans
include loans made to directors, executive officers and their associates, as
defined. The following is the activity in loans to related parties during 1999-
<TABLE>
<S> <C>
Outstanding loans at December 31, 1998 $ 1,684,000
New loans and advances 40,000
Repayments (155,000)
-----------
Outstanding loans at December 31, 1999 $ 1,569,000
===========
</TABLE>
As of December 31, 1999, all loans to related parties are current as to
principal and interest payments.
6. ALLOWANCE FOR POSSIBLE LOAN LOSSES
The allowance for possible loan losses is based on estimates, and ultimate
losses may vary from the current estimates. These estimates are reviewed
periodically and, as adjustments become necessary, they are reflected in
operations in the periods in which they become known. Changes in the allowance
for possible loan losses are summarized as follows-
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Balance, beginning of year $ 1,873,000 $ 1,374,000 $ 973,000
Provision charged to expense 871,000 665,000 632,000
Loans charged off (385,000) (185,000) (242,000)
Recoveries of loans previously charged off 31,000 19,000 11,000
----------- ----------- -----------
Balance, end of year $ 2,390,000 $ 1,873,000 $ 1,374,000
=========== =========== ===========
</TABLE>
As of December 31, 1999 and 1998, nonaccrual loans and loans past due 90
days or more totaled $1,485,000 and $959,000, respectively. Interest income that
would have been recorded in the financial statements had the above loans been
performing in accordance with their original terms was approximately $169,000
and $80,000 in 1999 and 1998, respectively.
A loan is considered impaired when it is probable that the Company will be
unable to collect all amounts due according to the original contractual terms of
the loan agreement. At December 31, 1999 and 1998, impaired loans consisted of
non-accrual loans and one loan totaling $332,000 and $383,000, respectively,
previously on non-performing status which has been renegotiated by the Company
and is performing in accordance with the agreed upon terms. This loan has been
placed back on performing status. As of December 31, 1999 and 1998 the Company's
recorded investment in impaired loans and the related valuation allowance are as
follows-
<TABLE>
<CAPTION>
1999 1998
----------------------- -----------------------
Recorded Valuation Recorded Investment
Investment Allowance Investment Allowance
========== ========== ========== ==========
<S> <C> <C> <C> <C>
Impaired loans-
Valuation allowance required $1,817,000 $ 290,000 $1,342,000 $ 166,000
========== ========== ========== ==========
</TABLE>
The valuation allowance is included in the allowance for possible loan
losses in the accompanying statements of condition. The average recorded
investment in impaired loans for the period ended December 31, 1999 and 1998 was
$1,693,000 and $930,000, respectively.
Interest payments received on impaired loans are recorded as interest
income unless collection of the remaining recorded investment is doubtful at
which time payments received are recorded as reductions of principal. The
Company recognized and collected interest income on impaired loans in the amount
of $11,000 and $8,000 for the periods ended December 31, 1999 and 1998,
respectively.
42
<PAGE> 43
7. PREMISES AND EQUIPMENT
A summary of premises and equipment as of December 31 are as follows-
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Land $ 544,000 $ 544,000
Buildings 1,409,000 1,301,000
Furniture and equipment 1,290,000 986,000
Leasehold improvements 873,000 873,000
Construction in progress 107,000 --
----------- -----------
4,223,000 3,704,000
Less-Accumulated depreciation and amortization (1,120,000) (839,000)
----------- -----------
$ 3,103,000 $ 2,865,000
=========== ===========
</TABLE>
8. DEPOSITS
Time deposits in denominations of $100,000 or more totaled $15,101,000 and
$11,848,000 at December 31, 1999 and 1998, respectively.
Scheduled maturities of certificates of deposit at December 31, 1999 and
1998 are as follows-
<TABLE>
<CAPTION>
Three Over Three Over One
Months or Months Through Year Through Over Three
1999 Less Twelve Months Three Years Years Total
- ---- ----------- ------------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$100,000 or more $ 7,644,000 $ 6,093,000 $ 1,364,000 $ -- $15,101,000
Less than $100,000 15,287,000 29,211,000 16,263,000 339,000 61,100,000
1998
- ----
$100,000 or more $ 6,083,000 $ 4,483,000 $ 1,282,000 $ -- $11,848,000
Less than $100,000 7,424,000 24,914,000 14,410,000 436,000 47,184,000
</TABLE>
9. INCOME TAXES
The components of the provision for income taxes for the years ended
December 31, 1999, 1998 and 1997 are as follows-
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Federal-
Current $ 1,320,000 $ 1,048,000 $ 838,000
Deferred (111,000) (122,000) (148,000)
State 206,000 107,000 127,000
----------- ----------- -----------
Total $ 1,415,000 $ 1,033,000 $ 817,000
=========== =========== ===========
</TABLE>
Deferred income taxes are provided for the temporary differences between
the financial reporting basis and the tax basis of the Company's assets and
liabilities. Cumulative temporary differences and carryforwards at December 31,
1999 and 1998 are as follows-
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Allowance for possible loan losses $ 897,000 $ 673,000
Interest on non accrual loans 130,000 133,000
Unrealized holding loss (gain) on securities available for sale 63,000 (80,000)
Other 19,000 16,000
---------- ----------
Net deferred taxes $1,109,000 $ 742,000
========== ==========
</TABLE>
43
<PAGE> 44
A comparison of income tax expense at the Federal statutory rate in 1999,
1998 and 1997, to the Company's provision for income taxes is as follows-
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
At statutory rate $ 1,288,000 $ 974,000 $ 762,000
Increase (decrease) from statutory rate resulting from-
Tax-exempt interest income (48,000) (55,000) (15,000)
State income taxes, net of Federal tax benefit 138,000 64,000 83,000
Other 37,000 50,000 (13,000)
----------- ----------- -----------
Provision for income taxes $ 1,415,000 $ 1,033,000 $ 817,000
=========== =========== ===========
</TABLE>
10. SHAREHOLDERS' EQUITY
In 1997, a Dividend Reinvestment Plan (DRP) was established and offered to
the shareholders of the Company. The DRP allows shareholders to purchase stock
of the Company with the proceeds from their cash dividends. The cash dividends
paid beginning in 1998 were eligible to be reinvested in the DRP. The DRP also
allows for optional quarterly cash purchases by shareholders of any amount from
$100 to $5,000. The purchases of shares from both the cash dividends and the
optional cash purchases are made directly from the Company through the issuance
of approved, but previously unissued shares of the common stock of the Company.
In 1999 and 1998 the investments received through the DRP resulted in $77,000
and $143,000, respectively, of additional capital for the Company. There were no
purchases in 1997.
In 1991, the Shareholders approved the 1991 Non-Qualified Stock Option
Plan (the 1991 Plan). In 1994, the Shareholders of the Company approved the 1994
Amended and Restated Incentive Stock Option Plan (the 1994 Plan). In 1996, the
Shareholders approved the 1996 Incentive Stock Option Plan (the 1996 Plan). In
1998 the shareholders approved the 1997 Incentive Stock Option Plan (the 1997
Plan). Under these plans, the Board of Directors may grant options to officers
to purchase the Company's stock. Option prices for the 1991 Plan are determined
by the Board, provided however, that the option price of shares may not be less
than 85% of the fair market value of shares at the date of grant. Option prices
for the 1994, 1996, and 1997 Plans may not be lower than the fair market value
of the shares at the date of grant. The period during which an option under all
plans may be exercised varies, but no option may be exercised after ten years
from the date of grant. There were 369,176 shares reserved for issuance under
the plans as of December 31, 1999.
Transactions under the plan are summarized as follows-
<TABLE>
<CAPTION>
Number of Exercise Price
Shares Per Share
--------- --------------
<S> <C> <C>
Outstanding, December 31, 1996 131,262 $3.33-$6.47
Options granted 50,466 6.07-8.39
Options exercised (8,681) 7.03-8.39
--------- --------------
Outstanding, December 31, 1997 173,047 3.33-8.39
Options granted 175,413 8.39-12.91
Options exercised (11,724) 4.10-4.91
--------- --------------
Outstanding, December 31, 1998 336,736 3.33-12.91
Options granted 5,821 11.43
Options exercised (34,472) 4.66-7.03
--------- --------------
Outstanding December 31, 1999 308,085 $3.33-$12.91
========= ==============
</TABLE>
The Company applies Accounting Principles Board Opinion 25 and related
Interpretations in accounting for its plans. Accordingly, no compensation cost
has been recognized for its stock option plans. Had compensation cost for the
Company's stock option plans been determined based on the fair value at the
44
<PAGE> 45
grant dates for awards under those plans consistent with the method of FASB
Statement 123, the Company's net income and earnings per share would have been
reduced to the pro forma amounts indicated below.
The following is a reconciliation of the calculation of basic and diluted
earnings per share-
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net income-
As reported $ 2,372,000 $ 1,831,000 $ 1,424,000
Pro forma 2,235,000 1,633,000 1,351,000
Basic income per share-
As reported $ .95 $ .74 $ .58
Pro forma .89 .66 .55
Diluted income per share-
As reported $ .92 $ .71 $ .57
Pro forma .87 .63 .54
</TABLE>
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted average
assumptions used for grants in 1999 and 1998 and 1997 , respectively; dividend
yield of .87% for 1999 and .5% for 1998 and 1997; expected volatility of 46%,
47%, 40% and 41% for the 1991, 1994, 1996 and 1997 Plan options; risk-free
interest rates of 5.9% for the 1991 Plan options, 6.2% and 6.7% for the 1994
Plan options, 7.0% for the 1996 Plan options; 6.6% and 6.9% for the 1997 grants
under the 1996 plan and 5.9%, 5.6% and 6.7% for the 1998 grants under the 1997
plan; and expected lives of 10 years for the 1991 Plan options, 4.3 years for
the 1994 Plan options and 10 years for the 1996 and 1997 Plan options.
The following table summarizes information about stock options outstanding
at December 31, 1999-
<TABLE>
<CAPTION>
Number
Number Outstanding Remaining Contractual Exercisable at
Exercise Price at December 31, 1999 Life December 31, 1999
- -------------- -------------------- ---- -----------------
<S> <C> <C> <C>
$ 3.33 25,472 1.80 years 20,890
4.66 1,737 .33 years 1,737
4.91 19,900 6.00 years 15,920
6.07 28,666 6.40 years 17,199
6.47 3,474 1.33 years 3,474
7.03 3,474 2.30 years 3,474
8.39 119,180 7.70 years 34,050
10.98 13,872 8.20 years 13,872
11.43 5,821 9.58 years 1,164
12.74 33,660 3.30 years 33,660
12.91 52,829 8.20 years 26,148
------- -------
308,085 171,588
======= =======
</TABLE>
45
<PAGE> 46
11. EARNINGS PER SHARE DISCLOSURE
The following is a reconciliation of the calculation of basic and diluted
earnings per share-
<TABLE>
<CAPTION>
Weighted
Average Per Share
Income Shares Amount
---------- --------- ------
<S> <C> <C> <C>
For the Year Ended December 31, 1999-
Basic earnings per share - income available to common shareholders $2,372,000 2,509,645 $ .95
======
Effect of Dilutive Securities-Stock Options -- 69,541
---------- ---------
Diluted earnings per share - income available to common shareholders plus
assumed conversions $2,372,000 2,579,186 $ .92
========== ========= ======
For the Year Ended December 31, 1998-
Basic earnings per share - income available to common shareholders $1,831,000 2,473,631 $ .74
======
Effect of Dilutive Securities-Stock Options -- 125,085
---------- ---------
Diluted earnings per share - income available to common shareholders plus
assumed conversions $1,831,000 2,598,716 $ .71
========== ========= ======
For the Year Ended December 31, 1997-
Basic earnings per share - income available to common shareholders $1,424,000 2,462,305 $ .58
========== ========= ======
Effect of Dilutive Securities-Stock Options -- 51,034
---------- ---------
Diluted earnings per share - income available to common shareholders plus
assumed conversions $1,424,000 2,513,339 $ .57
========== ========= ======
</TABLE>
12. REGULATORY CAPITAL REQUIREMENTS
SFC and its subsidiary Bank are subject to various regulatory capital
requirements administered by the Federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory, and possibly
additional, discretionary actions by regulators that, if undertaken, could have
a direct material effect on the Company's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
SFC and the Bank must meet specific capital guidelines that involve quantitative
measures of their assets, liabilities, and certain off-balance sheet items as
calculated under regulatory accounting practices. SFC's and the Bank's capital
amounts and classifications are also subject to qualitative judgments by the
regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require SFC and the Bank to maintain minimum amounts and ratios (set forth in
the table below) of Total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as
46
<PAGE> 47
defined), and of Tier I capital to average assets (as defined). Management
believes, as of December 31, 1999, that SFC and the Bank meet all capital
adequacy requirements to which it is subject.
As of December 31, 1999, the most recent notification from the Federal
Deposit Insurance Corporation categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. As of December 31, 1999, SFC
has not been notified by the Federal Reserve Bank of its capital classification
category. To be categorized as well capitalized SFC and the Bank must maintain
minimum total risk-based, Tier I risk-based, and Tier I leverage ratios as set
forth in the table. There are no conditions or events since that notification
that management believes have changed the institutions' category.
SFC's actual capital amounts and ratios are also presented in the table-
<TABLE>
<CAPTION>
To Be Well Capitalized Under
For Capital Prompt Corrective Action
Actual Adequacy Purposes Provisions
---------------------- -------------------------------- ------------------------------
Amount Ratio Amount Ratio Amount Ratio
------------- ----- ------------------ ---------- ------------------ ----------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1999-
Total capital (to Risk Weighted
Assets) $ 16,299,000 11.81% => $ 11,036,000 => 8.00% => $ 13,795,000 => 10.00%
Tier I Capital (to Risk Weighted
Assets) 14,566,000 10.56 => 5,518,000 => 4.00 => 8,277,000 => 6.00
Tier I Capital (to Average Assets) 14,566,000 6.61 => 8,815,000 => 4.00 => 11,019,000 => 5.00
As of December 31, 1998-
Total capital (to Risk Weighted
Assets) $ 13,384,000 12.10% => $ 8,852,000 => 8.00% => $ 11,065,000 => 10.00%
Tier I Capital (to Risk Weighted
Assets) 11,994,000 10.84 => 4,426,000 => 4.00 => 6,639,000 => 6.00
Tier I Capital (to Average Assets) 11,994,000 6.84 => 7,072,000 => 4.00 => 8,840,000 => 5.00
</TABLE>
The Bank's actual capital amounts and ratios are also presented in the table-
<TABLE>
<CAPTION>
To Be Well Capitalized Under
For Capital Prompt Corrective Action
Actual Adequacy Purposes Provisions
---------------------- -------------------------------- ------------------------------
Amount Ratio Amount Ratio Amount Ratio
------------- ----- ------------------ ---------- ------------------ ----------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1999-
Total capital (to Risk Weighted
Assets) $16,089,000 11.87% => $10,845,000 => 8.00% => $13,556,000 => 10.00%
Tier I Capital (to Risk Weighted
Assets) 14,378,000 10.61 => 5,422,000 => 4.00 => 8,134,000 => 6.00
Tier I Capital (to Average Assets) 14,378,000 6.53 => 5,422,000 => 4.00 => 6,778,000 => 5.00
As of December 31, 1998-
Total capital (to Risk Weighted
Assets) $13,384,000 12.10% => $ 8,852,000 => 8.00% => $11,065,000 => 10.00%
Tier I Capital (to Risk Weighted
Assets) 11,994,000 10.84 => 4,426,000 => 4.00 => 6,639,000 => 6.00
Tier I Capital (to Average Assets) 11,994,000 6.84 => 7,072,000 => 4.00 => 8,840,000 => 5.00
</TABLE>
13. EMPLOYEE BENEFIT PLANS
The Company has a 401(k) savings plan covering substantially all
employees. Under the plan, an employee can contribute up to 15% of their salary
on a tax-deferred basis. The Company may also make discretionary contributions
to the Plan. The Company contributed approximately $57,000, $49,000 and $42,000
to the Plan in 1999, 1998, and 1997, respectively.
47
<PAGE> 48
The Company does not currently provide any post retirement or post
employment benefits to its employees other than the 401(k) plan.
14. COMMITMENTS AND CONTINGENCIES
Litigation
The Company may, in the ordinary course of business, become a party to
litigation involving collection matters, contract claims and other legal
proceedings relating to the conduct of its business. In management's judgment,
the financial position or results of operations of the Company will not be
affected materially by the final outcome of any present legal proceedings.
Commitments With Off-Balance Sheet Risk
The statement of condition does not reflect various commitments relating
to financial instruments, which are used in the normal course of business.
Management does not anticipate that the settlement of those financial
instruments will have a material adverse effect on the Company's financial
position. These instruments include primarily commitments to extend credit.
These financial instruments carry various degrees of credit risk, which is
defined as the possibility that a loss may occur from the failure of another
party to perform according to the terms of the contract.
Commitments to extend credit are legally binding loan commitments with set
expiration dates. They are intended to be disbursed, subject to certain
conditions, upon request of the borrower. The Company receives a fee for
providing a commitment. The Company was committed to advance $32,677,000 to its
borrowers as of December 31, 1999, which generally expire within one year.
Lease Obligations
As of December 31, 1999, future minimum rental payments under lease
obligations are as follows-
<TABLE>
<S> <C>
2000 $ 352,000
2001 366,000
2002 363,000
2003 313,000
2004 270,000
Thereafter 1,525,000
-----------
$ 3,189,000
===========
</TABLE>
Total rental expense was approximately $280,000, $205,000 and $135,000 in
1999, 1998 and 1997, respectively.
Transaction with Related Party
In October 1997, the Company entered into a five-year sublease agreement
with RoNetco Supermarkets, Inc. for an in-store "Financial Service Facility" at
a supermarket in Byram, New Jersey which is operated by RoNetco Supermarkets,
Inc. The office opened in June of 1998 and rent paid during 1999 and 1998
amounted to $75,000 and $16,000, respectively. An officer and shareholder of
RoNetco Supermarkets, Inc. is also a Director of the Company. Management
believes that this transaction was on substantially the same terms and
conditions as those prevailing at the time for comparable transactions with non
related parties.
Required Cash Balances
Cash balances reserved to meet regulatory requirements amounted to
$3,114,000 and $1,296,000 at December 31, 1999 and 1998, respectively.
48
<PAGE> 49
15. OTHER OPERATING EXPENSES
The major components of other expenses are as follows-
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Data processing fees $ 297,000 $ 251,000 $ 199,000
FDIC insurance assessment 19,000 16,000 13,000
Directors fees 153,000 111,000 86,000
Advertising and marketing 168,000 75,000 95,000
Insurance 57,000 52,000 45,000
Examination, audit and legal fees 267,000 232,000 140,000
Correspondent and Bank fees 80,000 63,000 55,000
Postage 117,000 104,000 81,000
Stationary and printing 85,000 54,000 60,000
Office supplies 101,000 96,000 60,000
Checkbooks 58,000 63,000 35,000
Customer relations 23,000 25,000 24,000
Core deposit amortization 130,000 130,000 130,000
Other 755,000 556,000 574,000
---------- ---------- ----------
$2,310,000 $1,828,000 $1,597,000
========== ========== ==========
</TABLE>
16. FAIR VALUE OF
FINANCIAL INSTRUMENTS
The following is a summary of fair value of the Company's financial
instruments. For the Company, as for most financial institutions, the bulk of
its assets and liabilities are considered financial instruments. Many of the
Company's financial instruments lack an available trading market as
characterized by a willing buyer and willing seller engaging in an exchange
transaction. It is also the Company's general practice and intent to hold its
financial instruments to maturity and not engage in trading or sales activities.
Estimated fair values have been determined by the Company using the best
available data and an estimation methodology suitable for each category of
financial instruments.
The estimation methodologies used, the estimated fair values, and the
recorded book balances, were as follows-
Securities actively traded in the secondary market have been valued using
available market prices.
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
------------------------- -------------------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 7,606,000 $ 7,606,000 $ 7,459,000 $ 7,459,000
Securities available for sale 14,090,000 14,090,000 18,816,000 18,816,000
Securities held to maturity 44,094,000 42,891,000 31,566,000 31,771,000
Federal Funds Purchased 1,500,000 1,500,000 -- --
Other borrowings 3,000,000 3,000,000 -- --
</TABLE>
49
<PAGE> 50
Loans and deposits with stated maturities have been valued using a present
value discounted cash flow with a discount rate approximating current market for
similar assets and liabilities. For those loans and deposits with floating
interest rates, it is assumed that estimated fair values generally approximate
the recorded book balances.
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
------------------------- -------------------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Loans, net, including
Accrued interest $147,532,000 $147,346,000 $115,829,000 $120,260,000
Deposits, including
Accrued interest 198,473,000 196,096,000 165,363,000 167,326,000
</TABLE>
There is no material difference between the notional amount and the
estimated fair value of off-balance sheet unfunded loan commitments at December
31, 1999 and 1998. The fair value of standby letters of credit is based on fees
charged for similar agreements; accordingly, the estimated fair value of standby
letters of credit is nominal.
17. OTHER COMPREHENSIVE INCOME
The tax effect of other comprehensive income is as follows-
<TABLE>
<CAPTION>
Before-Tax Tax Net of Tax
Year Ended December, 1999 Amount Effect Amount
- ------------------------------------------------------------------------- ---------- --------- -----------
<S> <C> <C> <C>
Unrealized losses on securities-
Unrealized holdings losses arising during period $(320,000) $ 120,000 $(200,000)
Less - Reclassification adjustments for gains realized in net income
(47,000) 18,000 (29,000)
--------- --------- ---------
Other comprehensive loss $(367,000) $ 138,000 $(229,000)
========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Before-Tax Tax Net of Tax
Year Ended December, 1998 Amount Effect Amount
- ------------------------------------------------------------------------- ---------- --------- -----------
<S> <C> <C> <C>
Unrealized losses on securities-
Unrealized holdings gains arising during period $ 53,000 $ (20,000) $ 33,000
Less - Reclassification adjustments for gains realized in net income (62,000) 24,000 (38,000)
--------- --------- ---------
Other comprehensive loss $ (9,000) $ 4,000 $ (5,000)
========= ========= =========
<CAPTION>
<S> <C> <C> <C>
Year Ended December 31, 1997
- -------------------------------------------------------------------------
Unrealized gains on securities-
Unrealized holdings gains arising during period $ 272,000 $(106,000) $ 166,000
Less - Reclassification adjustments for loss realized in net income 10,000 (4,000) 6,000
--------- --------- ---------
Other comprehensive income $ 282,000 $(110,000) $ 172,000
========= ========= =========
</TABLE>
50
<PAGE> 51
18. QUARTERLY INCOME
Quarterly income for 1999 and 1998 is as follows (unaudited)-
<TABLE>
<CAPTION>
1999
-------------------------------------------------
Fourth Third Second First
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Interest income $4,226,000 $3,994,000 $3,640,000 $3,492,000
Interest expense 1,613,000 1,513,000 1,382,000 1,347,000
---------- ---------- ---------- ----------
Net interest income 2,613,000 2,481,000 2,258,000 2,145,000
Provision for possible loan losses 265,000 296,000 198,000 112,000
---------- ---------- ---------- ----------
Net interest income after provision for
possible loan losses 2,348,000 2,185,000 2,060,000 2,033,000
Other income 264,000 253,000 289,000 236,000
Other expenses 1,619,000 1,436,000 1,425,000 1,401,000
---------- ---------- ---------- ----------
Income before provision for income taxes 993,000 1,002,000 924,000 868,000
Provision for income taxes 328,000 392,000 358,000 337,000
---------- ---------- ---------- ----------
Net income $ 665,000 $ 610,000 $ 566,000 $ 531,000
========== ========== ========== ==========
Basic earnings per share $ 0.28 $ 0.24 $ 0.22 $ 0.21
Diluted earnings per share 0.25 0.24 0.22 0.21
</TABLE>
<TABLE>
<CAPTION>
1998
-------------------------------------------------
Fourth Third Second First
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Interest income $3,339,000 $3,229,000 $3,032,000 $2,937,000
Interest expense 1,370,000 1,345,000 1,255,000 1,200,000
---------- ---------- ---------- ----------
Net interest income 1,969,000 1,884,000 1,777,000 1,737,000
Provision for possible loan losses 415,000 75,000 75,000 100,000
Net interest income after provision for
Possible loan losses 1,554,000 1,809,000 1,702,000 1,637,000
---------- ---------- ---------- ----------
Other income 233,000 250,000 230,000 176,000
Other expenses 1,096,000 1,302,000 1,217,000 1,112,000
---------- ---------- ---------- ----------
Income before provision for income taxes 691,000 757,000 715,000 701,000
Provision for income taxes 204,000 290,000 273,000 266,000
---------- ---------- ---------- ----------
Net income $ 487,000 $ 467,000 $ 442,000 $ 435,000
========== ========== ========== ==========
Basic earnings per share $ 0.19 $ 0.19 $ 0.18 $ 0.18
Diluted earnings per share 0.19 0.18 0.17 0.17
</TABLE>
51
<PAGE> 52
19. PARENT COMPANY ONLY FINANCIAL STATEMENTS
SKYLANDS FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF CONDITION - DECEMBER 31, 1999
<TABLE>
<S> <C>
ASSETS
Cash and due from banks $ 1,000
Securities 200,000
Investment in subsidiary 15,644,000
-------------
Total assets $ 15,845,000
=============
LIABILITIES AND SHAREHOLDERS' EQUITY
Other liabilities $ 13,000
Shareholders' Equity-
Common stock 6,328,000
Additional paid in capital 6,424,000
Retained earnings 3,179,000
Accumulated other comprehensive loss (99,000)
-------------
Total shareholders' equity 15,832,000
-------------
Total liabilities and shareholders' equity $ 15,845,000
=============
STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1999 (a)
Dividends from subsidiary $ 180,000
Other operating expense 62,000
-------------
Income before provision for income taxes 118,000
-------------
Provision for income taxes -- (b)
Equity in undistributed income of subsidiary 2,254,000
-------------
Net income $ 2,372,000
=============
</TABLE>
(a) Statements have been presented as if the Plan was consummated on January
1, 1999.
(b) There is no provision for taxes as dividends income from subsidiary is
eliminated for tax reporting purposes.
52
<PAGE> 53
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1999(a)
<TABLE>
<S> <C>
OPERATING ACTIVITIES:
Net income: $ 2,372,000
Adjustments to reconcile net income to net cash used in operating activities-
Equity in undistributed income of subsidiary (2,254,000)
Increase in other liabilities 13,000
-----------
Net cash provided by operating activities 131,000
-----------
INVESTING ACTIVITIES:
Purchase of securities-
Available for sale (200,000)
-----------
Net cash used in investing activities (200,000)
-----------
FINANCING ACTIVITIES
Proceeds from the issuance of common stock, net 325,000
Cash dividends (255,000)
-----------
Net cash provided by financing activities 70,000
-----------
Increase in cash and cash equivalents 1,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD --
-----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,000
===========
</TABLE>
a) Statements have been presented as if the Plan was consummated on January
1, 1999.
20. SUBSEQUENT EVENT - PROPOSED MERGER
On February 23, 2000, SFC entered into a definitive Agreement and Plan of
Merger (the "Agreement") with Fulton Financial Corporation ("FFC"), under the
terms of which SFC will be merged with and into FFC (the "Merger"), and all of
the outstanding shares of the common stock of SFC will be converted into shares
of the common stock of FFC.
Under the terms of the Agreement, shares of SFC Common Stock will be
exchanged for shares of FFC Common Stock on the effective date of the Merger,
based on a conversion ratio of 0.78 shares of FFC Common Stock for each share of
SFC Common Stock. Each holder of an option to acquire SFC Common Stock which is
outstanding on the effective date of the acquisition is to receive an option to
acquire shares of FFC Common Stock, with the number of shares subject to such
option and the exercise price adjusted to take the conversion ratio into
consideration. By separate Warrant Agreement and Warrant, FFC has the right to
acquire 625,000 shares of SFC Common Stock under certain conditions.
Consummation of the Agreement is subject to various conditions, including,
among others, (i) the approval of the Merger by the Federal Reserve Board and
the New Jersey Department of Banking and Insurance; (ii) the approval of the
Merger by the shareholder of SFC; and (iii) the absence of any material adverse
change in the financial condition or operating results of SFC. SFC and FFC have
the right to terminate the Agreement based on a decline or an increase,
respectively, in the market value of FFC Common Stock as stipulated in the terms
of the Agreement. It is anticipated that the effective date of the Merger will
occur during the third quarter of 2000.
53
<PAGE> 54
Part III
Item 9 - Changes in and Disagreements With Accountants on Accounting and
Financial Disclosures.
None.
Item 10 - Directors and Executive Officers of the Company; Compliance With
Section 16(A) of he Exchange Act
Information concerning the directors and executive officers is included in
the definitive Proxy Statement for the Company's 2000 Annual Meeting under the
caption "Information Regarding Nominees for Directors" and information
concerning compliance with Section 16(a) of the Exchange Act is included under
the caption "Compliance with Section 16(a) of the Securities Exchange Act of
1934", each of which is incorporated herein by reference. It is expected that
such Proxy Statement will be filed with the Securities and Exchange Commission
no later than April 29, 1999.
Set forth below is the name of and certain biographical information
regarding the additional principal officers of the Company who do not also serve
as a director. The term of office for such officers is one year.
Age
---
Dan E. Marcmann 46
Treasurer, Skylands Financial Corporation
Senior Vice President, Skylands Community Bank
Edward W. Mahnken, Jr. 50
Assistant Secretary, Skylands Financial Corporation
Vice President, Skylands Community Bank(1997 to present)
Vice President, Farrington Bank ( 1992-1997)
Item 11 - Executive Compensation and Transactions.
Information concerning executive compensation is included in the
definitive Proxy Statement for the Company's 2000 Annual Meeting under the
caption "Compensation of Directors and Principal Officers" and is hereby
incorporated by reference. It is expected that such Proxy Statement will be
filed with the Securities and Exchange Commission no later than April 29, 1999.
Information concerning certain relationships and related transactions is
included in the definitive Proxy Statement for the Company's 2000 Annual Meeting
under the caption "Transactions Between Nominees and Company" which is
incorporated herein by reference. It is expected that such Proxy Statement will
be filed with the Securities and Exchange Commission no later than April 29,
1999.
Item 12 - Security Ownership of Certain Beneficial Owners and Management.
Information concerning security ownership of certain beneficial owners and
management is included in the definitive Proxy Statement for the Company's 2000
Annual Meeting under the caption "Security Ownership of Certain Beneficial
Owners and
54
<PAGE> 55
Management" which is incorporated herein by reference. It is expected that such
Proxy Statement will be filed with the Securities and Exchange Commission no
later than April 29, 1999.
Item 13 - Certain Relationships and Related Transactions
Information concerning certain relationships and related transactions is
included in the definitive Proxy Statement for the Company's 2000 Annual Meeting
under the caption "Transactions Between Nominees and the Company" which is
incorporated herein by reference. It is expected that such Proxy Statement will
be filed with the Securities and Exchange Commission no later than April 29,
1999.
Part IV
Item 14 - Exhibits and Reports on Form 8-K.
(a) Reports on Form 8-K.
No reports on Form 8-K were filed in the fourth quarter of
1999. On March 6, 2000 a Form 8-K, reporting the proposed
merger of Skylands Financial Corporation into Fulton Financial
Corporation was filed with the Securities and Exchange
Commission.
(b) Exhibits. The following exhibits are filed with this report:
3(a) Certificate of Incorporation of the Company (incorporated by
reference to Exhibit 3(a) of the Company's Registration
Statement on Form 10SB).
3(b) Bylaws of the Company, as amended (incorporated by reference
to Exhibit 3(b) of the Company's Registration Statement on
Form 10SB).
10(a) Lease Agreement, dated February 21, 2000, between the Company
and Axial Properties North Partnership.
10(b) Lease Agreement, dated August 1, 1994, between Eva Mandel and
the Company (incorporated by reference to Exhibit 3(b) of the
Company's Annual Report on Form F-2 for the fiscal year ended
December 31, 1994).
10(c) Lease Agreement, dated September 15, 1988, between Ten
Properties, LP and the Company (incorporated by reference to
Exhibit 3(c) of the Company's Annual Report on Form F-2 for
the fiscal year ended December 31, 1995).
10(d) Key Employee Annual Incentive Plan (incorporated by
reference to Exhibit 3(d) of the Bank's Annual Report on
Form F-2 for the fiscal year ended December 31, 1994.
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10(e) 1994 Amended and Restated Stock Option Plan (incorporated by
reference to Exhibit 10(a) of the Company's Registration
Statement on Form 10SB).
10(f) 1991 Non-Qualified Stock Option Plan (incorporated by
reference to Exhibit 10(b) of the Company's Registration
Statement on Form 10SB).
10(g) 1997 Incentive Stock Option Plan (incorporated by reference
to Exhibit 10(c) of the Company's Registration Statement on
Form 10SB).
10(h) 1996 Incentive Stock Option Plan (incorporated by reference
to Exhibit 10(d) of the Company's Registration Statement on
Form 10SB).
10(i) Summary Plan Description of 401(k) Plan (incorporated by
reference to Exhibit 10(e) of the Company's Registration
Statement on Form 10SB).
10(j) Trust Agreement dated February 24, 1992 between the Company
and State Street Bank and Trust Company relating to 401(k)
Plan.
10(k) Description of Matched Savings Plan.
10(l) Company Sublease, dated October 27, 1997, by and between
Skylands Community Bank and RoNetco Supermarkets, Inc.
10(m) Lease Agreement, dated November 1999, between the Company and
Ann Paftinos and Van Paftinos.
21(a) List of Subsidiaries.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
SKYLANDS FINANCIAL CORPORATION
By: /s/ Michael Halpin
------------------------
Michael Halpin
President and CEO
Dated : March 8, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
================================================================================
Name Title Date
- --------------------------------------------------------------------------------
/s/ Norman S. Baron Director March 8, 2000
- ----------------------------------
Norman S. Baron
/s/ James L. Cochran Director March 8, 2000
- ----------------------------------
James L. Cochran
/s/ Daniel M. DiCarlo, Jr. Director March 8, 2000
- ----------------------------------
Daniel M. DiCarlo, Jr.
/s/ Michael Halpin President, Chief March 8, 2000
- ----------------------------------- Executive Officer and
Michael Halpin Director
/s/ Ralph C. Knechel Director March 8, 2000
- ----------------------------------
Ralph C. Knechel
/s/ J. William Noeltner Director March 8, 2000
- ----------------------------------
J. William Noeltner
/s/ Denis H. O'Rourke Director March 8, 2000
- ----------------------------------- Chairman of the Board
Denis H. O'Rourke
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/s/ Paul J. Pinizzotto Director March 8, 2000
- ----------------------------------
Paul J. Pinizzotto
/s/ Dominic V. Romano Director March 8, 2000
- ----------------------------------
Dominic V. Romano
/s/ Mark F. Strauss Director March 8, 2000
- ----------------------------------
Mark F. Strauss
/s/ Norman Worth Director March 8, 2000
- ----------------------------------
Norman Worth
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SKYLANDS FINANCIAL CORPORATION
Form 10-KSB
Exhibit Index
3(a) Certificate of Incorporation of the Company (incorporated by
reference to Exhibit 3(a) of the Company's Registration
Statement on Form 10SB).
3(b) Bylaws of the Company, as amended (incorporated by reference
to Exhibit 3(b) of the Company's Registration Statement on
Form 10SB).
10(a) Lease Agreement, dated February 21, 2000, between the Company
and Axial Properties North Partnership.
10(b) Lease Agreement, dated August 1, 1994, between Eva Mandel and
the Company (incorporated by reference to Exhibit 3(b) of the
Company's Annual Report on Form F-2 for the fiscal year ended
December 31, 1994).
10(c) Lease Agreement, dated September 15, 1988, between Ten
Properties, L.P. and the Company (incorporated by reference
to Exhibit 3(c) of the Company's Annual Report on Form F-2
for the fiscal year ended December 31, 1995).
10(d) Key Employee Annual Incentive Plan (incorporated by
reference to Exhibit 3(d) of the Bank's Annual Report on
Form F-2 for the fiscal year ended December 31, 1994.
10(e) 1994 Amended and Restated Stock Option Plan (incorporated by
reference to Exhibit 10(a) of the Company's Registration
Statement on Form 10SB).
10(f) 1991 Non-Qualified Stock Option Plan (incorporated by
reference to Exhibit 10(b) of the Company's Registration
Statement on Form 10SB).
10(g) 1997 Incentive Stock Option Plan (incorporated by reference
to Exhibit 10(c) of the Company's Registration Statement on
Form 10SB).
10(h) 1996 Incentive Stock Option Plan (incorporated by reference
to Exhibit 10(d) of the Company's Registration Statement on
Form 10SB).
10(i) Summary Plan Description of 401(k) Plan (incorporated by
reference to Exhibit 10(e) of the Company's Registration
Statement on Form 10SB).
10(j) Trust Agreement dated February 24, 1992 between the Company
and State Street Bank and Trust Company relating to 401(k)
Plan.
10(k) Description of Matched Savings Plan.
The Matched Savings Plan allows each employee to have up to 1%
of their after tax salary deducted each pay period. The
employee's deduction is matched by the Bank. The employee
portion and the Bank's matching contribution are paid to the
employee in December of each year. The amount contributed by
the Bank is taxed as W-2 income.
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10(l) Company Sublease, dated October 27, 1997, by and between
Skylands Community Bank and Ronetco Supermarkets, Inc.
10(m) Lease Agreement, dated November 1999, between the Company and
Ann Paftinos and Van Paftinos.
21(a) List of Subsidiaries
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<PAGE> 1
10(a) Lease Agreement, dated February 21, 2000, between the Company and Axial
Properties North Partnership.
AXIAL PROPERTIES NORTH
a Partnership of the State of New Jersey
having an office at
14A Crossroads Center
915 County Route 517
Hackettstown, NJ 07840
(hereinafter referred to as "Landlord')
and
Skylands Community Bank
B-24 - 26 Crossroads Center
915 Route 517
Hackettstown, NJ 07840
(herinafter referred to as "Tenant")
WITNESSETH:
The parties hereto, in consideration of the covenants and conditions
herein contained, agree as follows on this 2 1st day of February, in the year
2000.
Landlord is owner of a tract of land (the "Tract) located in the
Township of Independence, Count of Warren, State of New Jersey, upon which there
is constructed various commercial buildings and accessory improvements as part
of a shopping center and office complex known also as "Crossroads Center".
I . THE DEMISE
(A) Landlord hereby demises to Tenant, and Tenant hereby leases from
Landlord, subject to the terms and conditions hereof, those premises known as
B24 - 26 containing approximately 3,193.18 square feet of gross leasable area,
being located within that building on the Tract known as Building B. The street
address of the Premises is Crossroads Center, 915 County Route 517,
Hackettstown, New Jersey.
(B) Tenant shall have the right to use, in common with other
tenants, the portions of the Tract intended to be for common use, such as
parking areas and drives. However, Landlord shall have the right from time to
time to designate an area of areas where employees of Tenant shall be required
to park, in which event Tenant's employees shall not have the right to part
other than in the designated area(s). Employees of Tenant shall park solely in
areas designated on Exhibit "A!' and are specifically prohibited from parking
elsewhere on the premises. Within ten (10) days after a request by Landlord,
Tenant shall deliver to Landlord a list of Tenant's and its employees'
automobiles which list shall set forth the description of the license numbers
assigned to such automobiles and their state of issue. Thereafter, Tenant shall
advise Landlord of any changes, additions or deletions to such list. Specific
damages being incapable of determination, the parties agree that Tenant shall be
required to pay liquidated damages of $50.00 per day for every day of violation
hereof after notice to desist, in addition to all other remedies of Landlord
provided herein.
2. ASSIGNMENT OR SUBLETTING
Tenant may not assign this Lease nor sublet the premises or any part
thereof nor mortgage, pledge or hypothecate its leasehold interest hereunder
without the proper written consent of Landlord which consent shall not be
unreasonably withheld. Consent to any particular assignment or subletting shall
not be deemed consent to any further or subsequent assignment or subletting.
3. USE OF PREMISES
(A) Tenant shall operate its business under the trade name Skylands
Community Bank and the premises shall be used only for a commercial banking
operation and related activities and for no other specific use as a material
consideration to Landlord in order that there will be maintained within the
Tract an appropriate tenant mix and continuous operation of all businesses
therein. The premises shall not be used for other purposes either directly or
indirectly without written consent of the Landlord. Landlord shall not let
premises within Crossroads Center to any other tenant with the same business,
save the last three (3) months of the Term and/or Renewal Terms, provided Tenant
promptly exercises its Renewal Term options in a timely fashion.
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4. TERM
The Term of the Lease shall be for a period of two (2) years,
commencing March 1, 2000 (the "Commencement Date"), and ending February 28, 2000
(the "Term"). Notwithstanding the above, if Tenant shall enter into possession
of the premises prior to the Commencement Date, all terms, covenants and
conditions of this Lease shall be binding upon Tenant, except for the obligation
to pay rent.
5. RENT
(A) Tenant shall pay to Landlord as fixed minimum annual rent
during the Term the following sum, payable in equal monthly
installments, "Basic Rent":
1st year: $54,284.06 ($4,523.67/ mo.)
2nd year: Base year, plus % increase in CPI for most recently published index as
of march 1, 2001.
All installments of Basic Rent shall be payable in advance without
setoff, deduction or counterclaim, and without previous notice or demand
therefor, with the first installment to be due and payable on March 1st, and
each subsequent installment to be due and payable on the first day of each month
of the term.
(B) In addition to the Basic Rent, Tenant shall pay to Landlord, as additional
rent, without previous notice or demand therefor except as herein otherwise
provided (subject to no setoff, deduction or counterclaim), and in the manner
and upon the conditions herein set forth, all other charges provided for
hereunder to be paid by Tenant. Any and all sums required to be paid by Tenant
hereunder is deemed additional rent subject to the same duties and obligation of
Tenant with respect to Basic Rent ("Additional Rent"). All rents of any nature
shall be paid and delivered to Landlord at Landlord's address set forth at the
head of this Lease, or to such other address as Landlord may from time to time
designate by notice to Tenant.
(C) Basic Rent and Additional Rent are sometimes herein collectively
referred to, in the plural or in the singular, as "Rent".
(D) The responsibility of Tenant to pay rent of any nature due under
this Lease shall, if not paid as of the time of expiration of the Term or other
termination of this Lease, survive such expiration or other termination.
(E) In the event that any installment of any rent payment is not
paid in full within ten (10) days after it becomes due, a late fee of five
percent (5%) of any amount(s) outstanding will be charged for each month or part
thereof that the rent is overdue. In the event that any installment of any
rental payment is paid by an instrument that is not honored by the institution
that it was drawn against, Tenant shall pay a dishonor fee to Landlord of fifty
dollars ($50.00) in addition to the rental payment and any late fee, and
Landlord may require any and all future installments of Basic Rent and/or
Additional Rent to be paid by certified check, money order to cash.
6. SECURITY
Contemporaneously, with the execution of this Lease, Tenant has
deposited with Landlord the sum of $5,214.72 as security for the performance by
Tenant of all of the terms, covenants and conditions of this Lease by Tenant to
be kept and performed. If, at any time during the Term, any of the rent herein
reserved or provided to be paid shall be overdue and unpaid beyond any
applicable grace period, Landlord may, at its option, appropriate and apply any
portion of the deposit to the payment of any such overdue rent; and in the event
of the failure of Tenant to keep and perform any other term, covenant and/or
condition of this Lease to be kept and performed by Tenant, Landlord, at its
option, may appropriate and apply the deposit, or so much thereof as may be
necessary, to compensate Landlord for the loss or damage suffered by Landlord
due to Tenant's breach.
In the event that Tenant shall fully and faithfully comply with all
of the terms and conditions of this Lease, the security deposit shall be
returned to Tenant following the end of the Term and after delivery to Landlord
of entire possession of the premises in the condition required by the term of
this Lease. Landlord may deliver the security deposit to the purchaser of
Landlord's interest in the premises, in the event that such interest is sold or
transferred, and thereupon Landlord shall be discharged from any further
liability with respect to the security deposit.
7. COMMON AREA
Landlord hereby grants to Tenant, during the Tern of this Lease, the
nonexclusive right to use, in common with all others so entitled, the Common
Areas for pedestrian and vehicular traffic. The Common Areas shall be subject to
the exclusive control and management of Landlord and to such rules and
regulations as Landlord may, from time to time, adopt. Landlord reserves the
right to change the areas, locations and arrangement of parking areas, access
and other common area; to enter into, modify and terminate easements and other
agreements pertaining to the maintenance of the Common Areas to such extent and
for such time as may, in the sole discretion of Landlord's counsel, be legally
necessary to prevent a dedication thereof or the accrual of any right to any
person or to the public therein; to close temporarily, if necessary, any part of
the Common Areas in order to discourage non-customer parking; and
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<PAGE> 3
to make changes, alterations or improvements in and to such Common Areas,
provided that there shall be no unreasonable obstruction of Tenant's right of
ingress to or egress from the Premises. Landlord agrees to not erect any
structure or structures that would impair the visibility of the Tenant.
8. ASSESSMENT & COLLECTION OF MAINTENANCE & OPERATIONS COSTS
(A) Landlord shall operate, maintain and repair the Shopping Center
(except those areas which Tenant shall operate, maintain and repair as required
in this Lease) in such manner as Landlord shall determine in its sole
discretion. For these services, Tenant shall pay as Additional Rent, within ten
(10) days following written demand therefor by Landlord, 10. 12% of Landlord's
costs incurred in the ownership, operation, insurance, real estate taxes, repair
and maintenance of the Shopping Center. As example, such costs may include but
are not limited to: snow removal; landscaping; maintenance & repair of parking
lot, common areas, building exteriors and maintenance and service equipment;
related personnel costs; liability and hazard insurance; and real estate taxes.
An administrative fee of fifteen percent (15%) of all such costs will be
assessed to Tenant by Landlord to cover Landlord's cost in allocating and
collecting these funds. It is understood by the parties that this provision is
not intended to operate as a profit-center to Landlord but is only intended to
reimburse Landlord for actual costs. Excluded from these charges are the
following: depreciation or replacement of capital structural improvements, By
way of clarification, the administrative fee of fifteen percent (15%) is a gross
fee on all common area charges of which Tenant will then pay their proportionate
share.
(B) At the option of Landlord, the share of Maintenance and
Operational Costs for which Tenant is responsible hereunder shall be paid in
monthly installments in such amounts as are estimated and billed by Landlord,
each such installment being due on the first day of each month, If Landlord
elects such option, which it may to from time to time, then within sixty (60)
days after receipt by Landlord of the final determination of Maintenance and
Operational Costs for the applicable period, Landlord shall make available for
Tenant's inspection, upon written request therefor, copies of such bills and a
reasonably detailed statement of Maintenance & Operational Costs, and any
adjustment shall promptly be made to compensate for any overpayment or
underpayment made by Tenant in the preceding period. It is the intent of
Landlord to so adjust as of January 1st of each year, as far as is practical,
Notwithstanding, the above Tenant shall make payment of any underage within
thirty (30) days.
9. MAINTENANCE OF LEASED PREMISES
(A) Landlord shall be responsible for providing for ordinary and
routine maintenance and repair of the following: heating, cooling, plumbing and
electrical (up to panel box) systems; doors and locks; windows; roof-, sprinkler
system; exterior signage; and exterior walls. All said costs of maintenance and
repair shall be assessed to Tenants pursuant to Paragraph 8. Repair or
maintenance costs occasioned by the extraordinary wear, negligence, or
misconduct of Tenant, its agents employees, licensees or invitees shall be
chargeable as additional rent directly to Tenant and shall not be included in
ordinary assessments under Paragraph 8.
(B) Tenant shall have the responsibility to maintain the premises in
good order and in a clean and safe condition. Tenant's responsibility to repair
and maintain the premises, other than as addressed above, includes the
following: carpet and flooring care and maintenance; painting and decorating;
light bulb/ballast replacement (bulbs shall not be removed by Tenant upon
termination of this Lease); repair and maintenance to interior walls and
ceilings; interior janitorial services; and delivery of trash and refuse to the
approved receptacle.
10. INSURANCE AND INDEMNITY; NON-LIABILITY
(A) During the Term, Tenant shall keep in effect a policy of public
liability insurance with respect to the premises as to which the limits of
liability for personal injury shall not be less that One Million Dollars ($
1,000,000.00) per accident or occurrence to one or more than one person and as
to which the limits of liability for property damage shall not be less than Two
Hundred Fifty Thousand Dollars ($250,000.00) per occurrence. The policy shall
name Landlord and Tenant as insureds, and shall contain clauses (i) that all the
provisions thereof, except the limits of liability, shall operate in the same
manner as if there were a separate policy covering each insured, (ii) that the
insured will not change or terminate the insurance without first giving to
Landlord at least thirty (30) days prior written notice, and (iii) that the
insurance will not be invalidated by any act or neglect of Tenant, or of an
employee or licensee thereof. Tenant shall be responsible for reimbursement to
Landlord, upon demand, of the cost of replacing any damaged glass at the
premises damaged by Tenant or any of Tenants invitees, licensees, employees,
customers or anyone under Tenant's control or supervision. Copies of all
policies or certificates of insurance shall be delivered to Landlord on or
before the Commencement Date or, as the case my be, any earlier date upon which
Tenant shall enter into occupancy of the premises or any portion thereof.
(B) Tenant will indemnify and hold Landlord harmless against all
claims, actions, damages, losses, liability and expense, including court costs
and reasonable attorneys' fees, in connection with loss of like, personal injury
and/or damage to property arising out of any occurrence in, upon or at the
premises, or the occupancy or use by Tenant of the premises or of any part
thereof, or occasioned wholly or in part by any negligence of Tenant, its
agents, contractors, employees, servants, licensees, invitees or subtenants.
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(C) Tenant, at Tenant's own cost and expense, shall also maintain
insurance protecting and indemnifying Landlord and Tenant against any and all
damage to or loss of Tenant's alterations, equipment, furnishings, furniture,
fixtures and contents in the premises or the building and all claims and
liability relating thereto.
(D) Tenant, at Tenant's own cost and expense, shall also maintain
insurance protecting and indemnifying Landlord and Tenant against any and all
damage to or loss of plate glass, if applicable to this tenancy.
11. INSURANCE RESTRICTIOES
The Tenant shall not stock, use or sell any article or merchandise
or do anything in or about the demised premises which may be prohibited by
Landlord's insurance policy or any endorsement or form attached thereto, or
which will increase insurance rates or premiums of the Landlord's insurance
covering either the demised premises or the building of which they are a part.
The Tenant agrees, at its own cost and expense, to comply with all of the rules,
regulations and requirements of the Fire Insurance Rating Organization and the
Board of Fire Insurance Underwriters having jurisdiction and any similar body
and of Landlord's insurance carrier. In addition to any other remedies which the
Landlord may have for the Tenant's violation of the preceding sentence, the
Tenant shall pay as Additional Rent, within thirty (30) days of the receipt by
the Tenant of an invoice for additional premium or premiums, any increase in
premium or premiums that may be charged on insurance carried by the Landlord by
reason of Tenant's occupancy, acts or omissions. In determining whether
increased premiums are the result of the Tenant's occupancy, acts, or omissions,
rating schedules utilized by the insurer shall be deemed conclusive evidence.
If, due to Tenant's occupancy, acts or omissions, any insurance shall be
cancelled by the insurance carrier, then in any of such events, the Tenant shall
indemnify and hold the Landlord harmless against any loss which would have been
covered by such insurance.
12. LIMITATIONS ON LANDLORD'S LIABILITY
(A) Landlord shall not be liable for any damage or injury which may
be sustained by Tenant or any other person as a consequence of the failure,
breakage, leakage or obstruction of the water, plumbing, steam, sewer, waste or
soil pipes, roof drains, leaders, gutters, valleys, downspouts or the like, or
of the electrical, gas, power, conveyor, refrigeration, sprinkler,
air-conditioning or heating systems; or by reason of the elements; or resulting
from the carelessness, negligence or improper conduct on the part of Tenant or
any employees, servants, licensees, invitees or subtenants.
(B) The term "Landlord7', as used in this Lease, means only the
owner for the time being of the Tract, so that in the event of any sale thereof,
Landlord or any successor landlord, as the case may be, shall automatically be
relieved of all Landlord's covenants and obligations hereunder and the purchaser
shall automatically be deemed to have assumed all covenants and obligations of
Landlord hereunder.
(C) The liability of Landlord in the event of breach by Landlord
shall be limited to Landlord's interest in the Tract. Accordingly, it is
understood that any judgment or award which Tenant may obtain against Landlord
may only be satisfied out of the interest of Landlord in the Tract, and that
Tenant shall have no recourse against any other property of Landlord or against
any property of any individual shareholder, partner or other principal of
Landlord. It is further understood that the foregoing limitations shall apply as
to any successor landlord(s).
13, ALTERATIONS & REPLACEMENTS
(A) Tenant shall not, without the prior written consent of Landlord,
make or permit to be made any installations, alterations, restorations, changes
or replacements (hereinafter called "Alterations") in, of or to the premises.
Any permitted Alterations shall be made in a good and workmanlike manner, shall
comply with all applicable laws, orders and regulations of federal, state,
county and municipal authorities, with any direction pursuant to law or given by
any public officer, and with all regulations of any board of fire underwriters
or similar organization have jurisdiction, and shall not be undertaken in a
manner as would unreasonably interfere with or disturb any other tenant(s) in
the building.
(B) Tenant shall discharge or band any mechanic's lien, or other
lien or encumbrance created by the acts of Tenant, which may be filed against
the premises, within a period of fifteen (15) days after Tenant receives notice
of filing of such
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of the Center is important to the continuing success of the Center, therefore,
the style and design of Tenant's sign will be the same quality and type as
existing signs, Tenant shall be responsible for the payment of all signs; labor,
materials and installations,
(B) Tenant agrees to permit Landlord, during the three (3) month
period prior to expiration of the Term, or any renewals or extensions of the
Term, to place the usual notice of "To Lease" or "For Rent" or similar
provisions to be placed on the premises, without hindrance or obstruction of its
view.
(C) Tenant shall not install any signage or other advertising media
visible or audible from or to the exterior of the premises without the prior
written consent of Landlord. Specific damages being incapable of determination,
violation hereof shall be cause for assessment of liquidated damages against
Tenant of $50.00 per day for each day of violation after notice to desist, in
addition to all other remedies of Landlord.
15. UTILITIES
(A) Tenant shall pay as additional rent in each instance, on or
before the due date, all charges for water, electricity and all other utilities
servicing the premises, which utilities shall be separately metered as to the
premises. Such payments shall be made directly to the applicable utility
companies unless Landlord, at its option, gives notice to Tenant of Landlord's
intention to make any particular payment(s), in which event Tenant shall
reimburse Landlord therefore upon demand.
(B) In the event any governmental authority shall order mandatory
energy conservation, or if Landlord elects voluntarily to cooperate at the
request of any governmental authority with an energy conservation program, then
Tenant shall likewise comply with such requirements. Tenant's compliance with
such requirements shall not entitle Tenant to any abatement of rent or damages
for any injury or inconvenience occasioned thereby nor shall it be construed as
an eviction or disturbance of possession.
16, OBSERVANCE OF LAWS
Tenant shall comply with all statutes, ordinances, rules, orders,
regulations and requirements of all governmental authorities relating to
Tenant's business and maintenance and operation of the premises. Tenant shall
faithfully observe, in the use of the premises, regulations of a board of fire
underwriters or similar agency for the prevention of fires, including but not
limited to, any sprinkler system modifications and/or installations, the need
for which is occasioned by Tenant's use or occupancy of the premises. Tenant may
contest any of such statutes or the like, provided that Tenant shall indemnify
Landlord for any loss or liability (including but not limited to reasonable
attorneys' fees incurred by Landlord). Landlord agrees to cooperate with any
such contest, provided that Landlord shall incur no out-of-pocket expense.
Tenant shall not do or suffer to be done, or keep or suffer to be kept, anything
in, upon or about the premises or building which will contravene Landlord's
insurance policies or which will prevent Landlord from procuring policies in
companies acceptable to Landlord.
17. DAMAGE TO PREMISES
(A) If the building shall be damaged by fire, the elements,
unavoidable accident or other casualty, then, subject to the provisions below,
Landlord shall cause the damage to be repaired. In doing so, Landlord shall
commence its repairs promptly and diligently proceed with same, but in no event
shall Landlord be required to incur costs in excess of the net insurance
proceeds received by Landlord.
(B) If the building shall be so damaged or destroyed as to require
substantially a rebuilding thereof, or if any partial damage or destruction
shall be such as would render the premises untenantable for a period in excess
of one hundred fifty (150) days, either party shall have the right to cancel
this Lease by written notice to the other served within thirty (30) days after
the occurrence, effective as of the occurrence. Upon such termination, ass Rent
and Additional Rent shall be apportioned as of the date of the occurrence.
(C) If more than 50% of the square footage of the entire Shopping
Center (inclusive of office space) is damaged and whether or not tenants'
premises are damaged, Landlord shall have the right to terminate this Lease by
notice in writing to Tenant and thereafter there shall be no further liability
between the parties.
(D) Tenant shall immediately notify Landlord in case of fire or
other damage to the premises.
(E) The repair and restoration of any damage to the property of
Tenant or to the decorations and/or Alterations of Tenant shall not be the
responsibility of Landlord.
(F) In the event any damage or destruction to the building renders
the premises untenantable, all rent shall be abated during such period of
untenantability, except if the damage or destruction shall be due to the
negligence or misconduct of Tenant, its agents or employees. If any such damage
or destruction renders the premises partially untenantable, all rent shall be
equitable apportioned, subject to the above-stated exception. For purposes of
this paragraph (F), the word "rent" shall not included any Additional Rent as
may be due from Tenant by reason of default by Tenant under any term, covenant
or condition of this Lease.
18. EMINENT DOMAIN
(A) In the event that egress or ingress from or to the premises or
any utility necessary to operate the premises shall be appropriated or taken
under the poser of eminent domain by any public or quasi-public authority
(without the provision by Landlord of alternative ingress and egress), Tenant
may terminate this Lease, effective as of the date of taking, by written notice
to
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Landlord given within thirty (30) days from the date of such taking, and the
parties shall thereupon be released from any liability to each other accruing
thereafter. Upon such termination, all Rent and Additional Rent shall be
prorated to the date of termination.
(B) If a portion of the building shall have been appropriated or
taken and if this Lease shall continue, then and in that event, Landlord agrees
to promptly commence restoration of the building to a complete unit of like
quality and character as existed prior to such appropriation or taking. In no
event, however, shall Landlord be obligated to incur costs in excess of the net
condemnation award received by Landlord.
(C) In the event of any appropriation or taking as aforesaid,
whether whole or partial, Tenant shall not be entitled to any part of the award
paid for such condemnation except as otherwise provided in paragraph (D)
immediately below, and Landlord shall be entitled to receive the full amount of
such award.
(D) Tenant shall have the right to recover from the condemning
authority all compensation then permitted by laws as may be separately
recoverable by Tenant by reason of the condemnation (provided that such separate
award shall not reduce the compensation which otherwise would be payable to
Landlord), including compensation for costs of relocating Tenant's business.
19. DEFAULT AND REMEDIES
(A) If Tenant defaults in the payment of Basic Rent or any
Additional Rent and fails to cure the default within fifteen (15) days after
same is due, or if Tenant defaults in compliance with any of the other covenants
or conditions of this Lease and fails to cure the same within thirty (30) days
after the receipt of notice specifying the default, then at the expiration of
such
fifteen (15) days or thirty (30) days, as the case may be, Landlord may (a)
cancel and terminate this Lease upon written notice to Tenant (whereupon the
Term shall terminate, and Tenant shall then quit and surrender the premises to
Landlord, but Tenant shall remain liable as hereinafter provided) and/or (b) at
any time thereafter re-enter and resume possession of the premises as if this
Lease had not been made, Tenant hereby waiving the service of any notice of
intention of re-enter or to institute legal proceedings to that end. Anything
above to the contrary notwithstanding, the said thirty (30) days for the period
of time necessary to effect the cure provided that Tenant shall diligently
commence the cure during such thirty (30) day period and shall diligently
prosecute the cure to completion.
(B) If this Lease shall be terminated or if Landlord shall be
entitled to re-enter the premises and dispossess or remove Tenant under the
provisions of this Section (either or both of which events are hereinafter
referred to as a "Termination"), Landlord or Landlord's agents or servants may
immediately or at any time thereafter re-enter the premises and remove therefrom
Tenant, its agents, employees, servants, licensees, and any subtenants and other
persons, and all or any of its or their property therefrom, either by summary
dispossess proceedings or by any suitable action or proceeding at law or by
peaceable re-entry or otherwise, without being liable to indictment, prosecution
or damages therefor, and may repossess and enjoy the premises, including all
Alterations.
(C) In case of Termination, the Basic Rent and all other charges
required to be paid by Tenant hereunder shall thereupon become due and shall be
paid by Tenant up to the time of the Termination, and Tenant shall also pay to
Landlord all reasonable expenses which Landlord may then or thereafter incur as
a result of or arising out of a Termination, including but not limited to court
costs, reasonable attorneys' fees, brokerage commissions, and costs of
terminating the tenancy of Tenant, re-entering, dispossessing or otherwise
removing Tenant and restoring the premises to good order and condition, and from
time to time altering and otherwise preparing the same for re-letting. Upon a
Termination, Landlord may (but shall not be obligated to), at any time and from
time to time, re-let the premises, in whole or in part, either in its own name
or as Tenant's agent, for a term or terms which, at Landlord's option, may be
for the remainder of the Term or for any longer or shorter period.
(D) In addition to the payments required hereinabove in this Section
19, Tenant shall pay to Landlord upon demand and at Landlord's option:
(i) liquidated damages in an amount which, at the time of
Termination, is equal to the excess, if any, of the then present amount of the
installments of Basic Rent and Additional Rent reserved hereunder, for the
period which would otherwise have constituted the unexpired portion of the Term,
over the then present rental value of the premises for such unexpired portion of
the Term,
(ii) damages (payable in monthly installments, in advance, on
the first day of each calendar month following the Termination, and continuing
until the date originally fixed herein for the expiration of the Term) in amount
equal to the excess, if any, of the sums of the aggregate expenses paid by
Landlord during the month immediately preceding such calendar month for all such
items as, by the terms of this Lease, are required to be paid by Tenant, plus an
amount equal to the installment of Basic Rent which calendar month, had this
Lease not been terminated, over the sum of such calendar month pursuant to a
re-letting or to any holding over by any subtenants of Tenant.
(E) Landlord shall make a good faith attempt but in no event be
liable for failure to mitigate or failure to re-let the premises, or in the
event that the premises are re-let, for failure to collect rent due under such
re-letting; and in no event shall Tenant be entitled to receive any excess or
rents over the sums payable by Tenant to Landlord hereunder but such excess
shall be credited to the unpaid rents due hereunder, and to the expense of
re-letting and preparing for re-letting as provided herein.
(F) Suit or suits for the recovery of damages hereunder, or for any
installments of rent, may be brought by Landlord from time to time at its
election, and nothing herein contained shall be deemed to require Landlord to
postpone suit until the
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date when the Term would have expired if it had not been terminated under the
provisions of this Lease, or under any provision of law, or had Landlord not
re-entered into or upon the premises.
(G) Landlord, at its option, in addition to any and all remedies
available to it, shall have the right to charge a fee for payment of Basic Rent
and/or Additional Rent received later than ten (10) days after the date due,
which fee shall be equal to five percent (51/6) per month applied to the amount
of such overdue rent.
(H) Tenant hereby waives all rights of redemption to which Tenant or
any person claiming under Tenant might be entitled, after an abandonment of the
premises, after a surrender and acceptance of the premises and the Tenant's
leasehold estate, after a dispossession of Tenant from the premises, after a
termination of this Lease, after a judgment against Tenant in an action in
ejectment, after the issuance of a final order or warrant of dispossess in a
summary proceeding, or an any other proceeding or action authorized by any rule
of law or statute now or hereafter in force or effect.
(I) No mention in this Lease of any specific right or remedy shall
preclude Landlord from exercising any other right or from having any other
remedy or from maintaining any action to which Landlord may otherwise be
entitled hereunder or at law or in equity.
(J) Should Tenant be adjudicated a bankrupt, insolvent or placed in
receivership, or should proceedings be instituted by or against Tenant for
bankruptcy, insolvency, receivership, agreement or composition or assignment for
the benefit of creditors, or if this Lease or the estate of Tenant hereunder
shall pass to another by virtue of any court proceedings, writ of execution,
levy, sale or by operation of law, Landlord may, if Landlord so elects, at any
time thereafter, terminate this Lease upon giving to Tenant, or to any trustee,
receiver, assignee or other person in charge of or acting as custodian of the
assets or property of Tenant, five (5) days notice in writing of Landlord's
intention to do so. Upon the giving of such notice, this Lease shall end on the
date fixed in such notice as if such date were the date originally fixed in this
Lease for the expiration hereof, and Landlord shall have the right to remove all
persons, goods, fixtures and chattels therefrom by force or otherwise, without
liability for damages.
(K) If Tenant shall be in default hereunder in any respect, Landlord
may, at Landlord's option and without waiving its rights hereunder, cure such
default on behalf of Tenant, in which event Tenant shall, promptly upon demand
by Landlord, reimburse Landlord for all expenses incurred by Landlord in
effecting such cure, including but not limited to reasonable attorneys' fees,
together with interest on such expenses at fifteen percent (15%) per annum. In
order to collect such reimbursement, Landlord shall have all the remedies
available under this Lease and/or by law or equity for a default in the payment
of Rent. Tenant shall also be responsible for all court costs and reasonable
attorneys' fees incurred by Landlord in connection with any default or
threatened default by Tenant, the enforcement by Landlord of any covenant made
by Tenant, and/or Landlord's exercise of any right of approval or consent as may
be provided for hereunder, whether or not there shall be instituted any
litigation or proceedings relating to this Lease.
20. MORTGAGE SUBORDINATION
This Lease shall be subordinate to the lien of any present or future
mortgage(s) on the premises. Not withstanding the automatic nature of such
subordination as may be reasonably requested by Landlord or by any proposed
mortgagee. In default of
such responsibility, Tenant hereby appoints Landlord as Tenant's
attorney-in-fact to execute, acknowledge and deliver such instrument for and in
the name and stead of Tenant, such power of attorney given to Landlord to be
deemed irrevocable and coupled with an interest. A refusal by Tenant for fifteen
(15) days after written notice to execute such instrument shall entitle
Landlord, at its option, to cancel this Lease without incurring any liability on
account thereof, and the term of this Lease is expressly limited accordingly. If
any mortgagee elects to have Tenant's interest in this Lease rendered superior
in priority to that mortgagee's lien on the Premises, then by notice to Tenant,
this Lease shall be deemed superior to that mortgagee's lien, whether this Lease
was executed before or after execution or recording of the instrument creating
that mortgagee's lien.
21. ESTOPPEL OR OFFSET STATENENTS
Tenant shall, upon the reasonable request from time to time or
Landlord, execute and deliver an estoppel or offset statement (a) certifying
that this Lease is in full force and effect and has not been modified or
amended, or stating all amendments and modifications thereto-, (b) specifying
the dates to which Rent and Additional Rent have been paid; (c) stating whether
or not Tenant alleges that Landlord is in any respect in default, and, if so,
specifying the alleged default; (d) stating the Commencement Date; (e) stating
which options to renew have been exercised, if any; and (f) stating any other
factual matters relating to this Lease as may reasonably be requested by
Landlord such as amount of security deposit, if any.
22. HOLDOVER
In the event that Tenant shall for any reason remain in possession
of the premises after the expiration of the Term, such possession shall, at the
option of Landlord, be on a month-to-month basis subject to the terms and
conditions of this Lease except as to duration of term, and except that the
Basic Rent shall be twenty-five percent (25%) greater than that in effect on the
last day of the Term. If such holdover runs beyond 6 months, then the basic rent
would be increased by an additional 25% over that in effect for the first 6
months of holdover,
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23. FORCE MAJEURE
The period of time during which either party is prevented or delayed
in the making of any improvements or repairs or fulfilling any obligation
required under this Lease, with the exception of obligations of the payment of
Rent or Additional Rent, due to unavoidable delays caused by fire, catastrophe,
strikes, labor trouble, civil commotion, Acts of God or public enemies,
government prohibitions or regulations or inability to obtain materials or any
other causes beyond such party's reasonable control, shall be added to such
party's time for performance thereof, and such party shall have no liability by
reason thereof It is understood, not in limitation of the generality of the
foregoing, that Landlord shall under no circumstances be liable to Tenant in
damages or otherwise for any interruption in service of water, electricity,
heating, air-conditioning and/or other utilities and services of any nature
caused by an unavoidable delay, by the making of any necessary repairs or
improvements or by any cause beyond Landlord's reasonable control.
Notwithstanding the above, and in the event that any such conditions
prevent the Tenant from reasonably utilizing the premises for the purposes set
forth herein, all rent shall be abated during the time of such inability to use
the premises.
24. ENTRY BY LANDLORD
Landlord shall exercise its right of access for such purposes, if
exercised at all, upon reasonable advance notice to Tenant and in a manner not
unreasonably to interfere with Tenant's business at the premises. At all times
during the Term, Tenant will permit Landlord, its agent, employees and
contractors, to enter the premises during business hours in order to inspect the
same, to enforce or carry out any provision of this Lease and/or to install,
repair, replace or realign any utility lines serving the premises.
For a period commencing three (3) months prior to expiration of the
Term, Landlord may have reasonable access to the premises for the purpose of
exhibiting the same to prospective tenants.
25. END OF TERM
Upon expiration of the Term or other termination of this Lease,
Tenant shall peaceably and quietly quit and surrender the premises, broom clean,
in good order and condition, reasonable wear and tear and damage by fire or
other casualty excepted. Tenant shall have the right to remove its trade
fixtures but shall be obligated to repair any damage caused in removing same and
to restore the premises to such condition as existed at the Commencement Date,
reasonable wear and tear excepted.
26. FLOOR LOADS
Tenant shall not place a load upon any floor of the premises
exceeding the floor load per square foot area, which it was designed to carry
and which is allowed by law. Landlord reserves the right to prescribe the weight
and position of all safes, business machines and mechanical equipment. Any
equipment or property of any nature placed or installed by Tenant in the
premises shall be placed and maintained in setting sufficient, in Landlord's
judgment, to absorb and prevent vibration, noise and annoyance.
27. CONDUCT OF BUSINESS
Tenant shall not engage in any activity on the premises constituting
a nuisance. Tenant shall conduct its business on the premises in a dignified
manner and in conformity with the highest standards of practice obtaining among
stores dealing in the same or similar merchandise and the standards generally
applicable to the Business Zone, and shall at all times keep the premises in a
clean, orderly and sanitary condition. Tenant shall not conduct any auction,
loss of lease, fire, bankruptcy or going-out-of-business sale at the premises,
or any other special sale other than is incident to the normal and established
routine of Tenant's business with its regular clientele. Nothing herein shall be
deemed to restrict the freedom of Tenant to determine its own selling prices and
to conduct periodic seasonal, promotional or normal clearance sales. Tenant
shall keep its business open continuously and uninterruptedly (except for
periodic vacations, not to exceed two (2) weeks per year) during customary
business hours for stores dealing in the same or similar merchandise.
28. NOTICES
Wherever in this Lease it shall be required or permitted that notice or demand
("Notice") be given or served by either party to this Lease to or on the other,
such Notice shall be in writing and may either be served personally upon the
parties or upon the next business day after mailing, as the case may be, except
that a mailed notice changing an address for notice purposes hereunder shall be
effective upon receipt.
29. ATTORNNENT
Tenant shall attorn to any new owner of the Tract, including
Landlord's mortgagee, and shall execute such attornment instrument as shall
reasonable be requested by such new owner,
30. WAIVER OF SUBROGATION
Landlord hereby releases Tenant from liability for damage or
destruction to the Building, and Tenant hereby releases Landlord from liability
for damage or destruction to any of its personal property or leasehold
improvement; provided, however, that such releases shall apply only in respect
of damage or destruction normally covered by standard policies of fire insurance
with
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extended coverage and such waivers shall apply only to the extent of proceeds
made available under such policies. Tenant and Landlord shall each cause any
policies of insurance maintained by it with respect to the premises and Building
respectively to contain a waiver by the insurers of any rights of subrogation.
31. COVENANTS TO BIND RESPECTIVE PARTIES
The covenants and agreements contained in this Lease shall inure to
the benefit of and be binding upon the parties hereto and their heirs, legal
representatives, successors and permitted assigns.
32. NO WAIVER OF BREACHES
The failure of Landlord or Tenant to insist upon strict performance
of any of the covenants or conditions of this Lease or to exercise any option
herein conferred in any one or more instances, shall not be construed as a
waiver of relinquishment for the future of any such covenants, conditions or
options, but the same shall be and remain in full force and effect. In no
circumstances shall acceptance of current rent be deemed a waiver of past
obligations of Tenant nor acceptance of partial payment be deemed other than
partially on account of rent due hereunder (and not an accord or satisfaction).
33. Q-UMT ENJOYNENT
Landlord covenants that Tenant, upon compliance with the terms and
conditions on Tenant's part to be performed hereunder, shall, subject to the
terms of this Lease, quietly enjoy the premises for the Term.
34. RULES AND REGULATIONS
Tenant shall observe such reasonable rules and regulations as may be
annexed hereto and made a part hereof, and/or as Landlord may, on written notice
to Tenant, hereafter adopt from time to time as to all tenants at the Tract.
35, NO LEASE RECORDING
Tenant agrees that it will not record this Lease or any memorandum
hereof,
36. BROKERS
Landlord represents that General Partner of Landlord is a licensed
real estate broker in the State of New Jersey.
37, RENEWAL OPTION
(A) Provided that Tenant is not then in default under the terms of
this Lease, and provided further that this Lease has not theretofore been
terminated pursuant to the provisions hereof, or of the Lease, Tenant shall have
the option to renew this Lease for four (4) additional periods of one (1) year
(the "Renewal Term"). Said option to renew shall expire and be of no force or
effect unless exercised by Tenant giving written notice thereof to Landlord,
sent not later than three (3) months prior to the expiration of the Term.
(B) All of the terms conditions a provisions of this Lease shall
remain in full force and effect during the Renewal Term, except that the minimum
rent shall be increased as follows:
1st Renewal Option: Each option shall be adjust by a % increase
equal to the CPI % increase for the most recently published 12-month period.
(C) No option granted to Tenant to renew this Lease, nor the
exercise of any such option by Tenant, shall prevent Landlord from exercising
any right granted or reserved to Landlord in this Lease, either during the
original Term or during any Renewal Terms. Any termination of this Lease shall
serve to terminate any renewal options whether or not Tenant shall have
exercised same. Any right on the part of Landlord to terminate this Lease shall
continue during any Renewal Terms, and no options granted to Tenant to renew
this Lease shall be deemed to give Tenant any further options to renew.
38. POTENTIAL LEASE CONCESSION
Landlord and Tenant have agreed that, if the doctor group which
Tenant has introduced to the Landlord rents all or part of the space that the
Tenant has vacated, then Tenant shall be entitled to as much as $ 1. 00/s.f.
concession on the Lease for the entire duration that Tenant occupies space at
Crossroads Center. Such concession will apply provided that the doctor group
rents the space during the next 12-month period and will apply from the point at
which the new tenant actually starts to pay rent at Crossroads. If the doctor
group rents less than the entire square footage which Skylands vacated, the
concession shall be proportionate to $ 1. 00 as the rented space is to the
entire space.
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described below, or may be sent by registered or certified mail,
return receipt requested, to the parties at the addresses described below - if
to Landlord, at its address stated at the head of the Lease; it to Tenant, at
the premises. Such addresses may be changed from time to time by either party by
written notice served upon the other, as above provided. Notices hall be
effective upon delivery.
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10(j) Trust Agreement dated February 24, 1992 between the Company and State
Street Bank and Trust Company relating to 401(k) Plan.
AUTOMATIC DATA PROCESSING
PROTOTYPE 401(k) PLAN
TRUST AGREEMENT
AGREEMENT dated February 24, 1992 between Skylands Community Bank
With offices at 24-26 Crossroads Center, South, Route 517, Hackettstown, NJ
07840 (the "Company") And STATE STREET BANK AND TRUST COMPANY, as trustee (the
"Trustee"), with offices located at 200 Newport Avenue, North Quincy,
Massachusetts 02171.
This Agreement establishes a trust fund (the "Trust") forming part of the
plan established by the Company using the Automatic Data Processing Prototype
401(k) Plan ( the "Plan") and a related adoption agreement. Unless the context
clearly indicates otherwise, any terms defined in the Plan docurnent shall have
the same meaning when used in this Agreement,
The Company and the Trustee agree as follows:
1.1 ESTABLISHMENT OF TRUST.
ARTICLE I - ESTABLISHMENT
The Company establishes the Trust, which will consist of amounts contributed or
transferred to the Plan in accordance with its terms, investments and proceeds
thereof and earnings thereon, reduced by all payments from the Trust. All assets
from time to time held under the Plan will be held in the Trust and will be
subject to this Agreement. The Trustee accepts the Trust and agrees to
administer the Trust as provided in this Agreement. However, the Trustee will
have no liability or responsibility for the validity, tax qualification or legal
effect of the Company's Plan.
2.1 ACCEPTANCE OF CONTRIBUTIONS TO TRUST.
ARTICLE 2 - DUTIES OF TRUSTEE
The Trustee shall have the sole responsibility for selection of the
Investment Funds to be made available to the Company under the Plan
(from amongst which the Administrative Committee shall make its
selection pursuant to Section 4.11(a) hereof), provided, however,
that the Company, by establishing and maintaining the Trust, is the
responsible fiduciary with respect to the selection of such
Investment Funds as the available Investment Funds under the Plan,
and the Administrative Committee is the fiduciary responsible for
the selection of specific Investment Funds from those available, all
as provided in Section 4.1. Each Investment Fund shall be managed by
the Trustee, and there shall be no investment managers (as defined
by ERISA Section 3(38)) under the Trust. The Company and the Trustee
hereby acknowledge that, in addition to the limitations contained in
Section 10.6 hereof, neither the Sponsor nor ADP (nor any affiliate
of ADP) has any authority to select such Investment Funds.
(b) The Trustee will accept such contributions made on behalf of
Participants under the Plan as it receives from time to time from
the Company or a Participating Affiliate. The Trustee will also
accept Rollover Contributions to the Trust made by Participants in
accordance with the Plan. At the direction of the Administrative
Committee, the Trustee will also accept Transfer Contributions to
the Trust from another qualified plan or qualified annuity plan
covering Participants. All such contributions will be in cash only.
(c) The Trustee will have no responsibility for determining the proper
time or amount of any contribution to the Trust, for enforcing the
collection of any contribution to the Trust, or for determining that
contributions satisfy any applicable requirement of the Plan or law
including, without limitation, the minimum contributions
requirements of Code Section 416, Also, the Trustee will have no
responsibility for determining whether the amount of any
contribution (or the portion of such contribution allocated to the
Account(s) of a Participant) meets any applicable legal requirements
or is within any applicable limit including, without limitation, the
limits imposed by Code Sections 401(k) and (m), 402(g), 404 and 415.
The contribution or transfer of any amount to the Trustee hereunder
constitutes a certification by the Company and the Administrative
Committee that such contribution or transfer is in accordance with
the Plan.
2.2 MAINTAIN ACCOUNTS.
The Trustee will maintain accounts or other trust accounting records, and
will make credits to or charges against such accounts, as necessary for
the Trustee to carry out its responsibilities under this Agreement.
2.3 INVESTMENTS.
The Trustee will invest the assets of the Company's Plan as directed in
accordance with the relevant provisions of the Plan document and related
adoption agreement, this Agreement (including particularly Sections 4.1
and 4.2 hereof), and any other applicable agreement between the Company
and the Trustee. In investing the assets of a Participant's Account(s),
the Trustee will follow the investment directions of t)e Participant; the
intention ofthe parties being that the Plan and this Agreement comply with
ERISA Section 404(c).
2.4 MAKE PAYMENTS.
Upon receipt of written directions from the Administrative Committee
certifying that an amount is payable to or for the benefit of a
Participant or other person under the Plan, whether as a distribution,
transfer, withdrawal or the disbursement of a loan, the Trustee will pay
such amount (or begin installment payments) in accordance with such
directions, and the Trustee will be fully protected in, and will not incur
any liability for, so doing. The Administrative Committee's directions
will include all information necessary to enable the Trustee to make such
payment and the Administrative Committee's giving of such directions
constitutes a certification from the Administrative Committee to the
Trustee that such payment is in accordance with the Plan. The Trustee will
have no responsibility for any delay in making payment pending receipt
from the Administrative Committee of all information needed to make the
payment (including proper income tax withholding instructions signed by
the recipient), for the application of any payment by the recipient, for
determining the rights or benefits of any person in the Trust or under the
Plan, for calculating or determining any amount to be distributed to a
Participant or Beneficiary (including, without limitation, any alternate
payee as defined in Code Section 414(p)(8)) for compliance with any
applicable requirements for minimum distributions, for the administration
of the Plan, or for the adequacy of the Trust to meet all liabilities
arising under the Plan.
ARTICLE 3 - POWERS OF TRUSTEE
3.1 ADDITIONAL POWERS OF TRUSTEE.
In addition to and not in limitation of such powers as the Trustee has by
law or under any other provisions of the Plan and this Agreement, but
subject to the provisions of this Agreement and the requirements of
applicable law, the Trustee will have the powers specified in this Section
3.1. As provided herein, the Trustee will exercise such powers concerning
investments or other discretionary actions only as a directed Trustee, and
will not be liable or
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responsible for the consequences of its exercising any such power as
directed:
(a) to deal with all or any part of the Trust assets including the power
to acquire and dispose of assets;
(b) to hold any part of the Trust assets in cash pending the investment
or distribution thereof, without liability for interest,
(c) to enforce by suit or otherwise or to waive its rights on behalf of
the Trust, and to defend claims asserted against it or the Trust;
provided that the Trustee will not be required to institute or
defend any court or administrative proceeding unless it has first
been indemnified to its satisfaction for the costs and expenses of
such proceeding;
(d) to compromise, adjust and settle any and all claims against or in
favor of it or the Trust;
(e) to vote, or give proxies to vote, any stock or other security held
in the Trust, and to waive notice of meetings;
(f) to oppose, or consent to and participate in, the reorganization,
merger, consolidation or readjustment of the finances or
capitalization of any enterprise, to pay assessments and expenses in
connection therewith, and to deposit securities under deposit
agreements, to exercise or sell any conversion privileges or
subscription rights, and to make payments incidental thereto;
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(g) to hold securities unregistered, or to register them in its own name
(with or without indication of its fiduciary capacity hereunder) or
in the names of nominees, provided that the Trustee's records will
at all times show that such property is owned by the Trust,
(h) to make, execute, acknowledge and deliver any and all documents that
it deems necessary or appropriate to carry out its power and duties
hereunde r ' and
(1) to do all acts and things, not specified herein, which it deems
advisable to carry out the Trust, and generally to exercise any of
the powers of an owner with respect to ail or any part of the Trust.
3.2 USE OF AGENTS.
The Trustee may retain an agent or service provider (which may be the
Sponsor, Automatic Data Processing, Inc. ("ADP"), or an affiliate of ADP
or the Trustee) to perform any of its recorckeeping, custodial or other
duties hereunder.
ARTICLE 4 - INVESTMENT FUNDS
4.1 ADMINISTRATIVE COMMITTEE'S DESIGNATION.
(a) By establishing and maintaining this Trust, the Company has selected
the Investment Funds which have been made available by the Trustee
as the investment vehicles to be available to Participants under the
Company's Plan, subject, however, to the Administrative Committee's
right to designate Investment Funds pursuant to this Section 4.1
(a). If the Trustee makes more than three Investment Funds available
to Plans established using the Sponsor's prototype documents, the
Administrative Committee will designate from among such Investment
Funds those which will be available under the Company's Plan. In
designating Investment Funds, the Administrative Committee will
comply with any minimum requirements of the Trustee intended to
insure that a sufficient number and variety is available under the
Company's Plan to meet the requirements of ERISA Section 404(c). The
Trustee shall make sufficient Investment Funds available to ensure
compliance with ERISA Section 404(c).
(b) Investment Funds will include common, collective or group trust
funds (a "group trust") maintained by the Trustee for investment by
qualified plans. Where a group trust is designated as an Investment
Fund, the Trustee may combine in the group trust assets of the Trust
with assets of other pension or profit-sharing or other plans or
trusts qualified under Code Section 401 (a) and exempt from tax
under Code Section 501 (a), or with assets of individual retirement
accounts exempt from tax under Code Section 408(e) or governmental
units described in Code Section 818(a)(6), and permitted by existing
or future rulings of the United States Treasury Department to pool
their respective funds in a group trust. The provisions of the group
trust shall be deemed a part of this Agreement with respect to any
such investment.
4.2 PARTICIPANT INVESTMENT CONTROL.
(a) Each Participant will have investment control over his Account(s).
Subject to the administrative rules and procedures of the Trustee,
each Participant will specify the Investment Fund or Investment
Funds available under the Company's Plan in which contributions to
the Plan on his behalf will be invested. Notwithstanding the
foregoing, the Administrative Committee and the Trustee may agree to
permit each Participant to transmit his investment instructions
directly to the Trustee by telephonic instructions pursuant to
Section 4.3(d). Similarly, subject to the administrative rules of
the Trustee and ERISA Section 404(c), a Participant may transfer any
amount in his Account(s) from one Investment Fund to another
Investment Fund available under the Company's Plan.
(b) A Participant will exercise his investment control under the
proceeding paragraph by delivering written instructions to the
Administrative Committee. The Administrative Committee will
consolidate Participants' investment instructions and will send such
instructions to the Trustee. The Trustee will invest future
contributions on behalf of a Participant in accordance with such
instructions, or the Trustee will transfer amounts from one
Investment Fund to another in accordance with such instructions. Any
such transfer will be effected in accordance with the Trustee's
administrative procedures-
(c) Each Participant will have full responsibility for the investment
results of his investment instructions under the preceding two
paragraphs. It is intended that ERISA Section 404(c) will apply to
the Company's Plan and that, as provided in such Section 404(c), the
Trustee, the Sponsor, ADP, the Company, and the Administrative
Committee will be fully protected in carrying out the Participant's
investment directions.
4.3 UNCLEAR OR MISSING INSTRUCTIONS; TRANSMISSION OF INSTRUCTIONS.
(a) If investment instructions accompanying contributions or otherwise
regarding investments for a Participant's Account(s) are not
received or are unclear in opinion of the Trustee, the Trustee may
hold any part of the assets affected by such missing or unclear
instructions in cash, or may return contributions, in either case
without liability for interest, rising or failing securities prices,
or other income, pending receipt of clear and complete instructions.
The Trustee will, in the case of missing or unclear instructions,
seek prompt clarification of unclear instructions or prompt
furnishing of missing instructions.
(b) The Trustee may rely upon written investment instructions from the
Administrative Committee. Such instructions may also be given to the
Trustee by facsimile or other electronic transmission which contains
duplicate or facsimile signatures until the Trustee receives notice
in writing from the Administrative Committee that the use of
facsimile or other electronic transmissions is no longer authorized.
(c) If the Trustee's procedures permit telephone investment
instructions, the Trustee may rely upon telephonic investment
instructions from any individual identified by the Administrative
Committee as authorized to communicate with the Trustee under this
Agreement unless the Trustee receives notice in writing that the use
of telephonic instructions is no longer authorized. Any investment
instructions given by telephone will be promptly confirmed in
writing by the Administrative Committee. If the Trustee fails to
receive a written confirmation of any investment instructions
transmitted by telephone within five business days following receipt
of such instructions, or if written confirmation conflicts with such
instruction, the Trustee will promptly notify the Administrative
Committee of such fact and request: (i) a delivery of such written
confirmation; or (ii) additional instructions if there is a conflict
between the telephonic instructions and the written confirmation.
The Trustee will have no other responsibility or liability with
regard to accepting investment instructions by telephone.
(d) Notwithstanding the foregoing, if the Trustee and the Administrative
Committee agree to permit each Participant to transmit his
investment instructions directly to the Trustee by telephone, each
Participant shall be assigned a personal identification number. The
Trustee shall be entitled to rely on any telephone instruction by an
individual identifying himself as a Participant as long as the
correct personal identification number is provided by such
individual. No written confirmation of any such Participant
investment instruction shall be required. The Trustee will have no
other responsibility or liability with regard to accepting
Participant investment instructions by telephone. The Trustee may
record any telephone instructions given by the Participant and, by
applying for and obtaining a personal identification number, the
Participant shall consent to any such recording.
4.4 LIMITATION ON INVESTMENTS.
(a) Notwithstanding any provision elsewhere herein to the contrary:
(i) no assets of the Trust, excluding assets which have been
invested in an Investment Fund, shall be invested in any
security issued by the Company or any affiliate of the
Company;
(ii) each Investment Fund shall limit investment in any security
issued by any Company which establishes a plan using the
Sponsor's prototype documents or by any affiliate of any such
Company to the extent required for the exemption contained in
Section 3(a)(2) of the Securities Act of 1933, as amended, to
be available with respect to the Plan and the interests
therein; and
(iii) each Investment Fund shall, to the extent required to satisfy
the requirements of ERISA Section 404(c), prohibit investment
in any security issued by any Company which establishes a Plan
using the Sponsor's prototype documents or by any affiliate of
any such Company.
(b) The Company will promptly advise the Trustee if and/or when the
Company or any of its affiliates is or becomes the issuer of any
publicly traded securities.
ARTICLE 5 - PROTECTIONS OF TRUSTEE
5.1 RELIANCE BY TRUSTEE.
(a) The Trustee may rely upon any decision of the Administrative
Committee or Company purporting to be made under the Plan, and upon
any information, statements, certifications, instructions or
directions submitted by the Company or the Administrative Committee
(including statements concerning the entitlement of any Participant
to benefits under the Plan or directions to make payments). The
Trustee will not be bound to inquire as to the basis of any such
decision, information, statements, certifications, instructions or
directions, and will incur no obligation or liability for any action
taken or omitted in good faith by the Trustee in reliance thereon.
(b) Whenever the Trustee is permitted or required to act upon the
instructions or directions of the Company, the Administrative
Committee or a Participant, the Trustee will be fully protected in,
and will not incur any liability for, not acting in the absence
thereof.
(c) The Company will certify to the Trustee the names of the members of
the Administrative Committee (and of any person authorized to act on
behalf
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<PAGE> 4
of the Company or the Administrative Committee for purposes of the
Plan) and will provide the Trustee with specimen signatures of any
such person or persons. The Trustee may assume the authority of such
person or persons continues in effect until the Trustee receives
written advice from the Company or the Administrative Committee to
the contrary.
(d) The Trustee may consult with legal counsel (who may be counsel to
the Trustee or to the Company) concerning any questions which may
arise with respect to its rights and duties hereunder, and the
opinion of such counsel will be full and complete protection in
respect of, and the Trustee will not incur any liability for, any
action taken or omitted hereunder in good faith by the Trustee in
accordance with the opinion of such counsel.
5.2 ABSENCE OF INSTRUCTIONS.
If the Trustee receives no instructions from the Administrative Committee
or the Company in response to communications sent to the Administrative
Committee or the Company at the last known address of either as shown in
the records of the Trustee, the Trustee may make such determination with
respect to distributions and other administrative matters arising under
the Plan as it considers reasonable and in accordance with the provisions
of the Plan. Any determinations so made will be binding on all persons
having or claiming any interest under the Plan or Trust, and the Trustee
will incur no obligation or responsibility for any such determination made
or for any action taken by the Trustee in good faith in such
circumstances.
5.3 INDEMNIFICATION OF TRUSTEE.
The Company and the Administrative Committee and their respective
successors, assigns or legal representatives, will fully indemnify and
save harmless the Trustee and its employees, agents, successors and
assigns, from any loss (including reasonable attorneys' fees), liability
or responsibility arising out of the Trustee's actions or inactions
hereunder, unless such loss or liability arises out of the Trustee's
negligence, breach of its fiduciary duty, bad faith, or willful or gross
misconduct.
5.4 ALLOCATION OF RESPONSIBILITY.
The Trustee shall be responsible only for those functions which have been
assigned to it under the separate Plan document or under this Agreement.
Notwithstanding any provision elsewhere herein to the contrary, ~a) if and
to the extent that any non -discretionary administrative functions are
allocated to the Sponsor or ADP (or an affiliate of ADP) pursuant to a
written agreement to which the Company is a party then, except to the
extent otherwise provided in such agreement, the Trustee shall have no
responsibility for the performance of such functions and shall incur no
liability or obligations with respect thereto, (b) the Trustee shall be
entitled to rely upon information or instructions provided to it by the
Sponsor or ADP (or an affiliate of ADP) to the same extent as if such
information or instructions had been provided by the Administrative
Committee or the Participant, and (c) the Trustee shall have no
responsibility for information which may be in the possession of the
Sponsor or ADP (or any affiliate of ADP) until such information has been
received by the Trustee.
ARTICLE 6 - FEES AND EXPENSES
6.1 FEES AND EXPENSES.
(a) The Trustee's fees for performing its duties hereunder will be such
amounts as it establishes from time to time in its fee schedule
(provided that the Trustee may provide for different fees in a
written fee agreement with the Company). The Trustee may change its
fee schedule (or fee agreement) upon 60 days' advance written notice
to the Company. Such fees will be payable for each calendar month
and will not be prorated for periods of less than one calendar
month.
(b) The Trustee may charge a reasonable fee in addition to its normal
fees if it assumes any of the Administrative Committee's obligations
under the Plan, or if it provides any service not contemplated in
the fee schedule and which the Trustee deems to be necessary or
desirable or which the Administrative Committee or the Company
requests.
(c) ADP's annual maintenance fee shall be paid monthly in arrears, in
twelve installments, based on the value of all Plan assets as of the
last day of each month. Such charges shall be paid promptly after
the end of each month from the assets of the Trust. The Trustee is
hereby authorized to liquidate assets in the Trust in order to
provide for payment of such charges to ADP.
(d) The Company may authorize that all or any portion of the Company's
other fees and expenses of administering the Plan be paid from Trust
assets, and the Trustee will pay such fees and expenses as soon as
practicable (but no later than ten (10) days) after receiving notice
from the Company. The Company hereby authorizes that any and all
fees due to ADP under its Administrative Services Agreement with the
Company be paid, at ADP's request, from Trust assets if such fees
are not paid by the Company within 30 days of the date they are due
to be paid to ADP. The Trustee shall be fully protected in, and
shall not incur any liability for, any payment to ADP pursuant to
the preceding sentences.
(e) The Trustee's fee, any taxes of any kind which may be levied or
assessed upon or in respect of the Trust, and any and all expenses
reasonably incurred by the Trustee will, unless paid by the Company
at its option, be paid from the Trust. In order to provide for
payment of any such fee, taxes or expense, or the payment of any
other fee or expense of administering the Plan authorized by the
Company, the Trustee in its discretion may partially or fully
liquidate any asset in the Trust without liability for any loss
occasioned thereby~ in any such case, the Trustee will to the extent
reasonably practicable allocate expenses (and consequent liquidation
of assets) to the account(s) that gave rise to the fee, tax or
expense. Any expenses of the Trustee which are not paid from the
Trust for whatever reason will be the responsibility of the Company.
6.2 ERISA BOND.
The Trustee, and any other person who handles Plan assets, will be bonded
but only to the extent (if at all) required under ERISA, and no other bond
or security will be required for the faithful performance of their duties
hereunder.
ARTICLE 7 - ACCOUNTS AND REPORTS
7.1 ACCOUNTS AND REPORTS.
(a) The Trustee will keep full accounts of all its receipts,
disbursements and other transactions hereunder, and will determine
the fair market value of the assets of the Trust as of each
Valuation Date provided for under the Plan (and as of the last
business day of the Plan Year if not otherwise a Valuation Date).
The fiscal year of the Trust will coincide with the Plan Year.
Within a reasonable time after the end of the Plan Year, or within a
reasonable time after its removal or resignation or the termination
of the Trust, the Trustee will render to the Administrative
Committee a consolidated account of all transactions and other
actions taken in connection with its administration of the Trust
since the previous such accounting.
(b) No person other than the Administrative Committee will have the
right to demand or receive any report or account from the Trustee.
The written approval of any account by the Administrative Committee
will be final and binding upon the Administrative Committee, the
Company, the Participants and all persons who then are or thereafter
become interested in the Trust as to all matters and transactions
stated or shown therein. The failure of the Administrative Committee
to notffy the Trustee within 60 days after the Trustee's sending of
any account of its objections (if any) to the account will be the
equivalent of written approval. If the Administrative Committee
files any objections within such 60 day period with respect to any
matters or transactions stated or shown in the account and the
Administrative Committee and the Trustee cannot resolve such
objections, the Trustee will have the right to have such objections
settled by judicial proceedings. Nothing herein will deprive the
Trustee of the right to have a judicial settlement of its accounts.
In any proceeding for a judicial settlement of any account or for
instructions, the only necessary parties will be the Trustee and the
Administrative Committee (or, in the absence of an Administrative
Committee, the Company). In order to save the Trust from the expense
that might otherwise be incurred, it is a condition to the
acquisition of any interest in the Trust that no person other than
the Administrative Committee may institute or maintain any action or
proceeding against the Trustee (i) without first requesting the
Administrative Committee to resolve the question with the Trustee
and (ii) until after the Administrative Committee has had a
resonable opportunity to resolve such question or has declined to
pursue such question with the Trustee.
ARTICLE 8 - RESIGNATION OR REMOVAL OF TRUSTEE; TRANSFERS TO OTHER TRUSTS
8.1 RESIGNATION OR REMOVAL OF TRUSTEE.
(a) The Trustee may resign at any time by giving 60 days' written notice
to the Company, ADP and the Sponsor. The Company may remove the
Trustee at any time by giving 60 days' written notice to the
Trustee, ADP, and the Sponsor. In either case, the notice period may
be reduced to such shorter period as the Trustee, ADP, the Sponsor
and the Company agree upon. The Trustee's removal or resignation
will be effective upon the last day of the notice period or, if
later, the acceptance of the Trust by the successor Trustee. Until
the effective date of the appointment of a successor Trustee (or the
termination of the Trust and complete distribution of its assets),
the incumbent Trustee will have full authority and responsibility to
act as Trustee hereunder.
(b) When the Trustee's resignation or removal becomes effective, the
Trustee will perform all acts necessary to transfer the assets of
the Trust and
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<PAGE> 5
copies of the records of the Trust (and any other records being
maintained by the Trustee) to its successor. However, the Trustee
may reserve such portion to the Trust assets as it may reasonably
determine to be necessary for payment of its fees and any taxes and
expenses (including any fees and expenses of any person or entity
authorized by the Company to be paid from Trust assets), any balance
of such reserve remaining after payment of such fees, taxes and
expenses will be paid over to its successor.
(c) The resignation or removal of the Trustee will not terminate the
Trust. In the event of any vacancy in the position of Trustee,
whether by the resignation or removal of the Trustee, the Company
will appoint a successor Trustee and such appointment will become
effective upon the acceptance of its office by the successor
Trustee. If the Company does not appoint such a successor within 60
days after notice of resignation or removal is given, the Trustee
may appoint such a successor or apply to a court of competent
jurisdiction for such appointment. Each successor Trustee so
appointed and accepting the office of Trustee hereunder will have
all of the rights and powers and all of the duties and obligations
of the original Trustee under this Agreement.
(d) In the event that either (i) the Company removes the incumbent
Trustee without the Sponsor's written consent, or (ii) following the
resignation or removal of the incumbent Trustee appoints any
successor Trustee without the Sponsor's written consent, the Company
may no longer participate in the prototype Plan and Trust.
(e) No Trustee will be liable or responsible for anything done or
omitted in the administration of the Trust before it became Trustee
or after it ceases to be Trustee.
8.2 TRANSFERS TO OTHER TRUSTS.
(a) The Company may direct that all or a portion of the assets of the
Trust established hereunder be transferred from the Trustee to the
trustee of another trust established under the Plan at any time by
giving 60 days' written notice to the Trustee, ADP, and the Sponsor.
The notice period may be reduced to such shorter period as the
Trustee, ADP, the Sponsor and the Company agree upon. The transfer
will be effective upon the last day of the notice period or, if
later, the acceptance of the assets being transferred by such other
trustee. Until the effective date of the transfer of any such
assets, the Trustee will continue to have full authority and
responsibility to act as Trustee hereunder with respect to such
assets.
(b) When the transfer becomes effective, the Trustee will perform all
acts necessary to transfer the assets to be transferred from the
Trust and copies of the records of the Trust (and any other records
being maintained by the Trustee) to the other trustee.
(c) In the event the Company directs that any assets of the Trust be
transferred to the trustee of any other trust without the Sponsor's
written consent, the Company may no longer participate in the
prototype Plan and Trust.
(d) The Trustee will not be liable or responsible for any assets which
have been transferred to any other trust pursuant to this Section
8.2 or for any actions or omissions taken with respect to such
assets after such transfer.
ARTICLE 9 - AMENDMENT AND TERMINATION
9.1 AMENDMENT AND TERMINATION.
The Trustee may at any time and from time to time amend any or all
provisions of this Agreement. A copy of any such amendment will be
delivered to the Sponsor and the Company at least 60 days before the
effective date of such amendment (or such shorter notice period as the
Trustee, the Sponsor and the Company agree to), provided that, to the
extent necessary to retain the Plan's tax qualification, any amendment may
take effect retroactively. The Company will have the right to terminate
this Trust and will deliver a notice of termination specifying the
effective date thereof to the Trustee. No amendment or termination will
cause this Agreement to be inconsistent with the provisions of the Plan or
ERISA.
9.2 EFFECT OF TERMINATION.
In the event of termination of this Agreement, the Trustee will continue
to hold the Trust assets for application and disbursement in accordance
with the applicable terms of the Plan. The Trust created hereunder will
terminate upon the distribution or application of all the assets of the
Trust.
ARTICLE 10 - MISCELLANEOUS PROVISIONS
10.1 RELATIONSHIP TO PLAN DOCUMENT.
Certain provisions affecting the Trustee appear in the separate basic Plan
document and are not repeated in this Agreement. As indicated in the
preamble to this Agreement, unless the context clearly indicates
otherwise, any term defined in the Plan document will have the same
meaning when used in this Agreement. If and to the extent that any
provisions of this Agreement are inconsistent with any provision of the
Plan document affecting the rights or benefits of Participants, the Plan
document will control.
10.2 EXCLUSIVE BENEFIT.
In directing the Trustee hereunder, the Administrative Committee and the
Company will follow the provisions of the Plan and will not give any
direction at any time, either during the existence or upon the
discontinuance of the Plan, that would cause any assets of the Trust to be
used for or diverted to purposes other than the exclusive benefit of
Participants or their Beneficiaries in accordance with the Plan; provided
that assets may be used to pay fees and expenses incurred in the
administration of the Plan and the Trust or may be returned to the Company
as specifically provided in the Plan.
10.3 MERGER OR CONSOLIDATION.
Any corporation into which the Trustee merges or with which it is
consolidated or any corporation resulting from any merger or consolidation
to which the Trustee is a party, will be the Trustee hereunder without the
execution or filing of any additional instrument or the performance of any
further act.
10.4 INQUIRIES NOT REQUIRED.
No person dealing with the Trustee will be bound to see to the application
of any money or property paid or delivered to the Trustee or inquire into
the authority of the Trustee to enter into any transactions hereunder.
10.5 GOVERNING LAW.
To the extent that state law applies, the provisions of the Trust will be
construed, enforced and administered according to the laws of the
Commonwealth of Massachusetts without regard to its conflict of law
provisions.
10.6 THE SPONSOR AND ADP.
The Company and the Trustee acknowledge that neither the Sponsor nor ADP
(nor any affiliate of ADP) has (a) any discretionary authority or
discretionary control respecting management of the Plan or management or
disposition of Plan assets, (b) authority or responsibility to render
investment advice for a fee or other compensation, direct or indirect,
with respect to any moneys or other property of the Plan, or (c)
discretionary authority or discretionary responsibility in the
administation of the Plan.
<TABLE>
<CAPTION>
TRUSTEE COMPANY
<S> <C>
Approved by: /s/ Francis M. Vitagliano, AVP Approved by: /s/ Dan E. Marcmann
Name: Francis M. Vitagliano Name: Dan E. Marcman
(type or p-1)
Title: AVP Date: 4-1-92 Title: Vice President/ Treasurer Date: 2-24-92
</TABLE>
THIS AGREEMENT SHALL BECOME EFFECTIVE UPON BEING SIGNED BY AN AUTHORIZED
REPRESENTATIVE OF THE TRUSTEE
(7/90)
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<PAGE> 6
FIRST AMENDMENT TO THE
AUTOMATIC DATA PROCESSING PROTOTYPE 401 (k)
TRUST AGREEMENT
This First Amendment, effective as of May 1, 1999, amends the Automatic
Data Processing Prototype 401 (k) Trust Agreement by and between SKYLANDS
COMMUNITY BANK (the "Company") and STATE STREET BANK AND TRUST COMPANY, as
trustee (the "Trustee").
WITNESSETH:
WHEREAS, the Company has previously entered into a trust agreement (the
"Trust") with the Trustee;
WHEREAS, the Company desires to provide daily valuation under their plan
established by the Company using the ADP Prototype 401(k) Plan (the "Plan");
WHEREAS, the Trustee desires, and the Company agrees, to amend the Trust
to accommodate daily valuation and provide changes and updates to certain Trust
provisions,
NOW THEREFORE, pursuant to Article 9, Section 9. 1, the Trustee hereby
amends the Trust as follows:
I. Section 2. 1 (a) is deleted in its entirety and Section 2.1 (b) is
relabeled 2.1 (a) and Section 2. 1 (c) is relabeled 2.1(b).
2. Section 2.4 shall be amended to include as the last sentence to the
paragraph, "In addition, the Trustee shall have no responsibility for
ensuring that funds are made available timely in order to effectuate a
subsequent purchase made as a result of a transfer from one Investment
Fund under the plan to another such Investment Fund."
3. Article 4 - Investment Funds, shall be revised to reflect the following:
4.1 Investments.
(a) By establishing and maintaining this Trust, the Company has selected
the Investment Funds as the investment vehicles to be available to
Participants under the Company's Plan. Investment Funds will
include, but not be limited to, common, collective or group trust
funds (a "group trust") maintained by the Trustee for investment by
qualified plans and registered investment companies; provided, that
any such fund shall be managed by an ERISA 3(38) investment manager
unless such fund is either maintained by the Trustee or is a
registered investment company. Where a group trust is designated as
an Investment Fund, the Trustee may combine in the group trust
assets of the Trust with assets of other pension or profit-sharing
or other plans or trusts qualified under Code Section 401(a) and
exempt from tax under Code Section 501(a), or with assets of
individual retirement accounts exempt from tax under Code Section
408(e) or governmental units described in Code Section 818(a)(6),
and permitted by existing or future rulings of the United States
Treasury Department to pool their respective funds in
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<PAGE> 7
a group trust. The provisions of the group trust shall be deemed a
part of this Agreement with respect to any such investment.
(b) With respect to the assets under the control of an Investment
Manager (a bank with respect to its own common collective or
group trust fund) (including without limitation the Trustee),
and assets invested in registered investment companies,
whether open-end or closed-end, the Company through ADP will
direct the Trustee to invest the assets of the Company's Plan
as directed by the Participant in accordance with the relevant
provisions of the Plan document and related adoption
agreement, and this Agreement (including particularly Sections
4.2 hereof). In investing the assets of a Participant's
Account(s), including those assets for which the Trustee has
no investment responsibility, the Trustee will follow the
investment directions of the Participant as such directions
are communicated to the Trustee by ADP. The company intends
that the Plan will comply with Section 404(c) of the Employee
Retirement Income Security Act of 1974, as amended
(hereinafter referred to as "ERISA").
The following Section 4.5 shall be added to Article 4:
4.5 Management of Assets of Fund
(a) The Company, being a named fiduciary with respect to control
and management of the assets of the Plan, by action of its
Board of Directors, by adoption of the Plan, has appointed
Investment Managers to manage (including the power to acquire
and dispose of) the assets of the Plan and has also authorized
investment in registered investment companies, whether
open-end or closed-end. Any Investment Manager so appointed
must be a bank, as defined in the Investment Advisers Act of
1940, and must acknowledge in writing to the Company and to
the Trustee that he is a fiduciary with respect to the Plan.
The Trustee until notified in writing to the contrary shall be
fully protected in relying upon any written notice of the
appointment of an Investment Manager furnished to it by the
Company.
(b) (i) The Investment Manager appointed pursuant to paragraph (a)
above shall have exclusive authority and discretion to manage
and control the assets of the Trust and, pursuant to such
authority and discretion, may direct the Trustee from time to
time and at any time:
(A) To invest and reinvest the Trust, without distinction
between principal and income, in shares of stock
(whether common or preferred) or other evidences of
ownership, bonds, debentures, notes or other evidences
of indebtedness, unsecured or secured by mortgages on
real or personal property wherever situated (including
any part interest in a bond and mortgage or note and
mortgage whether insured or uninsured), and other
property, or part interest in property, real or
personal, foreign or domestic, whether or not productive
of income or consisting of wasting assets;
(B) To invest and reinvest the Trust in a common,
collective, or group trust administered by a bank other
than the Trustee, the provisions of which trust
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<PAGE> 8
shall be deemed a part of this Agreement but only with
respect to any such investment;
(C) To sell, convey, redeem, exchange, grant options for the
purchase or exchange of, or otherwise dispose of, any
real or personal property held in the Trust, at public
or private sale, for cash or upon credit, with or
without security, without obligation on the part of any
person dealing with the Trustee to see to the
application of the proceeds of or to inquire into the
validity, expediency or propriety of any such
disposition;
(D) To manage, operate, repair and improve, and mortgage or
lease for any length of time any real property held in
the Trust; to renew or extend any mortgage, upon any
terms the Investment Manager may deem expedient; to
agree to reduction of the rate of interest or any other
modification in the terms of any mortgage or of any
guarantee pertaining to it; to enforce any covenant or
condition of any mortgage or guarantee or to waive any
default in the performance thereof; to exercise and
enforce any right of foreclosure; to bid in property on
foreclosure; to take a deed in lieu of foreclosure with
or without paying consideration therefor and in
connection therewith to release the obligation on the
bond secured by the mortgage; and to exercise and
enforce in any action, suit or proceeding at law or in
equity any rights or remedies in respect of any mortgage
or guarantee;
(E) To exercise, personally or by general or limited proxy,
the right to vote any shares of stock, bonds or other
securities held in the Trust; to delegate discretionary
voting power to trustees of a voting trust for any
period of time; and to exercise, personally or by power
of attorney, any other right appurtenant to any
securities or other property of the Trust;
(F) To join in or oppose any reorganization,
recapitalization, consolidation, merger or liquidation,
or any plan therefor, or any lease, mortgage or sale of
the property of any organization the securities of which
are held in the Trust; to pay from the Trust any
assessments, charges or compensation specified in any
plan of reorganization, recapitalization, consolidation,
merger or liquidation; to deposit any property with any
committee or depositary; and to retain any property
allotted to the Trust in any reorganization,
recapitalization, consolidation, merger or liquidation;
(G) To exercise or sell any conversion or subscription or
other rights appurtenant to any stock, security or other
property held in the Trust;
(H) To borrow from any lender (other than the Trustee in its
individual capacity or any other party in interest with
respect to the Plan) money, in any amount and upon any
reasonable terms and conditions, for purposes of this
Agreement, and to pledge or mortgage any property held
in the Trust to secure the repayment of any such loan;
and
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<PAGE> 9
(1) To compromise, settle or arbitrate any claim, debt or
obligation of or against the Trust; to enforce or
abstain from enforcing any right, claim, debt or
obligation; and to abandon any property determined by
the Investment Manager to be worthless.
(c) The Trustee shall exercise the powers set forth in paragraph (b)(i) above
only when and to the extent directed in writing by the Investment Manager.
The Investment Manager, from time to time and at any time, may issue
orders for the purchase or sale of securities directly to a broker or
dealer, and for such purpose, the Trustee will upon request execute and
deliver to the Investment Manager one or more trading authorizations.
Written notification of the issuance of each such order shall be given
promptly to the Trustee by the Investment Manager, and the execution of
each such order shall be confirmed by the broker to the Investment Manager
and to the Trustee. Such notification shall be authority to the Trustee to
receive securities purchased against payment therefor and to deliver
securities sold against receipt of the proceeds therefrom, as the case may
be.
(d) Unless the Trustee knowingly participates in, or knowingly undertakes to
conceal, an act or omission of the Investment Manager, knowing such act or
omission to be a breach of the fiduciary responsibility of the Investment
Manager with respect to the Plan, the Trustee shall not be liable for any
act or omission of the Investment Manager and shall not be under any
obligation to invest or otherwise manage the assets of the Plan that are
subject to the management of the Investment Manager. Without limiting the
generality of the foregoing, the Trustee shall not be liable by reason of
its taking or refraining from taking at the direction of the Investment
Manager any action pursuant to this Article, or pursuant to a notification
of an order to purchase or sell securities issued by the Investment
Manager, nor shall the Trustee be liable by reason of its refraining from
taking any action because of the failure of the Investment Manager to give
such direction or order; the Trustee shall be under no duty to question or
to make inquiries as to any direction or order or failure to give
direction or order by the Investment Manager; and the Trustee shall be
under no duty to make any review of investments acquired for the Trust at
the direction or order of the Investment Manager and shall be under no
duty at any time to make any recommendation with respect to disposing of
or continuing to retain any such investment.
(e) Without limiting the generality of the provisions of Article 5.3 hereof,
the Company agrees, to the extent pen-nitted by law, to indemnify the
Trustee and hold it harmless from and against any claim or liability that
may be asserted against it, otherwise than on account of the Trustee's own
negligence or willful misconduct, by reason of the Trustee's taking or
refraining from taking any action when acting in good faith in accordance
with this Article, including, without limiting the generality of the fore
going, any claim or liability that may be asserted against the Trustee on
account of failure to receive securities purchased, or failure to deliver
securities sold, pursuant to orders issued by the Investment Manager
directly to a broker or dealer or for any loss, expense or claim asserted
against the Trustee as a result of following Participant directions or
directions of the Administrative Committee or the Company.
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<PAGE> 10
(f) To the extent a Participant has directed that his or her account shall be
invested in a registered investment company, the Trustee shall have no
investment responsibilities with respect thereto.
4. Article 7 - Accounts and Reports, shall be amended as follows:
7.1 Accounts and Reports
(a) The Trustee through its agent ADP, will keep full accounts of all its
receipts, disbursements and other transactions hereunder, and will
determine the fair market value of the assets of the Trust as of each
Valuation Date provided for under the Plan (and as of the last business
day of the Plan Year if not otherwise a Valuation date). The fiscal year
of the Trust will coincide with the Plan Year. Within a reasonable time
after the end of the Plan Year, or within a reasonable time after its
removal or resignation or the termination of the Trust, the Trustee,
through its agent ADP, will render to the Administrative Committee a
consolidated account of all transactions and other actions taken in
connection with its administration of the Trust since the previous such
accounting. The Trustee shall maintain record ownership of, and through
its agent ADP, account separately for, its collective investment funds,
and any registered investment companies or other Investment Funds of the
Trust.
(b) No person other than the Administrative Committee will have the right to
demand or receive any report or account from the Trustee. The written
approval of any account by the Administrative Committee will be final and
binding upon the Administrative Committee, the Company, the Participants
and all persons who then are or thereafter become interested in the Trust
as to all matters and transactions stated or shown therein. The failure of
the Administrative Committee to notify the Trustee within 60 days after
the Trustee's sending of any account of its objections (if any) to the
account will be the equivalent of written approval. If the Administrative
Committee files any objections within such 60 day period with respect to
any matters or transactions stated or shown in the account and the
Administrative Committee and the Trustee cannot resolve such objections,
the Trustee will have the right to have such objections settled by
judicial proceedings. Nothing herein will deprive the Trustee of the right
to have a judicial settlement of its accounts. In any proceeding for a
judicial settlement of any account or for instructions, the only necessary
parties will be the Trustee and the Administrative Committee (or, in the
absence of an Administrative Committee, the Company). In order to save the
Trust from the expense that might otherwise be incurred, it is a condition
to the acquisition of any interest in the Trust that no person other than
the Administrative Committee may institute or maintain any action or
proceeding against the Trustee (i) without first requesting the
Administrative Committee to resolve the question with the Trustee and (ii)
until after the Administrative Committee has had a reasonable opportunity
to resolve such question or has declined to pursue such question with the
Trustee.
All other provisions of the Trust shall remain in full force and effect.
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10(k) Description of Matched Savings Plan.
The Matched Savings Plan allows each employee to have up to 1% of their
after tax salary deducted each pay period. The employee's deduction is
matched by the Bank. The employee portion and the Bank's matching
contribution are paid to the employee in December of each year. The amount
contributed by the Bank is taxed as W-2 income.
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10(l) Company Sublease, dated October 27, 1997, by and between Skylands
Community Bank and Ronetco Supermarkets, Inc.
Bank Sublease, dated October 27, 1997, by and between Skylands
Community Bank and Ronetco Supermarkets, Inc.
BANK SUBLEASE
THIS SUBLEASE is made this 27th day of October 1997 by between Skylands.
Community Bank. a New Jersey corporation ("Subleasee"), having an address at
P.O. Box 507, Hackettstown. NJ 07840, and Ronetco Supermarkets, Inc., a New
Jersey corporation ("Supermarket") or Sublessor, having an address at 1070 Route
46, Ledgewood, NJ 07852.
INTRODUCTION:
THAT, in consideration of the mutual promises and subject to the terms and
conditions set forth herein, Supermarket hereby grants to Subleasee the right to
install, maintain and operate a Financial Service Facility, as defined below, in
the supermarket store identified below in accordance with the provisions
hereinafter set forth.
I. DEFINITIONS.
For the purposes of this Agreement, the following terms shall have the
following meanings:
(a) "Automated Teller Machine" or "ATM" shall mean an electronic terminal
that performs certain banking functions, including dispensing cash, coupons and
traveler's checks, accepting deposits and loan payments, making transfers
between accounts and giving account balances. These terms however shall not
include point-of-sale systems or other direct debit systems installed by
Supermarket at its check-out lanes.
(b) "Financial Service Facility" or "FSF' shall mean a banking facility
staffed with one (1) or more bank employees whose functions include, without
limitation, opening new deposit accounts, accepting loan applications and
performing customary teller transactions, such as cashing checks and taking
deposits. An FSF may be equipped with an ATM, safe deposit boxes and a night
depository. An FSF may also offer such other products and services as may be
permitted by applicable law and regulation, including, without limitation,
insurance, non-deposit investment products and travel agency services.
(c) -Premises" shall mean the area within the Store to be occupied by the
FSF.
(d) "Sublease" or "Agreement" shall mean this Agreement.
2. AGREEMENT.
During the term of this Agreement, Subleasee shall have the exclusive right to
install and commence operating an FSF in Supermarket's Store located at Byram
New Jersey (the "Store"). Subleasee agrees to be fully bound to all the terms,
provisions, conditions, undertakings and obligations herein contained.
Supermarket agrees to perform its obligations hereunder for the benefit of the
Subleasee
(a) as long as Subleasee is not in default of any of the terms and conditions of
this Agreement including, without limitation Subleasee's responsibility to
render payment with respect to this Sublease and (b) in the event Subleasee is
in default of this Agreement. Supermarket shall continue to perform during the
cure period provided to Subleasee as set forth in paragraph 15(a) hereof. If
Subleasee ceases to operate the FSF for any mason that constitutes a breach
hereunder. Subleasee shall continue to pay rent and shall be required to find an
alternative financial institution to take an assignment of the Subleasee's
obligation hereunder (the -Substitute Subleasee"). within one hundred eighty
(180) days of the cessation of operations, or Supermarket shall have the right
but not the obligation to terminate this Agreement upon three (3) days written
notice, but Subleasee shall pay at the time of termination, as liquidated
damages a sum equal to fifty (50.0%) percent of the remaining annual rent
payable for the then-current term. The parties acknowledge and agree that this
amount represents a fair and reasonable estimate of potential damages, which
damages would be difficult, if not impossible, to determine at the time of the
breach; further Subleasee represents to Supermarket that they do not believe
this payment to be a penalty, or punitive in any way.
If the Supermarket has future in-store bank location, Supermarket shall provide
a notice to Sublessee. Sublessee shall thereafter have the right to make an
offer to Lease said in-store bank location. However, this
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notice shall not constitute an offer, option or any other right to the
Sublessee. This right shall remain in effect so long as Skylands Community Bank,
and only Skylands, remains the Sublessee, and maintains an FSF in the Byram
Supermarket location.
3. TERM.
This Agreement shall commence on the date hereof and shall terminate five
(5) years from the date the FSF opens for business, unless earlier terminated or
extended as otherwise provided herein. (See Certificate of Commencement)
4. LOCATION & SUBLEASE PREMISES.
The Subleasee granted under this Agreement shall apply to the Premises in
the ShopRite of Byram having the following street address: Route 206 &
Lackawanna Drive, Stanhope, NJ. 07876.
5. PAYMENTS.
a) Subleasee shall make a one-time payment of $5,000 upon lease signing.
b) Subleasee shall pay to Supermarket the Annual Rent set forth on
Schedule A, which is attached hereto and incorporated herein by reference,
provided Subleasee has all government approvals as required by Article 10
hereof. Payment shall commence as of the date 90 days after the FSF first opens
for business the "Opening Date" or 120 days after the premises is substantially
completed, whichever is sooner. in the event the opening date is other than the
first day of each calendar month (such payment shall be pro-rated on a daily
basis for any partial months). Should Sublessee be proceeding with best efforts
to obtain the aforesaid governmental approvals, with due diligence, and in a
timely fashion, but said Sublessee has not obtained same, Sublessee shall be
provided one thirty day extension to commence payment of rent. Sublessee shall
provide all documentation to demonstrate Sublessee's best efforts.
NOTWITHSTANDING THE TERM OF SECTION 2 HEREOF, SUBLEASEE SHALL REMAIN LIABLE FOR
SUBSMUTE SUBLEASEE FAILURE To PAY THE REWRED RENT SUBJECT, HOWEVER, TO
SUPERMARKET'S ELECTION TO ALLOW PAYMENT BY SUBLEASEE OF THE LIQUIDATED DAMAGES.
6. FSF DESIGN AND COST.
(a) The design of the FSF to be installed by Subleasee shall be subject to
Supermarket's reasonable prior written approval. Supermarket agrees to provide
434 square feet within the Store for the exclusive use of the FSF as depicted on
Exhibit A annexed hereto.
(b) Subleasee shall be responsible to Supermarket for any, and all
construction work and same shall be completed promptly, with due diligence, in a
good and workmanlike and non-negligent manner within 30 days of the issuance of
a building permit and Subleasee shall permit no liens to attach to the Premises,
except to the extent caused or related to Supermarket's negligent or willful
conduct of its agents, employees or contractors. In addition to Subleasee's
duties and obligations as set forth herein. Subleasee shall expressly indemnify
and hold Supermarket harmless from and against any cost, expense or liability,
including reasonable attorney's fees in any way caused by or related to
Subleasee's acts or omissions relative to their duties and obligations under
this Sublease. Subleasee further takes full responsibility for any contractors
or subcontractors hired to do said work including, without limitation, said
contractors' or subcontractors' obligations to maintain appropriate insurance
and make decisions with respect to the construction work being performed. The
cost of installing the FSF shall be home entirely by Subleasee. Supermarket
shall be responsible for costs and expenses associated with the timely removal
of all personal property of the Supermarket (including check-out lanes) which is
located in the space designated for the FSF as depicted on Exhibit A annexed
hereto. Subleasee shall also be responsible for any, and all, reasonable costs
and expenses associated with resetting or rearranging of the store, related to
the initial installation, and those directly related to construction of the FSF.
(c) Subleasee's shall use the Premises solely for an FSF permitted hereby,
which use shall not be considered a violation or default of the lease between
the Supermarket and its Landlord ("Prime Lease.") Subleasee shall be solely
responsible for obtaining all governmental approval for use of Premises.
Nothing, in the Agreement contained, shall be deemed, construed or interpreted
as approval or acquiescence, by Supermarket, of any other use by Subleasee or a
Substitute Subleasee. Subleasee shall be solely responsible for all approvals of
use from any Governmental or regulatory entities with jurisdiction except those
required from Supermarket's Landlord ("the Prime Landlord.")
7. USE AND OCCUPANCY.
(a) Subleasee shall have the exclusive fight to operate an FSF and ATM
within the Store. Supermarket shall not conduct nor allow any other entity to
conduct or offer competing banking services at the Store with the
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exception of making change, cashing checks, verifying checks selling money
orders, and conducting point-of-sale transactions including transactions by
credit card, debit card or ATM card. Supermarket is expressly given the right to
institute and market their own credit card(s) whether bank sponsored or
internally issued by Supermarket or an affiliated company. Supermarket shall not
allow a financial institution other than Subleasee to advertise in the Store,
unless ad promotion is instituted by Wakefern Food Corporation or associated
with, a particular brand name, product or product-line and is being promoted in
a manner not limited to either Supermarket or the store.
(b) Supermarket & Subleasee shall conduct its business at the Store in a
clean and lawful manner. Each party agrees that they shall not intentionally
block or restrict the aisles or passageways of the other party. nor shall either
party intentionally interfere with the other party's business. If either party
negligently causes blockage or restriction. the negligent party shall clean-up
or remove said blockage or restriction as soon as possible.
(a) Subleasee's employees and agents, and employees of companies which service
the FSF who am not Subleasee employees or agents, shall be granted access
to the Store for the purpose of servicing, maintaining and otherwise
performing services in connection with the FSF. Supermarket agrees to
cooperate with Subleasee in providing access to the Premises during
periods of time the Store may not be open for business in the case of an
emergency, and any cost or expense of Supermarket associated therewith
shall be reimbursed by Subleasee, including without limitation. security
services. Subleasee agrees to operate the FSF (i.e., open to the public)
and to perform all routine (i.e. non-emergency) service and maintenance
operations during Supermarket store hours.
(d) The FSF shall be continuously open for business for a minimum
fifty-eight (58) hours a week allocated over seven (7) days; provided, however,
that such minimum hours of operation shall be shortened for any week during
which a bank holiday occurs. The hours and days of operation shall be
re-evaluated by the parties ninety (90) days after final execution hereof, and
shall be subject to reasonable modification based upon "traffic flows- and
business conditions related to the FSF only upon mutual written agreement of
both parties hereto. Any time thereafter, upon thirty (30) days' written notice
of either party, they shall again perform said analysis and agreement; provided,
however, that same shall not occur more than four (4) times in a twelve (12)
month period.
8. SUBLEASEE'S EMPLOYEES
(a) All persons employed by Subleasee in or about, or in connection with,
the operation of the FSF for all purposes shall be Subleasee's employees.
Subleasee agrees to adequately staff and operate the FSF during the hours
established under Article 7(d).
(b) Subleasee shall, at its own cost and expense, maintain Worker's
Compensation coverage, Unemployment compensation coverage and any other
insurance which may be required by law with respect to its employees.
(c) Employees of Subleasee, while working at the FSF, shall be entitled to
use the toilet facilities and break-room in the Store provided by Supermarket
for the convenience of Supermarket employees.
(d) Employees of sublease, while working at the FSF, shall be required to
park their automobiles in spaces designated by Supermarket for parking by
Supermarket employees.
(e) Employees of Subleasee, while working at the FSF, shall be required to
adhere to the same rules and regulations of the Supermarket employees, as said
rules and regulations may be amended from time to time, including all rules and
regulations regarding smoking in and around the Premises and the Store. Copy of
said rules and regulations are attached as Exhibit B.
9. IMPROVEMENTS, ADDITIONS AND SIGNS.
(a) Subleasee, at its sole cost and expense, shall furnish all fixtures,
equipment and furnishings which it deems necessary or desirable for FSF
operations and shall pay any and all costs of modification of the Store for the
installation of its fixtures, equipment and furnishings. Subleasees shall not
make any modification or attach any substantial fixtures or equipment without
Supermarket's prior written approval, to be obtained as hereinafter set forth.
Subleasee shall, within sixty (60) days hereof, submit to Supermarket plans for
all improvements proposed, including without limitation, construction materials,
colors, fixtures, lighting, signing and graphics all of which am to be designed
in such a manner as to be harmonious with the style and decor of the store as
currently existing. Supermarket agrees to review said plans, in its reasonable
discretion, within thirty (30) days after receipt and to notify Subleasee of its
written approval, disapproval or approval with conditions of such plans. In the
event Supermarket fails to so notify Subleasee in writing within the thirty (30)
day period, such plans shall be construed as being approved as submitted.
Supermarket shall also be entitled to review and approve the final plans subject
to their satisfaction that the improvements to be made to the Premises shall be
in conformity with, and of a quality of workmanship equal to, or better than,.
that which exists in the rest of the Shopping Center in which the Premises are
located. Prior to Subleasee beginning any construction work on the Premises,
Subleasee shall submit final plans to Supermarket for the sole
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purpose of verifying that the final plans are identical to the plans previously
approved by Supermarket (final plans for the purpose hereof shall be defined as
those which have been approved by the Township and upon which any building
permits am to be issued); Supermarket shall have ten (10) days to verify same.
Failure to note objections in writing within said period shall be deemed
approval. Should Supermarket object to said plans by service of said notice
Subleasee shall not be permitted to begin construction until Supermarket is
satisfied that the
(b) Subleasee shall be solely responsible for any, and all construction
work, and same shall be completed in accordance with the approved final plans
and shall be completed in the manner described in Paragraph 6 above, within 30
days of issuance of a building permit. which shall be promptly obtained after
Supermarket approves licensed plan. No liens resulting therefrom shall attach to
the Premises. In addition to Subleasee's duties and obligations as set forth
herein. Subleasee shall expressly indemnify and hold Supermarket harmless from
and against any costs, expense or liability, including reasonable attorney's
fees in any way caused or related to Subleasce's licensing of Premises as
permitted hereby and the construction work necessitated hereby. Subleasee
further takes full responsibility for any contractors or subcontractors hired to
do said work including, without imitation. said contractors' or subcontractors'
obligations to maintain appropriate insurance and make decisions with respect to
the construction work being performed. Supermarket shall in no way be held
responsible for payment of any architectural or engineering costs associated
with the improvements to be made to the Premises as permitted hereby. Subleasee
shall be required to pay any, and all, costs and expenses of construction of the
improvements to the Premises. Imposition of any mechanic's or materialmen's lien
or other encumbrances pursuant to NJ.S.A. 44A-1 on the Premises shall be
considered a default under this Agreement.
(c) Supermarket shall permit Subleasee to place signs identifying its
operation inside the Store at locations to be agreed upon by the parties and
which, in any event, shall be, and remain, in compliance with local laws.
Subleasee will submit to Supermarket for its approval a signage package
detailing the appearance and size of all signs to be installed. Exterior signs
of such dimensions as Supermarket and Subleasee may agree upon will be permitted
only upon the consent of Supermarket, Supermarket's Landlord, if any, and
compliance with all local ordinances and regulations. It shall be Subleasee's
sole responsibility to obtain all required governmental approvals, however,
Supermarket agrees to cooperate with Subleasee in obtaining all necessary
approvals from third parties with respect to such signs. Supermarket's approval
under this paragraph shall not be unreasonably withheld or delayed, provided the
design of all signs is harmonious with the decor of the store.
(d) Provided Supermarket's equipment lender and lender for personal
property permits, Supermarket subordinates its rights to a lien upon any
fixtures, machinery or equipment installed or to be installed on the Premises by
or through Subleasee for the satisfaction of any cause of action which may
accrue to Supermarket under the provisions of this Agreement. Supermarket
further agrees to execute any documents reasonable necessary to evidence said
subordination as may reasonable be required from time to time by third pat-ties
from which Subleasee leases such fixtures, machinery or equipment.
10. APPROVALS.
(a) Subleasee shall have sole, and complete, responsibility for obtaining
all governmental, administrative or regulatory permits except as provided in
9(c) below, and for paying all municipal, sate and county fees, expenses and
costs.
(b) Supermarket agrees to cooperate with and assist Subleasee in obtaining
any necessary approvals and permits in connection with the construction,
installation and operation of the FSF.
(c) Notwithstanding the above, this Agreement is conditioned upon receipt,
by the Subleasee, of any appropriate banking or financial regulatory approval
necessary to operate the FSF, within 30 days of the execution of this Sublease.
11. MAINTENANCE AND REPAIR-
(a) Subleasee shall, at its sole cost and expense, do, or provide, the
following:
(i) Keep and maintain the FSF in good order and repair, including
all equipment installed therin and all electrical or other transmission
lines installed by Subleasee for computer data processing and
transmission,
(ii) All necessary janitorial services for the FSF,
(iii) Subleasee shall be solely responsible for the cost,
installation. and maintenance of any additional beating and air
conditioning equipment that may be required by Subleasee.
(b) Supermarket shall, at its sole cost and expense, provide ONLY the
following maintenance and services:
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(i) Supermarket shall furnish all utilities for the Store, and shall
make all utilities available to the FSF. Supermarket shall in no way be
responsible for payment of any fees. costs or expenses associated with
installation or usage of any, and all. utilities. If utility service to the
Store is interrupted, due to Supermarket's negligence, for a period in excess of
24 hours, the Annual Rent payable hereunder shall be abated until utility
service is restores; provided, however, Supermarket shall not be liable ' to
Subleasee for any damages, expenses, or claims incurred Subleasee arising from
an interruption of utility service.
(ii) Supermarket shall keep and maintain the Store and all
mechanical systems in good order and repair. Supermarket shall not be
responsible, in any manner whatsoever, for any additional heating and cooling
equipment that may be required and installed by Subleasee including the cost of
utilities related to same;
(iii) Supermarket shall not intentionally or negligently hinder the
operation of Subleasee's business within the Premises nor shall Supermarket use
ad, flyers or signs to intentionally prohibit or hinder viewing through or into
the Premises; and
(iv) Supermarket shall not intentionally inhibit the ingress to and
egress from the Premises and shall use best efforts to keep access to and from
the teller counters in the FSF, free and clear of obstructions, and to remove
any unintentional obstructions as soon as is practicable.
12. ADVERTISING, PROMOTION AND RELATED ACTIVITIES
(a). Supermarket and Subleasee may advertise the existence and location of
the FSF in such media and in such manner, as each deems appropriate.
(b) Subleasee may promote its products and services outside the FSF within
the Store itself. Should the FSF exceed two (2) persons during normal hours, and
three (3) persons during peak hours (defined herein as Saturday and Sunday),
promoting their products and services in one-on-one discussions with
Supermarket's patrons outside the FSF in the Store itself, they shall be
required to obtain Supermarket's written approval, which shall not be
unreasonably withheld; such products and services shall be limited to those
offered at the FSF and shall not compete with the grocery products or services
offered by Supermarket.
(c) Subleasee shall have access to the intercommunications system
("intercom") within the Store to promote the products and services offered at
the FSF. Subleasee's use thereof shall be restricted to the times and length of
message solely determined in the discretion of Supermarket.
(d) All promotions conducted by Subleasee in the Store shall be conducted
in a professional manner by trained employees working at the FSF.
13. INSURANCE,
(a) Subleasee shall carry its own personal property insurance to
protect its assets. Subleasee shall also keep in force dud" the term of
this Agreement general liability insurance and/or umbrella liability
insurance policy with respect to its FSF operations naming Supermarket as
an additional insured under such policy. The liability limits of such
policy shall not be less than Five Million Dollars ($5,000,000.00) per
occurrence for bodily injury and replacement value for property damage.
Further, during the term of this Agreement and any renewals hereof,
Subleasee shall maintain, or cause to be maintained property insurance and
workers' compensation insurance on the FSF and its employees. Subleasee
may not substitute a program of self-insurance without the "press written
consent of Supermarket, to be exercised in Supermarket's sole discretion;
said insurance to b~ maintained in commercially reasonable amounts. Prior
to its occupancy, Subleasee shall furnish Supermarket with a certificate
of insurance indicating the types and levels of all required insurance
coverage. All said insurance shall not be cancelable except upon thirty
(30) days written notice to Supermarket. In the event Subleasee desires to
self-insure, or place its insurance with a related or affiliated entity,
then it shall further be required to obtain the written Guarantee of
[Parent Corporation or Principal Shareholder of Subleasee] to their
obligation set forth in this Article 13.
(b) During the term of this Agreement and any renewals hereof,
Supermarket shall maintain, or cause to be maintained, general liability,
casualty and workers' compensation insurance on the Store, but may
substitute therefor a program of self-insurance adequate to enable
Supermarket to comply with its responsibilities under this Agreement.
(b) Subleasee agrees to hold Supermarket harmless from any and all
claims for injury, death, damages or expenses (including reasonable
attorneys' fees) resulting from the use and occupancy of the Premises and
the activities or business of Subleasee; any Subleasee employees, agents,
invitees, business invitees, customers, while within the Premises, or any
contractor of Subleasee at the Store. In the event any legal proceeding is
brought against Supermarket due to same Subleasee agrees to indemnify and
save Supermarket harmless from and against, any and all liability, cost or
expense, including but not limited to (reasonable attorneys' fees)
resulting from the activities or business of Supermarket or any
Supermarket employee at the * Store. In the event any legal proceeding is
brought against Subleasee due to any such activities, Supermarket agrees
to defend the interests of Subleasee at no cost to Subleasee.
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(d) Should Subleasee, for any length of time, fail to maintain the
required insurance, this Agreement shall immediately terminate without the
requirement of written notice by Supermarket.
14. TAXES.
Subleasee shall pay all taxes, other than real estate taxes,
assessed by any taxing authority because of its operations at the FSF and
shall pay all personal property taxes assessed on its fixtures, equipment
and machinery located in the Store. In the event any unapportioned tax
assessed against Supermarket includes Subleasee property, other than real
estate taxes, Subleasee shall pay such portion of the tax as the value of
such Subleasee property that was included in Supermarket's assessment at
the time of the assessment bears to the total value of the property
assessed in the Store.
*Any supermarket employees agents, invitees, business
invitees, customers, or any contractor of Supermarket at the Store.
15. TERMINATION BY SUPERMARKET,
(a) if Subleasee shall fail to make the payments required hereunder when
the same are due, and the same shall not be paid within ten (10) days after
written notice to Subleasee or if Subleasee breaches any other covenant or
defaults in any other obligation or undertaking of this Agreement or if any
representation or statement of Subleasee set forth herein proves to be untrue
and Subleasee fails to remedy same within thirty (30) days after written notice
of such breach, provided same is capable of cure within said period (if
incapable of cure within said period Subleasee must begin cure immediately and
diligently pursue same), Supermarket may, at its option, declare this Agreement
terminated without prejudice to any additional remedy which may be available to
Supermarket.
(b) Anything in Us Agreement to the contrary notwithstanding, in the event
that Subleasee shall become insolvent, bankrupt or make any assignment for the
benefit of creditors, or if it or its interest hereunder shall be levied upon or
sold under execution or other legal process, or in the event Subleasee is closed
or taken over by the banking authority of the State of New Jersey, or other bank
supervisory authority, Supermarket may terminate this Agreement only with the
concurrence of such banking authority, except in the event of a default not
related to or caused by said takeover, and any such authority shall in any event
have the election either to continue or terminate this Agreement; Provided, that
in the event this Agreement is terminated, the maximum claim of Supermarket for
damages or indemnity for mandatory damages resulting from the rejection or
abandonment of the unexpired term of this Agreement shall in no event be in an
amount exceeding the annual rent reserved by this Agreement, without
acceleration of all rent for the term, for the year next-succeeding the date of
the surrender of the Premises to Supermarket, plus an amount equal to the unpaid
rent accrued plus interest at one (1.0%) percent monthly on the then-outstanding
balance.
16. TERMINATION BY SUBLEASEE.
(a) If Supermarket breaches any covenant in this Agreement and fails to
remedy same within thirty (30) days after written notice of such breach,
Subleasee may, at its option, declare this Agreement terminated without
prejudice to any additional remedy which may be available to Subleasee.
(b) If Subleasee ceases to operate the FSF:
1. Due to a merger or consolidation with another financial
institution, prior to expiration of the then current term of
this Agreement, Subleasee shall have the option of terminating
this Agreement upon ninety (90) days written notice to
Supermarket. Subleasee during said period, shall be required
to use its best efforts to locate a Substitute Subleasee,
acceptable to Supermarket (in writing), to operate the FSF.
2. For any other mason, if Subleasee shall terminate then the
terms of Section 2 of this Agreement shall govern.
17. POSSESSION OF UPON TERMNATION.
Within forty-five (45) days after the effective date of any termination of
this Agreement, licenses shall surrender peaceful possession of the Premises and
shall, at its expense, remove all furnishings, machinery and equipment placed on
the premises by or through Subleasee and restore the Premises to as good a
condition as it received same, loss or damage by fire and ordinary wear and tear
from reasonable use excepted.
18. DAMAGES TO PREMISES
If by fire or other casualty, the Premises or the Store am destroyed or
damaged to the extent that Subleasee is deprived Of Occupancy Or use Of the SAM,
and if such damage or destruction can be repaired within one hundred
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twenty (120) days from the date of such damage or destruction, Supermarket shall
proceed, if allowed by its existing Prime Lease, with due diligence to restore
the Premises and the Store to substantially the same condition as existed before
such damage or destruction. The rent and other charges payable by Subleasee
hereunder with regard to the Premises shall be abated to the extent that
Subleasee is unable to occupy and use the Premises. In the event such damage or
destruction cannot be repaired within one hundred twenty (120) days, Subleasee
may, at it option, terminate this Agreement by giving ten (10) days' written
notice to Supermarket. The determination of the amount of time necessary to
effect repairs shall be in accordance with the procedure established in the
Prime Lease. Subleasee agrees to assign all rights to insurance proceeds
relative to damage to the Store or the Premises to Supermarket should the
election to restore the Premises be made as herein above described. Supermarket
is not obligated to restore the premises if the insurance proceeds do not cover
100% of the restoration cost. Anything in Paragraph 18 and 19 to the contrary
notwithstanding, in the event of any inconsistency between the Sublease and the
Prim Lease, the Prime Lease shall control.
19. CONDEMNATION.
Subject to terms and conditions of the Prime Lease, if the Store or the
Premises, or a portion of either, are taken or condemned by any competent
authority so as to prevent Subleasee from conducting its operations in
substantially the same manner as theretofore conducted, or if the Supermarket is
entitled to terminate Supermarket's operation pursuant to the terms of the Prime
Lease, this Agreement will terminate. Supermarket and Subleasee shall each be
entitled to make separate claims based upon existing common-law rights in the
event of any condemnation or eminent domain proceeding, and they shall not
interfere with each others pursuit of said claims, but shall cooperate with each
other in pursuit thereof
20. PEACEFUL POSSESSION.
Supermarket warrants that for so long as Subleasee performs its
obligations under this Agreement Subleasee shall have peaceful and uninterrupted
possession of the Premises during the term of this Agreement.
21. RENEWALS.
This Agreement may be renewed by Subleasee for two (2) additional terms of
five (5) years each in accordance with the following:
(a) Subleasee shall notify Supermarket in writing of its election to renew
at least one hundred eighty (180) days prior to the expiration of the then
current term.
(b) Each renewal will be on the same terms and conditions as set forth
herein, with the exception of the increases in rent as set forth in Exhibit A.
(c) Them shall then be no existing default or event of default, beyond
applicable cum period(s) on the part of Subleasee of which it either has actual
knowledge or for which it has received notice from Supermarket under this
Agreement.
22. ASSIGNMENT.
(a) Subleasee shall have the right to assign its rights and obligations
hereunder to any financial institution which is a wholly-owned subsidiary
of or an affiliate owned or controlled by Skylands Community Bank, the
parent corporation of Subleasee, which subsidiary or affiliate is in
substantially the same business as Subleasee.
(b) A successor in interest by merger, operation of law, assignment or
purchase, or otherwise, of the entire business of either party shall acquire all
interest of such party hereunder.
(c) All other assignments, or other transfer(s) of interest, shall be
subject to Supermarket's approval, which shall not be unreasonably withheld. any
attempted assignment or other transfer of interest not in conformity herewith
shall automatically void said assignment and, at Supermarket's discretion this
Agreement.
(d) Subleasee shall remain liable for all obligations of its Sublease
under this Agreement.
23. REMODELJNG OR VACATION OF STORES.
(a) Subject to Regulatory Approval for the FSF, in the event Supermarket
finds it desirable to remodel or enlarge the Store, the FSF may be moved from
the Premises to a like location of similar dimensions or configuration within
the Store mutually satisfactory to Subleasee and Supermarket. If remodeling
occurs during the fast five (5) years of this Agreement, or within five (5)
years of the next-preceding relocation, Supermarket shall pay all costs
associated with the relocation of the FSF. Supermarket shall use its best
efforts to avoid relocating the FSF from its initially approved Premises. The
various options shall be reviewed by Subleasee or Supermarket prior to such a
relocation being undertaken.
7
<PAGE> 8
(b) In the event Supermarket decides to cease operating and vacate the
Store, except as provided in paragraph (c) below, Supermarket will give
Subleasee notice of such decision at least thirty (30) days prior to the day the
Store will cease operating. If the Store is to be relocated in another building,
Subleasee shall have the option of terminating this Agreement or relocating its
FSF in the new store under the same terms and conditions at the time of such
relocation. If relocation occurs during the first five (5) years of this
Agreement, Supermarket shall pay all costs associated with relocating the FSF in
the new building. If the Store is not relocated, this Agreement will terminate
as of the day the Store ceases operating. If the Store is not relocated and
termination occurs during the first five (5) years of this Agreement,
Supermarket shall reimburse Subleasee a portion of its initial capital
expenditures in accordance with the schedule set forth in paragraph (d)(H)
below.
(c) in the event Supermarket sells, leases, subleases, assigns or
otherwise transfers its interest in the Store to an entity (-transferee") other
than Supermarket or other than a subsidiary or partnership of which Supermarket
is a majority owner, neither party shall have the option of terminating this
Agreement. Included herein shall be a sale, transfer or assignment to any
subsidiary, affiliate or related company of Supermarket or of Supermarket's
parent corporation: Wakefern Food Corp., engaged in the retail supermarket
business.
(d) (i) Upon notice by Supermarket of termination pursuant to the
foregoing paragraph (c). Subleasee shall vacate the Premises in accordance with
Section 16 of this Agreement unless a longer period is required by federal or
state law.
(ii) Upon Sublessee's vacation of the Premises, Supermarket shall
pay to Subleasee a portion of the capital expenditures made in connection
with Subleasee's installation of the FSF on the Premises as follows:
<TABLE>
<CAPTION>
If Termination Occurs During Supermarket Pays
(Year of License Term)
<S> <C>
Year 1 100%
Year 2 80%
Year 3 60%
Year 4 40%
Year 5 20%
Year 6 and thereafter 0%
</TABLE>
(iii) Supermarket shall have no obligation to make payments under
the foregoing paragraph (d)(ii) if (A) the FSF has ceased operations for more
than thirty (30) days prior to receipt of the notice referred to above, or (B)
construction of the FSF is complete but Subleasee has elected not to open the
FSF for business.
(iv) Both Supermarket and Subleasee agree that the provisions of
this Section 22(d) represent liquidated damages and do not constitute a penalty
and that damages are difficult, if not impossible, to measure.
24. SECURITY.
(a) It shall be Subleasee's obligation to provide security for the FSF.
Subleasee shall have the right to have a security guard who is an employee or
agent of Subleasee in the Premises at all times and to install any electronic
surveillance equipment in the Premises it deems necessary.
(b) Subleasee hereby releases Supermarket from any claims, loss or damage
that Subleasee might sustain by virtue of a robbery or attempted robbery of
theft or attempted theft from the FSF. Supermarket hereby releases Subleasee
and-Sub license from any claims, loss or damage that Supermarket might sustain
by mason of a robbery or attempted robbery of or theft or attempted theft from
the Store.
25. CONFIDENTIALIM
(a) Each party acknowledges that in connection with this Agreement or in
the performance hereof, it has or will come into possession or knowledge of
material and information which is proprietary to the other party. Each part,
therefore, agrees to hold such material and information in strictest confidence,
not to make use thereof except in the performance of this Agreement, and not to
release or disclose it to any other party with the exception of parent
companies, subsidiaries, affiliates or regulators of the parties. The terms
hereof shall be deemed and construed as falling within the contemplation of the
terms of this section.
(b) In the event of a breach or threatened breach by Subleasee of the
provisions of this Section 25, Supermarket shall be entitled to an injunction
restraining Subleasee from disclosing information. Nothing
8
<PAGE> 9
herein contained shall be construed as prohibiting Supermarket from pursuing any
other remedies in law, at equity or otherwise available to the Supermarket for
such breach or threatened breach, including without limitation, the recovery of
damages, reasonable attorneys' fees and costs of suit from Subleasee.
26. CONSENT OF SUPERMARKET'S LANDLORD.
This Agreement shall not be effective unless, and until, the Prime
Landlord approves the form and contents hereof by execution of the consent set
forth following the execution section hereof, which is to obtained by
Supermarket within thirty (30) days of the date of full execution hereof. In the
event of any inconsistency between the Sublease and the Prime Lease, the Prime
Lease shall control. The Prime Lease is attached hereto as Exhibit C.
27. ENTIRE AGREEMENT
The parties agree that this Agreement and any exhibits attached hereto set
forth all the promises, agreements and understandings between them with respect
to Subleasee's right and license to install, operate and maintain an FSF at the
Store. It is further agreed that any amendment or modification to this Agreement
shall not be binding unless such amendment or modification is reduced to writing
and signed by both Parties.
28. CAPTIONS.
The captions of the several sections of this Agreement are not pail of the
context hereof and shall be ignored in construing this Agreement. They are
intended only as aids in locating various provisions hereof.
29. SEVERABILITY.
Each provision contained in the Agreement shall be independent and
severable from all other provisions contained herein, and the invalidity of any
such provision shall in no way affect the enforceability of die other
provisions.
30. SECURITY DEPOSIT:
Subleasee has agreed to deposit with Supermarket as a security for
Subleasee's performance of the terms and provisions hereto a sum which shall at
all times be equivalent to two (2) times the monthly installment of Annual Rent
required to be paid hereunder, which sum shall be due and payable at the time of
the execution of the Sublease. In the event that the Subleasee shall default in
any of the terms, covenants and conditions of this Sublease, Supermarket may
apply or retain all or any portion of the security deposit to cure the default
or to reimburse Supermarket for any cost which Supermarket may incur by reason
of such default. In the event of every such application or retention, the
Subleasee shall on demand pay to Supermarket the sums so applied or retained
which shall be added to the security deposit so that the same shall be restored
to its original amount. No interest shall be payable to Subleasee on account of
the security deposit, and Supermarket may commingle the security deposit with
other of its funds.
Within thirty (30) days following the end of the Term of this Sublease,
providing the Subleasee shall not be in default hereunder and provided further
that the security deposit had not otherwise been applied, the security deposit
shall be returned to the Subleasee. In the event of an assignment thereof or
other disposition of this Sublease, Supermarket may assign and turn over the
security deposit to Supermarket's grantee, lessee or assignee, and Subleasee
hereby releases and relieves Supermarket from any and all liability for the
return of said deposit and shall look solely to Supermarket's grantee, lessee or
assignee therefore.
In lieu of cash, Subleasee may deliver to Supermarket simultaneously with
the execution of this Sublease an irrevocable negotiable letter of credit issued
by and drawn on a bank or trust company reasonably acceptable to Supermarket, or
by the Subleasee itself in form and content reasonably acceptable to
Supermarket. for the account of Supermarket in the amount of the required
security deposit. Said letter of credit shall be for one (1) yea and shall be
renewed by Subleasee each year until the expiration of the Term of this Lease
and shall be delivered to Supermarket thirty (30) days before the expiration of
the current letter of credit. Failure to timely deliver such letter of credit
shall constitute it material breach of the Sublease and Supermarket shall be
entitled to present the existing letter of credit for payment.
31. GOVERNING LAW.
(a) This Agreement is deemed to have been executed in the State of New
Jersey, and it is agreed that any controversy or claim arising from or related
in any way to this Agreement shall be governed and controlled by the laws of the
State of New Jersey.
9
<PAGE> 10
(b) Supermarket acknowledges and agrees that each of the covenants and
obligations of Subleasee hereunder, including without limitation, the
establishment, maintenance, closure, relocation and hours of operation of the
FSF and any ATM, is at all times subject to the consent or approval of all state
and federal regulatory agencies now or hereafter empowered to regulate
Subleasee.
32. BINDING EFFECT-,
Ms Agreement shall be binding upon and shall inure to the benefit of
Supermarket and Subleasee and their respective legal representatives, successors
and permitted assigns.
33. N0TICES.
(a) All notices required or permitted hereunder shall be in writing and
signed by a duly authorized representative of the party making the same. All
notices shall be deemed effective when delivered personally or by Federal
Express Corporation or similar reputable overnight delivery service or two (2)
business days following deposit in the United States mail, registered or
certified, return receipt requested, postage or overnight delivery charge
prepaid, addressed as follows:
(i) If to Supermarket, then to:
David P. Romano - Controller
Ronetco Supermarkets, Inc.
Morris Canal Plaza
1070 U.S. Hwy. 4
Ledgg~wood. NJ. 07852
Attention:
(H) If to Subleasee, then to:
Michael Halpin - President
Skylands Community Bank
P.O. Box 507
Hackettstown, N.J. 07940
Attention:
34. FORCE MAJEURE
The performance of both parties shall be excused during the period and to
the extent that such performance is rendered impossible or impracticable due to
acts of God, strikes, lockouts or labor difficulty, unavailability of parts
through normal supply sources, failure of any utility to supply its services for
masons beyond a party's control, explosion, sabotage, accident, riot, civil
commotion. war, fire, flood, or other casualty, or any other cause beyond the
reasonable control of the party whose performance is to be excused.
IN WITNESS WHEREOF, the parties have caused duplicate counterparts of this
Agreement to be duly executed as of the date first set forth at the beginning of
this Agreement.
[SUBLEASEE]
By: Michael Halpin
Ronetco Supermarkets, Inc.
[SUPERMARKET]
DAVID P. ROMANO
CORPORATE AMMTRATOR & CONTROLLER
RONETCO SUPERMARKETS, INC.
1070 US HIGHWAY 4e
LEDGEWOOD. NJ 07852-9735
/s/ David P. Romano
SCHEDULE A
TO
SUBLEASE
between
10
<PAGE> 11
SKYLANDSBANK
and
RONETCO SUPERMARKETS, INC.
for
BYRAM SHOPRITE
Route 206 and Lackawanna Drive
ANNUAL RENT:
A. Initial Term (Year 1) $52,056-25
(Years 2 - 5) $66,975
B. Renewal Terms:
i. years 6-10: $80,370
ii. years 11-15: $96,444
EXHIBIT B
to
SUBLEASE
between
RONETCO SUPERMARKM, INC.
and
SKYLANDS COMMUNITY BANK
for
BYRAM SHOPRITE
RONETCO SUPERMARKETS, INC.
Operators of ShopR1tc Supermarkets
Company Rules & Regulations
Form #A-PSOB
Dress Code
The company must maintain an excellent image with the public. You, as ShopRite's
representative, contribute by being neat, clean and well groomed at all times.
This applies to your physical being (beards, mustaches, hair, etc.) as well as
your attire. You must dress professionally.
The following applies:
1. Name tags. service pins. and any items such as buttons and ribbons
provided by the company in support of a promotional or advertising
campaign must be worn. Union identification badges or pins are
permissible. Personal decorations are not acceptable.
2. Company issued uniform and hats, when provided, must be worn. They must be
clean, neat, and properly fastened.
3. Any form of visible body piercing, other than earrings, is prohibited.
Earrings are restricted to a small display in each earlobe.
4. Slacks and jeans must be neat, clean, and without holes, patches or faded.
5. Skirts. skorts. and culottes cannot be more than three inches above the
knee.
6. Sweat pants, shorts, spandex pants, or any tight fitting pants are not
acceptable and cannot be worn. Stirrup pants are acceptable and can be
worn. Excessively loose fitting pants cannot be worn.
11
<PAGE> 12
7. Male associates are required to wear a collared dress shirt (preferably a
pastel color) and tie. Polo shirts or any pullover shirt are not
acceptable. Shirt is to be tucked inside of pants.
8. Female associates can wear the following- a collared shirt (preferably a
pastel color). blouse, polo shirt, pullover shin without a collar. turtle
neck. or sweat. A sweatshirt. or sleeveless shirt/top, is not an
acceptable shirt
9. Any associate. male or female, in a gray apron or Pharmacy technician
jacket is not allowed to wear a non-collared shirt that resembles or is a
tee shirt
10. Non collared shirts and shorts for night crew is acceptable.
11. Advertisements or written messages on front or back of any shirt are not
allowed unless it is company issued.
12. Custodians are required to wear company issued uniforms.
13. Hair must be neat and conservative. Long hair must be properly secured as
not to interfere with your job or servicing of the customer in accordance
with health and sanitation standards.
14. Associates assigned to the Meat, Appy. Fish, Fresh Bakery, and Produce
areas must wear a company issued hat of visor. Associates who have hair
longer than collar length are required to wear a hair net.
15. Beards and mustaches must be neatly trimmed. Male associates in the Meat,
Appy, Fish, Produce Prep Area, and Fresh Bakery Departments (day crew or
night crew) with a beard must wear a beard net.
16. Gloves are to be worn in food prep areas. Specific guidelines will be
addressed during your training.
17. Service Clerks are required to wear a reflector vest when outside the
store after dark.
18. Rain gear is provided to service clerks for pushing carts in inclement
weather. Hats and gloves are not provided, so dress appropriately.
19. Back supports belts are to be worn under your uniform except for
custodians, who can wear them on top of their shirt
20. Associates are to be in proper uniform and ready for work before the start
of their work shift.
21. Personal property is to be kept in designated areas.
22. Pocketbooks are to be stored in associates' lockers. They are not allowed
in your work area at any time.
23. For your protection, sandals and other types of soft or open toe shoes are
not to be worn.
Store Rules
24. Associates must be courteous toward every customer at all times. All
customer inquiries should be handled promptly in a helpful and
professional manor.
25. No incoming or outgoing personal phone calls are permitted. Messages may
be left, at the Courtesy Booth.
26. This is a smoke free building. Smoking is allowed outside in designated
areas only.
Page 2 of5
27. Main entrance is to be used when reporting to and leaving work. Receiving
door is to be used if reporting to work prior to store opening hours (except
Sunday).
28. Associates must wash hands after using rest room facilities.
12
<PAGE> 13
29. It is the responsibility of all associates to keep rest rooms and break
room clean.
30. In case of illness, notify your manager as soon as possible prior to the
start of your work shift so a replacement can be called if needed. Call at
least one hour prior to start of work shift. If illness is longer than one
day, maintain contact with department manager or store manager.
31. Tips and/or gratuities are not to be accepted by an associate.
32. Lockers are to be kept clean and free of perishable products. Lockers are
company property and subject to periodic inspections.
33. Parking of associates' cars is only permitted in assigned areas. Refer to
diagram on location of assigned areas.
34. Bringing in or drinking of alcoholic beverages is forbidden in or around
the store. Possession of any illegal drug on store property will mean
termination of employment. Any associate appearing to be under the
influence of alcohol or drugs will be suspended immediately.
35. Any gambling activity on store property is forbidden.
36. Associates art not permitted to solicit from customers or other associates
for their own financial gain or favorite charities (Avon, Tupperware,
Amway, fund raising, raffle tickets, etc.).
37. Socializing in work/sales area during working hours is not permitted. Off
duty associates are not (to socialize with working personnel or enter the
store for any purpose other than shopping.
38. Equipment belonging to the company cannot be removed from the premises.
39. Any act of theft by customer or store personnel should be reported to the
store manager immediately.
40. Federal and state law prohibits anyone under the age of 18 to operate a
meat slicer, baler, compactor, or electric jack. This includes placing
items into a baler or compactor. Violation of this rule is cause for
termination.
4 1. Defacing of company property in any manner will be grounds for
immediate termination.
42. Cashiers are responsible for all Monies in their cash till. The occurrence
of frequent money differences can result in suspension or termination.
(Cash control guidelines will be reviewed with you by store management)
Page 3 of 5
43. Associates are to clock out immediately upon completion of their work
shift. Associates are only allowed to clock their own time.
41. Associates are not to accept premiums or gifts from companies doing
business with the store without permission from the store anager.
45. Sample products damaged merchandise. and items that credit has been given
on are the property of the Store. * No associate shall remove, use, or
consume such news without permission from the store
Purchases
46. Associates must pay for all food and drinks before consuming.
47. Purchasing of Items for consumption during lunches and breaks is snowed
after associate has punched out on the time clock. All other purchases
must be made after completion of work shift.
48. Sales receipt for merchandise purchased for break or lunch is to have
associates name written on it and is to be attached to merchandise.
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<PAGE> 14
49. Eating is only allowed in break room. Food is not to be stored or consumed
in work area.
50. No merchandise is to be selected in advance and held aside for a later
purchase.
51. Purchases made by associates during off time are to be supervised by
customer service manager or manager in charge. Associates are to identify
themselves to the cashier that they are an associate of Ronetco, including
associates from another store.
52. Associates may purchase damaged or marked down merchandise only with
permission of the store manager.
53. All meat purchases must be selected from the meat case. Any special cuts
must be approved and initialed on the label by the meat manager or store
manager prior to purchase being made.
54. All purchases from the Appetizing Department must be made in the same
manner as a customer (you take a numbered ticket).
55. Associates, like all customers. may present coupons for their purchases,
but offering or accepting coupons for items not purchased or more than one
coupon per purchase will be considered an act of theft and cause for
termination.
56. Cashiers are not allowed to check out members of their families or
friends.
57. Management has the right to inspect any package or purchase either in the
store or when it is being taken from the store.
Page 4 of 5
RONETCO SUPERMARKETS, INC.
Operators of ShopRite Supermarkets
Company Rules & Regulations
Store Manager
Assistant Store Manager
immediate Supervisor
(Job Title)
Store Telephone Number
I have received a copy of the Company Rules & Regulations (Form #A-P306, Revised
10195) and have read and understand it.
Associate's Name
I
V
(Please Print)
Associates' Signature
Date
Store Number
Number of Uniforms Received
I understand that infraction of these rules is cause of disciplinary action up
to and including termination.
Locker keys, name badge, uniforms/aprons, safety belts, pricing equipment, and
cutting equipment, are property of Ronetco. They are to be returned Upon ending
employment.
14
<PAGE> 15
Tear off bottom half and send to the Payroll Department at Corporate
Headquarters. To be kept in associates Personnel File.
Page 5 of 5
EXHIBIT C
to
SUBLEASE
between
RONETCO SUPERMARKETS, INC,
and
SKYLANDS CONMUNM BANK
for
BYRAM SHOPRITE
PRIME LEASE
Amended and Restated Lease between Peoples Plaza Associates and Ronetco
Supermarkets, Inc. dated December 16, 1991.
First Amendment to Amend and Restated Lease between Peoples Plaza Associates and
Ronetco Supermarkets, Inc. dated December 5, 1996.
15
<PAGE> 1
5
10(m) Lease Agreement, dated November 1999, between the Company and
Ann Paftinos and Van Paftinos.
BUSINESS LEASE
The Landlord and the Tenant agree to lease the Rental Space for the
Term and at the Rent stated, as follows: (The words Landlord and
Tenant include all landlords and all tenants under this Lease.)
Landlord Ann Paftinos and Van Paftinos Tenant Skylands Community Bank
217 Main Street 24-26 Crossroads Center,
PO Box 507
Hackettstown, NJ 07840
Hackettstown, NJ07840
Rental Space 10,000 (ten thousand) square feet (including first and second
floor) as shown on Schedule"A" attached) together with the basement space as set
forth in Paragraph 4 of the Addendum.
in the Building at Skylands Plaza, Mountain Avenue, Block 127, Lots 9, 10, 11
12.
Warren County, Hackettstown, New Jersey
............................................................................
Rent for the Term is $ 750,000
Date of Lease November 1999
Term Five years (5 years) The Rent is payable in advance
the first day of each month,
as follows:
$12,500 (twelve thousand five
hundred dollars per month)
Beginning March 1, 2000
Ending November 30, 2004
Security N/A
Broker. N/A
as the Broker who brought about this Lease. The
shall pay the Broker's commission.
LIABILITY INSURANCE. Minimum amounts: for each person
injured $1,000,000.00, for any one accident
$3,000,000, for property damage $50,000
.
Municipal Real Estate Taxes $ *
*See paragraph 5 of Addendum
Base Year 19 .......Percent of Increase. 28%
Use of Rental Space: Bank and bank offices, similar uses and uses permitted
by law.
<PAGE> 2
Additional agreements: See Addendum attached hereto
1. POSSESSION AND USE
The Landlord shall give possession of the Rental Space to the Tenant for
the Term. The Tenant shall take possession of and use the Rental Space for the
purpose stated above. The Tenant may not use the Rental Space for any other
purpose without the written consent of the Landlord.
The Tenant shall not allow the Rental Space to be used for any unlawful or
hazardous purpose. The Tenant is satisfied that the Rental Space is zoned for
the Use stated. The Tenant shall obtain any necessary certificate of occupancy
or other certificate permitting the Tenant to use the Rental Space for that Use.
The Tenant shall not use the Rental Space in any manner that results in (1)
an increase in the rate of fire or liability insurance or (2) cancellation of
any fire or liability insurance policy on the Rental Space. The Tenant shall
comply with all requirements of the insurance companies insuring the Rental
Space. The Tenant shall not abandon the Rental Space during the Term of this
Lease or permit it to become vacant for extended periods.
2. DELAY IN GIVING OF POSSESSION
This paragraph applies if (a) the Landlord cannot give pay possession of
the Rental Space to the Tenant on the beginning date and (b) the reason for the
delay is not the Landlord's fault. The Landlord shall not be held liable for the
delay. The Landlord shall then have 30 days in which to give possession. If
possession is given within that time, the Tenant shall accept possession and pay
the Rent from that date. The ending date of the Term shall not change. If
possession is not given within that time this Lease may be cancelled by either
party on notice to the other.
3. NO ASSIGNMENT OR SUBLETTING
This clause void.
4. RENT AND ADDITIONAL RENT
Tenant shall pay the Rent to the Landlord at the Landlord's
address.
. If the Tenant fails to comply with any agreement in this Lease, the Landlord
may do so on behalf of the Tenant. The Landlord may charge the cost to comply,
including reasonable attorney's fees, to the Tenant as "additional rent" ' The
additional rent shall be due and payable as Rent with the next monthly Rent
payment. Non-payment of additional rent shall give the Landlord the same rights
against the one Tenant as if the Tenant failed to pay the Rent.
5. SECURITY
This clause void
6. LIABILITY INSURANCE
The Tenant shall obtain, pay for, and keep in effect for the benefit of the
Landlord and the Tenant public liability insurance on the Rental Space. The
insurance company and the broker must be acceptable to the Landlord. This
coverage must be in at least the minimum amounts stated above.
All policies shall state that the insurance company can not cancel or
refuse to renew without at least 10 days written notice to the Landlord.
The Tenant shall deliver the original policy to the Land lord with proof of
payment of the first year's premiums. This shall be done not less than 15 days
before the Beginning of the Term. The Tenant shall deliver a renewal policy to
the Land lord with proof of payment not less than 15 days before the expiration
date of each policy.
7. UNAVAILABILITY IF FIRE INSURANCE, RATE INCREASES
If due to the Tenant's use of the Rental Space the Landlord cannot obtain
and maintain fire insurance on the Building in an amount and form reasonably
acceptable to the Landlord, the Landlord may cancel this Lease on 30 days notice
to the Tenant. If due to the Tenant's use of the Rental Space the fire insurance
rate is increased, the Tenant shall pay the increase in the premium to the
Landlord on demand.
8. WATER DAMAGE
The Landlord shall not be liable for any damage or injury to any persons or
property caused by the leak or flow of water from or into any part of the
Building.
9. LIABILITY OF LANDLORD AND TENANT
The Landlord shall not be liable for injury or damage to any person or
property unless it is due to the Landlord's
act or neglect. The Tenant is liable for any loss, injury or damage to any
person or property caused by the act or neglect of the and costs resulting from
any injury or damage due to the act Tenant or the Tenant's employees. The
Tenant shall defend the Landlord from and reimburse the Landlord for all
liability or neglect of the Tenant or the Tenant's employees.
10. REAL ESTATE TAXES
The Landlord shall pay the yearly Municipal Real Estate Taxes on the Building
in the amount stated above. This is the tax assessed for the Base Year stated
above. The Tenant shall pay the Percent of Increase stated above of each yearly
increase in the Municipal Real Estate Taxes over the tax for the Base Year. The
Tenant shall pay this amount yearly in sum within 30 days of the Landlord's
written request accom- panied by a copy of the current year's tax bill. The
Tenant's liability for this payment shall be pro-rated for any part of theyear
the Tenant does not occupy the Rental Space under this Lease.
11. ACCEPTANCE OF RENTAL SPACE
This clause void.
<PAGE> 3
12. QUIET ENJOYMENT
The Landlord has the right to enter into this Lease. If the Tenant
complies with this Lease, the Landlord must provide the Tenant with
undisturbed possession of the Rental Space.
13. UTILITIES AND SERVICES
The tenant shall arrange and pay for all utilities and
services required for the rental space, including the
following:
(a) Heat (c) Electric
(b)Hot and cold water (d)Gas
The Landlord shall pay for the following utilities and services: snow
removal; Maintenance of all common areas, walks and parking lot. The
Landlord is not liable for any inconvenience or harm caused by any stoppage
or reduction of utilities and services beyond the control of the Landlord.
This does not excuse the tenant from paying rent.
<PAGE> 4
14. TENANT'S REPAIRS, MAINTENANCE, AND COMPLIANCE
The Tenant shall:
(a) Promptly comply with all laws, orders, rules and requirements of
governmental authorities, insurance carriers, board of fire underwriters, or
similar groups.
(b) Maintain the Rental Space and all equipment
and fixtures in it in good repair and appearance.
(c) Make all necessary repairs to the Rental Space and all equipment
and fixtures in it, except structural repairs.
(d) Maintain the Rental Space in a neat, clean, safe, and sanitary
condition, free of all garbage.
(e) Void
(f) Use all electric, plumbing and other facilities in
the Rental Space safely.
(g) Use no more electricity than the wiring or feed-
ers to the Rental Space can safely carry.
(h) Promptly replace all broken glass in the Rental
installed Space.
(i) Do nothing to destroy, deface, damage, or
remove any part of the Rental Space.
(j)Keep nothing in the Rental Space, which is inflammable, dangerous
or explosive or which might increase the danger of fire or other casualty.
(k) Promptly notify the Landlord when there are
conditions which need repair.
(1) Do nothing to destroy the peace and quiet of the Landlord, other
tenants, or persons in the neighborhood.
(m) Avoid littering in the building or on its grounds.
The Tenant shall pay any expenses involved in comply-
ing with the above.
15. LANDLORD'S REPAIRS AND MAINTENANCE
The Landlord shall:
(a) Maintain the public areas, roof and exterior
walls in good condition.
(b) Make all structural repairs unless these repairs are made
necessary by the act or neglect of the Tenant or the Tenant's employees.
(c) Make necessary replacements of the plumbing, cooling, heating
and electrical systems, except when made necessary by the act or neglect of the
Tenant or the Tenant's employees.
(d) Maintain the elevators in the Building, if any.
16. NO ALTERATIONS
The Tenant may not make any changes or additions to
the Rental Space without the Landlord's written consent.
Any changes or additions made without the Landlord's
written consent shall be removed by the Tenant on demand.
All changes or additions made with the Landlord's written consent shall
become the property of the Landlord when completed and paid for by the Tenant.
They shall Remain as part of the rental space at the end of the Term. The
Landlord may demand that the Tenant remove any changes Or additions at the end
of the term. The Tenant shall promptly Pay for all costs of any permitted
changes or additions. The Tenant shall not allow any mechanic's lien or other
claim to be the To be filed against the building. If any lien or claim is filed
Against the Building, the Tenant shall have it promptly removed.
17. SIGNS
The Tenant shall obtain the Landlord's written consent before Placing
any sign on or about the Rental Space. Signs must Conform with all
applicable municipal ordinances and Regulations.
18. ACCESS TO RENTAL SPACE
The Landlord shall have access to the Rental Space on reasonable notice to
the Tenant to (a) inspect the Rental Space (b) make necessary repairs,
alterations, or improvements, (c) supply services, and (d) show it to
prospective buyers, mortgage lenders, contractors or insurers.
The Landlord may show the Rental Space to rental applicants at reasonable
hours on notice to the Tenant within 6 months before the end of the Term.
The Landlord may enter the Rental Space at any time without notice to the
Tenant in case of emergency.
19. FIRE AND OTHER CASUALTY
The Tenant shall notify the Landlord at once of any fire or other casualty
in the Rental Space. The Tenant is not required to pay Rent when the Rental
Space is unusable. If the Tenant uses part of the Rental Space, the Tenant must
pay Rent pro-rata for the usable part.
If the Rental Space is partially damaged by fire or other casualty, the
Landlord shall repair it as soon as possible. This includes the damage to the
Rental Space and fixtures installed by the Landlord. The Landlord need not
repair or replace anything installed by the Tenant. Either party may cancel
this Lease if the Rental Space is so damaged by fire or other casualty that it
cannot be repaired within 18 days. If the parties cannot agree, the opinion of
a contractor chosen by the Landlord and the Tenant will be binding on both
parties. This Lease shall end if the Rental Space is totally destroyed. The
Tenant shall pay Rent to the date of Destruction.
20. EMINENT DOMAIN
Eminent domain is the right of a government to lawfully condemn and take private
property for public use. Fair value must be paid for the property. The taking
occurs either by court order or by deed to the condemning party. If any part of
the Rental Space is taken by eminent domain, either party may cancel this lease
on 30 days notice to the other. The entire payment for the taking shall belong
to the Landlord. The Tenant shall make no claim for the value of this Lease for
the remaining part of the Term.
21. SUBORDINATION TO MORTGAGE
In a foreclosure sale all mortgages which now or in the future affect the
Building have priority over this Lease. This means that the holder of a
mortgage may end. this Lease on a foreclosure sale. The Tenant shall sign all
papers needed to give any mortgage priority over this Lease. If the Tenant
refuses, the Landlord may sign the papers on behalf of the Tenant.
<PAGE> 5
22. Tenant's Certificate
At the request of the Landlord, the Tenant shall sign a certificate stating
that (a) this Lease has not been amended and is in effect, (b) the Landlord has
fully performed all
Landlord's agreements in this Lease, (c) the Tenant has no rights to the Rental
Space except as stated in this Lease,
the Tenant has paid all Rent to date, and (e) the Tenant has not paid Rent for
more than one month in advance. The Certificate shall also list all the property
attached to the Rental Space owned by the Tenant.
23. Violation, Eviction, Re-entry and Damages
The Landlord reserve a right of re-entry which allows the
Landlord to end this lease and re-enter the Rental Space if the Tenant violates
any agreement in this Lease. This is done by Eviction. Eviction is a court
procedure to remove a tenant. Eviction is started by the filing of a complaint
in court and the service of the summons on a tenant to appear in court. The
Landlord may also evict the Tenant for any one of the other grounds of good
cause provided by law. After a court order of eviction compliance with the
order of removal, the Landlord may re-enter and take back possession of the
Rental Space. If the cause for eviction is non-payment of Rent, notice does
not have to be given to the Tenant before the Landlord files a complaint. If
there is any other cause to evict, the Landlord must give to the Tenant the
notice required by law before the Landlord files a complaint for eviction.
The Tenant is liable for all damages caused by the Tenant's violation of
any agreement in this Lease. This includes reasonable attorney's fees and costs.
After eviction the Tenant shall pay the Rent for the Term or until the
Landlord re-rents the Rental Space, if sooner. If the Landlord re-rents the
Rental Space for less than the Tenant's Rent, the Tenant shall pay the
difference until the end of the Term. The Tenant shall not be entitled to any
excess resulting from the re-renting. The Tenant shall also pay (a) all
reasonable expenses incurred by the Landlord in preparing the Rental Space for
re-renting and (b) commissions paid to a the broker for finding a new tenant.
<PAGE> 6
24. NOTICES
All notices given under this Lease must be in writing.
Each party must accept and claim the notices given by the
other. Unless otherwise provided by law, they may be given by
(a) personal delivery, or (b) certified mail, return receipt
requested. Notices shall be addressed to the Landlord at the
address written at the beginning of this Lease and to the
Tenant at the Rental Space.
25. NO WAIVER
The Landlord's failure to enforce any agreement in this Lease shall not
prevent the Landlord from enforcing the agreement for any violations occurring
at a later time.
26. Survival
If any agreement in this Lease is contrary to law, the rest of the Lease
shall remain in effect.
27. End of Term
At the end of the Term the Tenant shall (a) leave the Rental Space clean,
(b) remove all of the Tenant's property, (c) remove all signs and restore that
portion of the Rental Space on which they were placed, (d) repair all damage
caused by moving, and (e) return the Rental Space to the Landlord in the same
condition as it was at the beginning of the Term except for normal wear and
tear.
If the Tenant leaves any property in the Rental Space, the
Landlord may (a) dispose of it and charge the Tenant for the cost of disposal,
or (b) keep it as abandoned property.
28. Binding
This Lease binds the Landlord and the Tenant and all parties who lawfully
succeed to their rights or take their places.
29. Full Agreement
The parties have read this Lease. It contains their full agreement. It may
not be changed except in writing signed by the Landlord and the Tenant.
SEE ADDENDUM ATTACHED HERETO AND EXHIBITS ATTACHED THERETO.
Schedule B
MOUNTAIN AVENUE
LEASEHOLD IMPROVEMENTS
BY
SKYLANDS COMMUNITY BANK
<TABLE>
<S> <C>
DESCRIPTION VALUE
--------------------------------------------------------------------------------------
Interior Fit Ups $194,488
Alarm System with Video Surveillance 23,110
Telephone and Computer Cabling 12,455
Millwork with Undercounter 47,118
Interior Finishes (Flooring & Wall covering) 120,307
Drive-up with Bullet Resistant Window 13,995
Vault with Safe Deposit Boxes & Cash Lockers 39,719
Signage 21,730
------
Total $472,922
</TABLE>
<PAGE> 7
Addendum to Lease
Between
Skylands Community Bank, Tenant
And
Ann Paftinos and Van Paftinos
I. The rent includes real estate taxes and all CAM charges without additional
cost to the Tenant except as set forth in paragraph 5 of this Addendum in
respect to real estate taxes.
2. Option to Renew:
a) The Tenant shall, provided it is not in default of any of
the terms and condition of this Lease, have the option to renew this Lease for
two (2) additional terms of Five (5) years each commencing at the expiration of
each term of this Lease (the "Renewal Term"). The Renewal Term shall be governed
by the provisions of this Lease, and except that the Annual Rent for the Demised
Premises shall be as provided below in subparagraph b) and provided that Tenant
shall give Landlord notice by certified mail, return receipt requested, of its
intention to exercise each option, no later than six (6) months prior to the
expiration of the each Term of this Lease.
b) The Annual Basic Rent during each year of each Renewal
Term, if the option(s) provided in Paragraph 2(a) shall be exercised by Tenant,
shall be paid in twelve (12) equal monthly installments in advance, without
demand, on the first day of each and every month during the Renewal Terms hereof
as follows:
First Renewal Term Monthly Rent $14,166.67.
Second Renewal Term Monthly Rent $15,833.33.
<PAGE> 8
3. Attached hereto as Exhibit "B" is a list of those improvement for which the
Tenant will be responsible, pay for, and install and those improvements for
which the Landlord will be responsible, pay for, and install.
3. In addition to the rental space set for above, there is also leased to the
Tenant the entire basement area under the first floor (except that Landlord
shall have the right to retain 100 square feet). There shall be no separate rent
for the basement space, however, the square footage of the basement space shall
be included in the percentage of the Plaza for which the Tenant shall be
responsible for
5. The landlord shall pay the yearly Municipal Real Estate Taxes on the land and
building. The base year shall be the first year in which the entire Plaza is
fully assessed as a completed development. The Tenant shall pay the Percent of
Increase (28%) of each yearly increase in the Municipal Real Estate Taxes over
the tax for the Base Year. The Tenant shall pay this amount yearly in one sum
within 30 days of the Landlord's written request accompanied by a copy of the
current year's tax bill. The Tenant's liability for this payment shall be
pro-rated for any part of the year the Tenant does not occupy the Rental Space
under this Lease.
6. Assignment or Sublet: The Tenant shall be permitted to assign this Lease
and/or any part of the rental space but such sublet or assignment shall not
release the Tenant from liability hereunder.
7. If any circumstances in this Lease require the Landlord's consent, said
consent shall not unreasonably be withheld.
Witness as to Tenant: Skylands Community Bank, Tenant
________________ /s/ Michael Halpin
Witness as to Landlord /s/ Ann Paftinos
ANN PAFTINOS,LANDLORD
- -----------------
/s/ Van Paftinos
VAN PAFTINOS, LANDLORD
<PAGE> 1
21(a) List of Subsidiaries
Skylands Community Bank
Skylands Community Investment Company, Inc.
Kysoreo, Inc.
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 7,040,000
<INT-BEARING-DEPOSITS> 566,000
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 14,090,000
<INVESTMENTS-CARRYING> 44,094,000
<INVESTMENTS-MARKET> 0
<LOANS> 149,451,000
<ALLOWANCE> 2,390,000
<TOTAL-ASSETS> 219,528,000
<DEPOSITS> 198,100,000
<SHORT-TERM> 4,500,000
<LIABILITIES-OTHER> 1,096,000
<LONG-TERM> 0
0
0
<COMMON> 6,328,000
<OTHER-SE> 9,504,000
<TOTAL-LIABILITIES-AND-EQUITY> 219,528,000
<INTEREST-LOAN> 11,622,000
<INTEREST-INVEST> 3,730,000
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 15,352,000
<INTEREST-DEPOSIT> 5,712,000
<INTEREST-EXPENSE> 5,855,000
<INTEREST-INCOME-NET> 9,497,000
<LOAN-LOSSES> 871,000
<SECURITIES-GAINS> 47,000
<EXPENSE-OTHER> 4,886,000
<INCOME-PRETAX> 3,787,000
<INCOME-PRE-EXTRAORDINARY> 3,787,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,372,000
<EPS-BASIC> 0.95
<EPS-DILUTED> 0.92
<YIELD-ACTUAL> 4.95
<LOANS-NON> 1,485,000
<LOANS-PAST> 420,000
<LOANS-TROUBLED> 1,817,000
<LOANS-PROBLEM> 1,523,000
<ALLOWANCE-OPEN> 1,873,000
<CHARGE-OFFS> 385,000
<RECOVERIES> 31,000
<ALLOWANCE-CLOSE> 2,390,000
<ALLOWANCE-DOMESTIC> 2,390,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 58,000
</TABLE>
