SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
Commission File No. 0-14874
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
STATE BANCORP, INC.
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(Exact name of registrant as specified in its charter)
New York 11-2846511
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
699 Hillside Avenue
New Hyde Park, N.Y. 11040
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(Address of principal (Zip Code)
executive offices)
Registrant's telephone number including area code (516) 437-1000
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock ($5.00 par value)
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirement for the past 90 days.
Yes |X| No |_|
As of March 20, 1998, there were 6,233,421 shares of common stock outstanding
and the aggregate market value of common stock of State Bancorp, Inc. held by
nonaffiliates was approximately $148,044,000 based upon the last trade per share
known to Management.
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STATE BANCORP, INC.
Form 10-K
INDEX
PART I Page
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Item 1. Business
General 1.
Statistical Information 4.
Item 2. Properties 4.
Item 3. Legal Proceedings 5.
Item 4. Submission of Matters to a Vote of Stockholders 5.
PART II
Item 5. Market for Registrant's Common Stock and
Related Stockholder Matters 6.
Item 6. Selected Consolidated Financial Data 6.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7.
Item 8. Consolidated Financial Statements and
Supplementary Data 7.
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 7.
PART III
Item 10. Directors and Executive Officers of the
Registrant 8.
Item 11. Executive Compensation 8.
Item 12. Security Ownership of Certain Beneficial
Owners and Management 9.
Item 13. Certain Relationships and Related Transactions 9.
PART IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K 9.
Signatures 13.
Exhibits
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DOCUMENTS INCORPORATED BY REFERENCE
Listed hereunder are the documents incorporated by reference and the parts of
the Form 10-K into which such documents are incorporated:
(1) The Annual Report to Stockholders for the year ended December 31,
1997. Referenced in Parts I and II of the December 31, 1997 Annual
Report on Form 10-K, Items 1, 5, 6, 7 and 8.
(2) The 1998 Proxy Statement, dated March 27, 1998. Referenced in Part
III of the December 31, 1997 Annual Report on Form 10-K, Items 10,
11, 12 and 13.
PART I
ITEM 1. BUSINESS
General
Incorporated herein by reference is the Company's 1997 Annual Report to
Stockholders. A discussion on the organization and nature of operations may be
found on page 13.
State Bancorp, Inc. (the "Company") was incorporated under the laws of the State
of New York on November 18, 1985. The acquisition by the Company of 100% of the
outstanding shares of State Bank of Long Island (the "Bank"), on a share for
share basis, was consummated as of the close of business on June 24, 1986.
The Company has no other subsidiaries and does not engage in any activities
other than acting as holding company for the common stock of the Bank. The
business of the Company is conducted through the Bank, which continues to
conduct its business in the same manner and from the same offices as it had done
before the effective date of the reorganization. The Bank, therefore, accounts
for all of the consolidated assets and revenues of the Company.
The Company is subject to supervision and regulation by the Board of Governors
of the Federal Reserve System ("Federal Reserve Board") pursuant to the Bank
Holding Company Act of 1956, as amended. The Bank is subject to periodic
examination and regulation
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by the State of New York Banking Department and the Federal Deposit Insurance
Corporation.
The Bank was organized in 1966 and is the only independent commercial bank
headquartered in New Hyde Park. It provides general banking services to
residents and businesses located substantially in the eastern end of Queens
County, Nassau County and the western end of Suffolk County. It offers a full
range of deposit products including checking, fixed and variable rate savings,
time, money market and IRA and Keogh accounts. Credit services offered include
commercial mortgages, commercial and installment loans, home equity lines of
credit, residential mortgages and auto loans. In addition, the Bank provides
merchant credit card services, access to annuity products and offers a consumer
debit card with membership in a national ATM network. The Bank currently has
ATMs at five of its nine branch locations. The Bank also offers its retail
customers the ability to verify their account balances, affect transfers between
accounts and access current deposit and loan rates through an automated
telephone voice response system. Commercial customers can also access this same
system or they may utilize Business Direct Access (BDA), the Company's real-time
cash management system. Through BDA, business and municipal customers can
perform all of the foregoing transactions as well as initiate wire transfers,
ACH payments and stop payment orders from a personal computer.
There is strong competition in the area serviced by the Bank from branches of
several savings banks and savings and loan associations, as well as branches of
the major New York City banks. Of these, the Bank is considerably smaller in
size than virtually all of its commercial competitors, and approximates the size
of only one or two of its
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thrift competitors. Nonetheless, the Bank has demonstrated the ability to
compete profitably with larger financial institutions.
The Bank's business is not of a seasonal nature nor does it depend on one or a
few large customers for its existence. The Bank does not have any foreign
commitments, with the exception of letters of credit issued on behalf of several
of its depositors. The Bank's nature and conduct of business have remained
unchanged since year end 1995.
In 1979, the Bank established the New Hyde Park Leasing Corporation to lease
various types of commercial equipment. During 1994, the Bank established SB ORE
Corp. to hold foreclosed property acquired in connection with extensions of
credit. Total operating income and income before income taxes of these
subsidiaries are less than ten percent of the respective amounts for the
consolidated entity.
Compliance with provisions regulating environmental controls will have no effect
upon the capital expenditures, earnings or competitive position of the Company.
The Company employed 188 full-time and part-time officers and employees as of
December 31, 1997.
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Statistical Information
Statistical information is furnished pursuant to the requirements of Guide 3
(Statistical Disclosure by Bank Holding Companies) promulgated under the
Securities Act of 1933.
Incorporated by reference is the Company's 1997 Annual Report to stockholders.
The Company's statistical information may be found on pages 42 - 50.
ITEM 2. PROPERTIES
The main office of the Company is located at the Bank's main branch at 699
Hillside Avenue, New Hyde Park, N.Y. The lease on the land used by the Bank
expires on March 27, 2009 and contains an option to renew for an additional
ten-year period.
The Bank's lending division is located at Two Jericho Plaza, Jericho, N.Y. This
lease expires on March 31, 2007. The Bank also maintains a Regional Financial
Center at 2 Lincoln Avenue, Rockville Centre, N.Y. The Rockville Centre lease
expires on May 31, 2000.
The Bank operates full service branches at 501 North Broadway, Jericho, N.Y.;
580 East Jericho Turnpike, Huntington, N.Y.; 740 Veterans Memorial Highway,
Hauppauge, N.Y.; 339 Nassau Boulevard, Garden City South, N.Y., 135 South
Street, Oyster Bay, N.Y., 4250 Veterans Memorial highway, Holbrook, N.Y. and 27
Smith Street, Farmingdale, N.Y. The Jericho lease expires on October 31, 2011
and contains a twelve-year renewal option. The Huntington lease expires on
December 31, 1999 and has two five-year renewal options. The Bank's operations
center is also located in the Huntington facility. The Hauppauge lease expires
June 30, 2005 and contains two ten-year renewal options. The Holbrook lease
expires on October 31, 2002 and contains two five-year renewal options. The
Farmingdale lease also expires on October 31, 2002 and it has three five-year
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renewal options. The Garden City South and Oyster Bay facilities are owned by
the Company.
The fixtures and equipment contained in these operating facilities are owned or
leased by the Bank. The Company considers that all of its premises, fixtures and
equipment are adequate for the conduct of its business.
ITEM 3. LEGAL PROCEEDINGS
Neither the Company nor the Bank is a party to any pending legal proceedings,
other than ordinary, routine litigation incidental to the banking business. In
the opinion of management, liabilities, if any, resulting from these matters
would not have a material adverse effect on the consolidated financial
statements of the Company or the Bank.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS
There were no matters submitted to a vote of stockholders during the quarter
ended December 31, 1997.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
(a) Incorporated herein by reference is the Company's 1997 Annual Report
to Stockholders. The Company's common stock market data for the past
three years may be found on page 50 thereof.
(b) At December 31, 1997, the approximate number of equity stockholders
were as follows:
(1) (2)
Title of Class Number of Record Holders
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Common Stock 1,300
(c) Annual cash dividends of 44, 37, and 43 cents per share, restated to
give retroactive effect to stock splits and dividends, were paid in
1997, 1996, and 1995, respectively. The Company declared a six for
five stock split in 1997 and annual stock dividends of 8% and 10%
were paid in 1996 and 1995, respectively. It is the Company's
expectation that dividends will continue to be paid in the future.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
(a) Incorporated herein by reference is the Company's 1997 Annual Report
to Stockholders. The Company's five year summary of operations may
be found on page 51.
(b) Additional years are not considered necessary to keep the above
referenced summary from being misleading.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(a) Incorporated herein by reference is the Company's 1997 Annual Report
to Stockholders. Management's Discussion and Analysis of Financial
Condition and Results of Operations may be found on pages 29 - 41.
(b) There are no known trends or any known demands, commitments, events
or uncertainties which will result in, or which are reasonably
likely to result in, the Company's liquidity increasing, or
decreasing, in any material way.
(c) As of December 31, 1997, the Company had no material commitments for
capital expenditures.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Incorporated herein by reference is the Company's 1997 Annual Report to
Stockholders. The Company's audited Consolidated Balance Sheets as of the close
of the last two years may be found on page 9. Reference again is made to State
Bancorp, Inc.'s 1997 Annual Report to Stockholders for the Company's audited
Statements of Consolidated Earnings, Cash Flows and Stockholders' Equity for
each of the three years in the period ended December 31, 1997. These items may
be found on pages 10 - 12.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
NONE
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<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Incorporated herein by reference is the Company's 1998 Proxy
Statement, dated March 27, 1998. The identification of the directors
of the Company may be found on pages 11 - 12.
(b) Incorporated herein by reference is the Company's 1998 Proxy
Statement, dated March 27, 1998. The identification of the executive
officers of the Company may be found under "Principal Officers" on
page 2.
There exists no family relationships between any director or
executive officer.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated herein by reference is the Company's 1998 Proxy Statement, dated
March 27, 1998. Management remuneration may be found on page 3.
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<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated herein by reference is the Company's 1998 Proxy Statement, dated
March 27, 1998. Security ownership of certain beneficial owners and management
may be found on pages 13 - 14.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated herein by reference is the Company's 1998 Proxy Statement, dated
March 27, 1998. Certain relationships and related transactions may be found on
page 10.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements
Included in the 1997 Annual Report to Stockholders of State Bancorp, Inc.
and enclosed herewith, are the following financial statements and notes
thereon:
- Consolidated Balance Sheets as of December 31, 1997 and 1996.
- Statements of Consolidated Earnings for the years ended December 31,
1997, 1996 and 1995.
- Statements of Consolidated Cash Flows for the years ended December
31, 1997, 1996 and 1995.
- Statements of Consolidated Stockholders' Equity for the years ended
December 31, 1997, 1996 and 1995.
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Notes to Consolidated Financial Statements
- Summary of Significant Accounting and Reporting Policies (1)
- Securities Held to Maturity and Securities Available for Sale (2)
- Loans - Net (3)
- Bank Premises and Equipment - Net (4)
- Other Assets (5)
- Lines of Credit (6)
- Income Taxes (7)
- Incentive Stock Option Plans (8)
- Employee Benefit Plans (9)
- Commitments and Contingent Liabilities (10)
- State Bancorp, Inc. (Parent Company Only) (11)
- Financial Instruments with Off-Balance Sheet Risk (12)
- Disclosures About Fair Value of Financial Instruments (13)
- Regulatory Matters (14)
Independent Auditors' Report
Schedules are omitted because they are not applicable or because required
information is shown in the consolidated financial statements or the notes
thereto.
(b) No reports on Form 8-K were filed during the last quarter of the period
covered by this report.
(c) Exhibits
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<PAGE>
Exhibit
No. Item Method of Filing
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(3) Articles of incorporation Incorporated by reference from exhibit B to
and By-Laws the Company's Registration Statement on Form
a) Articles of S-4, file No. 33-2958, Filed February 3,
incorporation 1986.
b) By-Laws, as amended Filed herein.
(4) Instruments defining the Pages 22-28 of the above referenced
rights of security holders Registration Statement.
(10) Material contracts
a) Deferred compensation Incorporated by reference from exhibit 10b
plan to the Company's December 31, 1986 Form
10-K.
b) (i) Directors' Incorporated by reference from exhibit 10c
incentive retirement to the Company's December 31, 1986 Form
plan 10-K.
b) (ii) Agreements of Incorporated by reference from exhibit 10b
participants (ii) to the Company's December 31, 1992 Form
surrendering their 10-K.
rights under the
directors' incentive
retirement plan.
b) (iii) Agreements of Incorporated by reference from exhibit 10b
participants modifying (iii) to the Company's December 31, 1995
agreements described in Form 10-K.
item b) (ii)
c) 1987 incentive stock Incorporated by reference from exhibit 10c
option plan, as amended to the Company's December 31, 1991 Form
10-K.
d) 1994 incentive stock Incorporated by reference from exhibit 10d
option plan to the Company's December 31, 1993 Form
10-K.
e) (i) Change of control Filed herein.
agreement no. 1
e) (ii) Change of control Filed herein.
agreement no. 2
e) (iii) Change of control Filed herein.
agreement no. 3
e) (iv) Change of control Filed herein.
agreement no. 4
e) (v) Change of control Filed herein.
agreement no. 5
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<PAGE>
f) State Bank of Long Incorporated by reference from exhibit 10g
Island 401k retirement to the Company's December 31, 1987 Form
plan and trust 10-K.
g) State Bancorp, Inc. Incorporated by reference from exhibit 10g
employee stock to the Company's December 31, 1987 Form
ownership plan 10-K.
h) Deferred compensation Incorporated by reference from exhibit 10h
agreement to the Company's December 31, 1995 Form
10-K.
(13) Annual report to Filed herein.
stockholders
(24) Independent Auditors' Filed herein.
Consent
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<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15d of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned.
STATE BANCORP, INC.
By: s/Thomas F. Goldrick, Jr., Chairman
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Thomas F. Goldrick, Jr., Chairman
Date: March 24, 1998
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Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
on the dates indicated.
Signature Title Date
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s/Thomas F. Goldrick, Jr. Chairman of the Board 3/24/98
- ---------------------------- (Principal Executive Officer)
Thomas F. Goldrick, Jr.
s/Daniel T. Rowe President 3/24/98
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Daniel T. Rowe
s/Richard W. Merzbacher Vice Chairman 3/24/98
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Richard W. Merzbacher
s/Brian K. Finneran Secretary 3/24/98
- ---------------------------- (Principal Financial Officer)
Brian K. Finneran
s/Gary Holman Vice Chairman of the Board 3/24/98
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Gary Holman
s/J. Robert Blumenthal Director 3/24/98
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J. Robert Blumenthal
s/Carl R. Bruno Director 3/24/98
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Carl R. Bruno
s/Arthur Dulik, Jr. Director 3/24/98
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Arthur Dulik, Jr.
s/Robert J. Grady Director 3/24/98
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Robert J. Grady
s/Joseph F. Munson Director 3/24/98
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Joseph F. Munson
s/Raymond M. Piacentini Director 3/24/98
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Raymond M. Piacentini
s/John F. Picciano Director 3/24/98
- ----------------------------
John F. Picciano
s/Suzanne H. Rueck Director 3/24/98
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Suzanne Rueck
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AMENDED AND RESTATED BYLAWS
OF
STATE BANCORP, INC.
These By-laws are supplemental to the New York Business Corporation Law
and other applicable provisions of law, as the same shall from time to time be
in effect.
ARTICLE I. MEETINGS OF STOCKHOLDERS.
Section 101. Place of Meetings. All meetings of the stockholders
shall be held at such place or places, within or without the State of New York,
as shall be determined by the Board of Directors from time to time.
Section 102. Annual Meetings. The annual meeting of the stockholders
for the election of Directors and the transaction of such other business as may
properly come before the meeting shall be held at such date or hour as may be
fixed by the Board of Directors. Any business which is a proper subject for
stockholder action may be transacted at the annual meeting, irrespective of
whether the notice of said meeting contains any reference thereto, except as
otherwise provided by applicable law or these By-Laws.
Section 103. Special Meetings. Special meetings of the stockholders
may be called at any time by the Chairman of the Board or by the Board of
Directors pursuant to a resolution adopted by a majority of the total number of
directors which the Corporation would have if there were no vacancies (the
"Whole Board").
Section 104. Notice of the Meetings.
(a) Written or printed notice, stating the place, day and hour of
the meeting and the purpose or purposes for which the meeting is called, shall
be delivered by the Corporation not less than ten (10) days nor more than fifty
(50) days before the date of the meeting, either personally or by first class
mail, to each stockholder of record entitled to vote at such meeting. If mailed,
such notice shall be deemed to be delivered when deposited in the United States
mail with postage thereon prepaid, addressed to the stockholder at his address
as it appears on the stock transfer books of the Corporation or at such other
address given by the stockholder in accordance with law.
(b) Any previously scheduled meeting of the stockholders may be
postponed, and any special meeting of the stockholders may be cancelled, by
resolution of the Board of Directors upon public notice given prior to the date
previously scheduled for such meeting of stockholders.
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Section 105. Conduct of Stockholders' Meetings; Adjournment.
(a) The Chairman of the Board shall preside at all stockholders'
meetings. In the absence of the Chairman of the Board, the President shall
preside or, in his/her absence, the Vice Chairman of the Corporation. The
Officer presiding over the stockholders' meeting may establish such rules and
regulations for the conduct of the meeting as he/she may deem to be reasonably
necessary or desirable for the orderly and expeditious conduct of the meeting,
and shall fix and announce at the meeting the date and time of the opening and
the closing of the polls for each matter upon which the stockholders will vote
at the stockholders' meeting. Subject to Section 202 of these By-Laws, unless
the Officer presiding over the stockholders' meeting otherwise requires,
stockholders need not vote by ballot on any question.
(b) The presiding Officer at a stockholders' meeting or a majority
of the shares of the Corporation present thereat, represented in person or by
proxy, may adjourn the meeting from time to time, whether or not there is a
quorum. No notice of the time and place of adjourned meetings need be given
except as required by law. The stockholders present at a duly called meeting at
which a quorum is present may continue to transact business until adjournment,
notwithstanding the withdrawal of enough stockholders to leave less than a
quorum.
Section 106. Inspectors of Election. Two inspectors of election
shall be appointed by the Board of Directors to serve at each annual or special
meeting of stockholders and to make a written report thereof, and if any
inspector shall fail to serve, the presiding Officer shall appoint an inspector
in his place. Such inspectors may include individuals who serve the Corporation
in other capacities, including, without limitation, as officers, employees,
agents or representatives.
Section 107. Action of Stockholders. Except as otherwise provided by
law, the Certificate of Incorporation, or these By-Laws, in all matters other
than the election of directors (which is governed by Section 202 of these
By-Laws), the affirmative vote of a majority of the shares present in person or
represented by proxy at the meeting and entitled to vote on the matter shall be
the act of the stockholders.
Section 108. Notice of Stockholder Business and Nominations.
(a) Annual Meetings of Stockholders.
(1) Nominations of persons for election to the Board of
Directors of the Corporation and the proposal of business to be considered by
the stockholders may be made at an annual meeting of
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stockholders (A) pursuant to the Corporation's notice of meeting, (B) by or at
the direction of the Board of Directors or (C) by any stockholder of the
Corporation who was a stockholder of record at the time of giving of notice
provided for in this By-Law, who is entitled to vote at the meeting, who (in the
case of nominations of persons for election to the Board of Directors of the
Corporation) is entitled to cast votes with respect to at least five (5) percent
of the outstanding capital stock of the Corporation and who complies with the
notice procedures set forth in this By-Law.
(2) For nominations or other business to be properly brought
before an annual meeting by a stockholder pursuant to clause (C) of paragraph
(a)(1) of this By-Law, the stockholder must have given timely notice thereof in
writing to the Secretary of the Corporation and such other business must
otherwise be a proper matter for stockholder action. To be timely, a
stockholder's notice shall be delivered to the Secretary at the principal
executive offices of the Corporation not later than the close of business on the
90th day nor earlier than the close of business on the 120th day prior to the
first anniversary of the preceding year's annual meeting; provided, however,
that in the event that the date of the annual meeting is more than 30 days
before or more than 60 days after such anniversary date, notice by the
stockholder to be timely must be so delivered not earlier than the close of
business on the 120th day prior to such annual meeting and not later than the
close of business on the later of the 90th day prior to such annual meeting or
the 10th day following the day on which public announcement of the date of such
meeting is first made by the Corporation. In no event shall the public
announcement of an adjournment of an annual meeting commence a new time period
for the giving of a stockholder's notice as described above. Such stockholder's
notice shall set forth (a) as to each person whom the stockholder proposes to
nominate for election or re-election as a director, all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors in an election contest, or is otherwise required, in each
case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and Rule 14a-11 thereunder (including such person's
written consent to being named in the proxy statement as a nominee and to
serving as a director if elected); (b) as to any other business that the
stockholder proposes to bring before the meeting, a brief description of the
business desired to be brought before the meeting, the reason for conducting
such business at the meeting and any material interest in such business of such
stockholder and the beneficial owner, if any, on whose behalf the proposal is
made; and (c) as to the stockholder giving the notice and the beneficial owner,
if any, on whose behalf the nomination or proposal is made, (i) the name and
address of such stockholder, as they appear on the books of the Corporation, and
of such beneficial owner, and (ii) the class and number of shares of the
Corporation which are owned beneficially and of record by such stockholder and
such beneficial owner.
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(3) Notwithstanding anything in the second sentence of
paragraph (a)(2) of this By-Law to the contrary, in the event that the number of
directors to be elected to the Board of Directors of the Corporation is
increased and there is no public announcement by the Corporation naming all of
the nominees for director or specifying the size of the increased Board of
Directors at least 70 days prior to the first anniversary of the preceding
year's annual meeting, a stockholder's notice required by this By-Law shall also
be considered timely, but only with respect to nominees for any new positions
created by such increase, if it shall be delivered to the Secretary at the
principal executive offices of the Corporation not later than the close of
business on the 10th day following the day on which such public announcement is
first made by the Corporation.
(b) Special Meetings of Stockholders. Only such business shall be
conducted at a special meeting of stockholders as shall have been brought before
the meeting pursuant to the Corporation's notice of meeting. Nominations of
persons for election to the Board of Directors may be made at a special meeting
of stockholders at which directors are to be elected pursuant to the
Corporation's notice of meeting (a) by or at the direction of the Board of
Directors or (b) provided that the Board of Directors has determined that
directors shall be elected at such meeting, by any stockholder of the
Corporation who is a stockholder of record at the time of giving of notice
provided for in this By-Law, who shall be entitled to vote at the meeting and
who complies with the notice procedures set forth in this ByLaw. In the event
the Corporation calls a special meeting of stockholders for the purpose of
electing one or more directors to the Board of Directors, any such stockholder
may nominate a person or persons (as the case may be), for election to such
position(s) as specified in the Corporation's notice of meeting, if the
stockholder's notice required by paragraph (a)(2) of this By-Law shall be
delivered to the Secretary at the principal executive offices of the Corporation
not earlier than the close of business on the 120th day prior to such special
meeting and not later than the close of business on the later of the 90th day
prior to such special meeting or the 10th day following the day on which public
announcement is first made of the date of the special meeting and of the
nominees proposed by the Board of Directors to be elected at such meeting. In no
event shall the public announcement of an adjournment of a special meeting
commence a new time period for the giving of a stockholder's notice as described
above.
(c) General.
(1) Only such persons who are nominated in accordance with the
procedures set forth in this By-Law shall be eligible for serve as directors and
only such business shall be conducted at a meeting of the stockholders as shall
have been brought before the meeting in accordance with the procedures set
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forth in this By-Law. Except as otherwise required by law, the Officer presiding
over such stockholders' meeting shall have the power and duty to determine
whether a nomination or any business proposed to be brought before the meeting
was made or proposed, as the case may be, in accordance with the procedures set
forth in this By-Law and, if any proposed nomination or business is not in
compliance with this By-Law, to declare that such defective proposal or
nomination shall be disregarded.
(2) For purposes of this By-Law, "public announcement" shall
mean disclosure in a press release reported by the Dow Jones New Service,
Associated Press or comparable national news service or in a document publicly
filed by the Corporation with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this By-Law, a
stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth in this By-Law. Nothing in this By-Law shall be deemed to affect any
rights (i) of stockholders to request inclusion of proposals in the
Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act or
(ii) of the holders of any series of Preferred Stock to elect directors under
specified circumstances.
ARTICLE II. DIRECTORS AND BOARD MEETINGS.
Section 201. Management by Board of Directors. The business and affairs of
the Corporation shall be managed by its Board of Directors. The Board of
Directors may exercise all such powers of the Corporation and do all such lawful
acts and things as are not by statute, regulation, the Articles of Incorporation
of these Bylaws directed or required to be exercised or done by the
stockholders.
Section 202. Procedure for Election of Directors; Required Vote. Election
of directors at all meetings of the stockholders at which directors are to be
elected shall be by ballot, and, subject to the rights of the holders of any
series of preferred stock to elect directors under specified circumstances, a
plurality of the votes cast thereat shall elect directors.
Section 203. Directors Must be Stockholders. Every Director must be a
stockholder of the Corporation and shall own in his/her own rights the number of
shares (if any) required by law in order to qualify as such Director. Any
Director shall forthwith cease to be a Director when he/she no longer holds such
shares, which fact shall be reported to the Board of Directors by the Secretary,
whereupon the Board of Directors shall declare the seat of such Directors
vacated.
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Section 204. Eligibility and Mandatory Retirement. Commencing with the
annual meeting of the stockholders in 1987, no person shall be eligible to be
newly elected or appointed as a Director as he/she shall have attained the age
of seventy-two (72) years on or prior to the date of his/her election.
Notwithstanding the foregoing, the mandatory retirement provisions of this
section shall no apply retroactively to those Directors elected as Interim
Directors at the first meeting of the Board of Directors of the Corporation, nor
thereafter, should they desire to stand for re-election thereafter. Any Director
of this Corporation, with the exception of the Interim Directors as specified
above, who attains the age of seventy-two (72) years shall cease to be a
Director (without any action on his/her part) at the close of business on the
day prior to the date of the next stockholders' meeting at which directors are
to be elected regardless of whether or not his/her term as a Director would
otherwise expire at such stockholders' meeting. The Board of Directors may
designate one or more persons as honorary members of the Board. Such honorary
members may attend meetings of the Board but shall have no authority to vote.
Section 205. Number of Directors. The Board of Directors shall consist of
not less than five (5) nor more than fifteen (15) stockholders, the exact number
to be fixed and determined from time to time by resolution of a majority of the
full Board of Directors or, subject to Section 108 of these By-Laws, by
resolution of the stockholders at any annual or special meeting thereof.
Section 206. Classification of Directors. The Directors shall be divided
into three (3) classes, as nearly equal in number as possible, known as Class 1,
consisting of not more than five (5) Directors; Class 2, consisting of not more
than five (5) Directors; and Class 3, consisting of not more than five (5)
Directors. The initial Directors of Class 1 shall serve until the first (1st)
annual meeting of the stockholders. At the first (1st) annual meeting of the
stockholders, the Directors of Class 1 shall be elected or a term of three (3)
years, and after expiration of such term, shall thereafter be elected every
three (3) years for three (3) year terms. The initial Directors of Class 2 shall
serve until the second (2nd) annual meeting of stockholders. At the second (2nd)
annual meeting of the stockholders, the Directors of Class 2 shall be elected
for a term of three (3) years and, after the expiration of such term, shall
thereafter be elected every three (3) years for three (3) year terms. The
initial Directors of Class 3 shall serve until the third (3rd) annual meeting of
stockholders. At the third (3rd) annual meeting of stockholders, the Directors
of Class 3 shall be elected for a term of three (3) years and, after the
expiration of such term, shall thereafter be elected every three (3) years for
three (3) year terms. Each Director shall serve until his/her successor shall
have been elected and shall qualify, even though his/her term of office as
herein provided has
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otherwise expired, except in the event of his/her earlier resignation, removal
or disqualification.
Section 207. Vacancies. Except as otherwise required by law, vacancies
occurring on the Board, and any newly created Directorships resulting from an
increase in the number of directors, may be filled by the affirmative vote of a
majority of the Directors then in office. Any Director elected to fill a vacancy
in the Board of Directors shall become a member of the same Class of Directors
in which the vacancy existed; but if the vacancy is due to an increase in the
number of Directors a majority of the members of the Board of Directors shall
designate such directorship as belonging to Class 1, Class 2 or Class 3 so as to
maintain the three (3) classes of Directors as nearly equal in number as
possible. Each Director so elected shall be a Director until his/her successor
is elected by the stockholders, who shall make such election at the next annual
meeting of the stockholders or at any special meeting duly called for that
purpose and held prior thereto.
Section 208. Quorum. One third of the Board of Directors shall constitute
a quorum, but in no event may a quorum be constituted by less than five (5)
directors.
Section 209. Regular Meetings. Regular meetings of the Board of Directors
shall be held on such day, at such hour, and at such place, consistent with
applicable law, as the Board shall from time to time designate or as may be
designated in any notice from the Secretary calling the meeting. The Board of
Directors shall meet for reorganization at the first regular meeting following
the annual meeting of stockholders at which the Directors are elected. Notice
need not be given of regular meetings of the Board of Directors which are held
at the time and place designated by the Board of Directors. If a regular meeting
is not to be held at the time and place designated by the Board of Directors,
notice of such meeting, which need not specify the business to be transacted
thereat and which may be either verbal or in writing, shall be given by the
Secretary to each member of the Board at least twenty-four (24) hours before the
time of the meeting.
Except as otherwise provided herein, a majority of those directors present
and voting at any meeting of the Board of Directors, shall decide each matter
considered. A director cannot vote by proxy, or otherwise act by proxy, at a
meeting of the Board of Directors.
Section 210. Special Meetings. Special meetings of the Board of Directors
may be called by the Chairman of the Board, or in his absence, by the Vice
Chairman of the Board, or in the absence of both, by the President, or at the
request of three or more members of the Board of Directors. A special meeting of
the Board of Directors shall be deemed to be any meeting other than the regular
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meeting of the Board of Directors. Notice of the time and place of every special
meeting, which need not specify the business to be transacted thereat and which
may be either verbal or in writing, shall be given by the Secretary to each
member of the Board (a) if by mail, at least seventy-two (72) hours or (b) if by
telecopy, facsimile, telegraph, cable or other recorded communications or
delivered personally or by telephone, not less than six hours before the time of
such meeting, excepting the Organization Meeting following the election of
Directors. Notices shall be given to each director at the addresses that he has
furnished to the Secretary as the address for such notices.
Waiver of Notice in writing by any director of any special meeting of the
Board or of any committee thereof, whether prior or subsequent to such meeting,
or attendance at such meeting by any director, shall be equivalent to notice to
such directors of such meeting.
Section 211. Report and Records. The reports of Officer and Committees and
the records of the proceedings of all Committees shall be filed with the
Secretary of the Corporation and presented to the Board of Directors, if
practicable, at its next regular meeting. The Board of Directors shall keep
complete records of its proceedings in a minute book kept for that purpose. When
a Director shall request it, the vote of each Director upon a particular
question shall be recorded in the minutes.
ARTICLE III. COMMITTEES
Section 301. Committees. The Committees of the Board of Directors shall be
established by the Board of Directors from time to time at its discretion. The
Board shall determine the purposes and powers of such committees.
Section 302. Appointment of Committee Members. The Board of Directors
shall elect the members of the Committees and the Chairman and Vice Chairman, if
any, of each such Committee to serve until the next annual meeting of
stockholders.
Section 303. Organization and Proceedings. Each Committee of the Board of
Directors shall effect its own organization by the appointment of a Secretary
and such other Officers, except the Chairman and Vice Chairman, as it may deem
necessary. A record of proceedings of all Committees shall be kept by the
Secretary of such Committee and filed and presented as provided in Section 211
of these By-laws.
ARTICLE IV. OFFICERS.
Section 401. Officers. The Officers of the Corporation shall be a
Chairman, a Vice Chairman of the Board, a President, a Vice Chairman of the
Corporation, a Secretary, a Treasurer, and such
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other Officers and Assistant Officers as the Board of Directors may from time to
time deem advisable. Except for the President and Secretary, the Board may
refrain from filling any of the said offices at any time and from time to time.
Except as otherwise required by applicable law, the same individual may hold any
two (2) or more offices. The Officers shall be elected by the Board of Directors
at the time, in the manner and for such terms as the Board of Directors from
time to time shall determine. Any Officer may be removed at any time, with or
without cause, and regardless of the term for which such Officer was elected,
but without prejudice to any contract right of such Officer. Each Officer shall
hold his office for the current year for which he was elected or appointed by
the Board unless he shall resign, becomes disqualified, or be removed at the
pleasure of the Board of Directors.
Section 402. Chairman of the Board, Vice Chairman of the Board. The Board
of Directors shall elect a Chairman of the Board at the first regular meeting of
the Board following each annual meeting of stockholders at which Directors are
elected. The Chairman of the Board shall be a member of the Board of Directors
and shall preside at the meetings of the Board and perform such other duties as
may be prescribed by the Board of Directors.
The Vice Chairman of the Board shall exercise the powers and perform the duties
of the Chairman of the Board during his absence or inability to act and shall
perform such other duties as may be assigned to him from time to time by the
Board of Directors.
Section 403. President. The President shall have general supervision of
all of the departments and business of the Corporation and shall prescribe the
duties of the other Officers and Employees and see to the proper performance
thereof. The President shall be responsible for having all orders and
resolutions of the Board of Directors carried into effect. The President shall
execute on behalf of the Corporation and may affix or cause to be affixed a seal
to authorized documents and instruments requiring such execution, except to the
extent that signing and execution thereof shall have been delegated to some
other Officer or Agent of the Corporation by the Board of Directors or by the
President. The President shall be a member of the Board of Directors. In the
absence or disability of the Chairman or Vice Chairman of the Board or their
refusal to act, the President shall preside at meetings of the Board. In
general, the President shall perform all the duties and exercise all the powers
and authorities incident to such office or as prescribed by the Board of
Directors.
Section 404. Secretary. The Secretary shall act under the supervision of
the President or such other Officers as the President may designate. Unless the
Board has elected a Secretary to the Board of Directors, or unless a designation
to the contrary is made at a meeting, the Secretary shall attend all meetings of
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the Board of Directors and all meetings of the stockholders and record all of
the proceedings of such meetings in a book to be kept for that purpose, and
shall perform like duties for the standing Committees when required by these
By-laws or otherwise. The Secretary shall give, or cause to be given, notice of
all meetings of the stockholders and of the Board of Directors. The Secretary
shall keep a seal of the Corporation, and, when authorized by the Board of
Directors or the President, cause it to be affixed to any documents and
instruments requiring it. The Secretary shall perform such other duties as may
be prescribed by the Board of Directors, President, or such other Supervising
Officer as the President may designate.
Section 405. Treasurer. The Treasurer shall act under the supervision of
the President or such other Officer as the President may designate. The
Treasurer shall have custody of the Corporation's funds and such other duties as
may be prescribed by the Board of Directors, President or such other Supervising
Officer as the President may designate.
Section 406. Secretary to the Board of Directors. The Secretary to the
Board of Directors shall attend all meetings of the Board of Directors and of
the Executive Committee and record all of the proceedings of such meetings, and
shall perform like duties for the committees of the Board when requested.
Section 407. General Powers. The Officers are authorized to do and perform
such corporate acts as are necessary in the carrying on of the business of the
Corporation, subject always to the direction of the Board of Directors.
ARTICLE V. INDEMNIFICATION.
Section 501. Mandatory Indemnification. (a) The Corporation shall, to the
full extent permitted by the New York Business Corporation Law, as amended from
time to time (but, in the case of any such amendment, only to the extent that
such amendment permits the Corporation to provide broader indemnification rights
that said law permitted the Corporation to provide prior to such amendment)
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceedings, whether
civil, criminal, administrative or investigative, by reason of the fact that
he/she is or was a director, officer or employee of the Corporation or any of
its subsidiaries or was serving at the request of the Corporation as a director,
officer, employee or agent of another corporation or of a partnership, joint
venture, trust or other enterprise, including service with respect to employee
benefit plans maintained or sponsored by the Corporation, against all expense,
liability and loss (including attorneys' fees, judgments, fines, ERISA excise
taxes or penalties and amounts paid or to be paid in settlement)
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reasonably incurred or suffered by such person in connection therewith, and such
indemnification shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of his or her heirs,
executors and administrators; provided, however, that except as provided in
paragraph (c) of this Section 501, the Corporation shall indemnify any such
person seeking indemnification in connection with a proceeding (or part thereof)
initiated by such person only if such proceeding (or part thereof) was
authorized by the Board of Directors. Any right of indemnification so provided
shall be a contract right and shall include the right to be paid by the
Corporation the expenses incurred in defending any such proceeding in advance of
its final disposition, such advances to be paid by the Corporation within 20
days after receipt by the Corporation of a statement or statements from the
claimant requesting such advance or advances from time to time; provided,
however, that if the New York Business Corporation Law requires, the payment of
such expenses incurred by a director or officer in his or her capacity as a
director or officer (and not in any other capacity in which service was or is
rendered by such person while a director or officer, including, without
limitation, service to any employee benefit plan) in advance of the final
disposition of a proceeding shall be made only upon delivery to the Corporation
of an undertaking by or on behalf of such director or officer to repay all
amounts so advanced if it shall ultimately be determined that such director or
officer is not entitled to be indemnified under this By-Law or otherwise.
(b) To obtain indemnification under this By-Law, a claimant shall
submit to the Corporation a written request, including therein or therewith such
documentation and information as is reasonably available to the claimant and is
reasonably necessary to determine whether and to what extent the claimant is
entitled to indemnification. Upon written request by a claimant for
indemnification pursuant to the first sentence of this paragraph (b), a
determination, if required by applicable law, with respect to the claimant's
entitlement thereto shall be as follows: (1) if requested by the claimant, by
Independent Counsel (as hereinafter defined), or (2) if no request is made by
the claimant for a determination by Independent Counsel, (i) by the Board of
Directors by a majority vote of a quorum consisting of Disinterested Directors
(as hereinafter defined), or (ii) if a quorum of the Board of Directors
consisting of Disinterested Directors is not obtainable or, even if obtainable,
such quorum of Disinterested Directors so directs, by Independent Counsel in a
written opinion to the Board of Directors, a copy of which shall be delivered to
the claimant, or (iii) if a quorum of Disinterested Directors so directs, by the
stockholders of the Corporation. In the event the determination of entitlement
to indemnification is to be made by Independent Counsel at the request of the
claimant, the Independent Counsel shall be selected by the Board of Directors
unless there shall have occurred within two years prior to the date
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of the commencement of the action, suit or proceedings for which indemnification
is claimed a Change of Control, in which case the Independent Counsel shall be
selected by the claimant unless the claimant shall request that such selection
be made by the Board of Directors. If it is so determined that the claimant is
entitled to indemnification, payment to the claimant shall be made within 10
days after such determination.
(c) If a claim under paragraph (a) of this Section 501 is not paid
in full by the Corporation within thirty days after a written claim pursuant to
paragraph (b) of this By-Law has been received by the Corporation, the claimant
may at any time thereafter bring suit against the Corporation to recover the
unpaid amount of the claim and, if successful in whole or in part, the claimant
shall be entitled to be paid also the expense of prosecuting such claim. It
shall be a defense to any such action (other than an action brought to enforce a
claim for expenses incurred in defending any proceeding in advance of its final
disposition where the required undertaking, if any is required, has been
tendered to the Corporation) that the claimant has not met the standard of
conduct which makes it permissible under the New York Business Corporation Law
for the Corporation to indemnify the claimant for the amount claimed, but the
burden of proving such defense shall be on the Corporation. Neither the failure
of the Corporation (including its Board of Directors, Independent Counsel or
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
New York Business Corporation Law, nor an actual determination by the
Corporation (including its Board of Directors, Independent Counsel or
stockholders) that the claimant has not met such applicable standard of conduct,
shall be a defense to the action or create a presumption that the claimant has
not met the applicable standard of conduct.
(d) If a determination shall have been made pursuant to paragraph
(b) of this Section 501 that the claimant is entitled to indemnification, the
Corporation shall be bound by such determination in any judicial proceeding
commenced pursuant to paragraph (c) of this Section 501.
(e) The Corporation shall be precluded from asserting in any
judicial proceeding commenced pursuant to paragraph (c) of this Section 501 that
the procedures and presumptions of this Section 501 are not valid, binding and
enforceable and shall stipulate in such proceeding that the Corporation is bound
by all the provisions of this By-Law.
(f) The right to indemnification and the payment of expenses
incurred in defending a proceeding in advance of its final disposition conferred
in this By-Law shall not be exclusive of any
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other right which any person may have or hereafter acquire under any statute,
provision of the Certificate of Incorporation, By-Laws, agreement, vote of
stockholders or Disinterested Directors or otherwise. No repeal or modification
of this Section 501 shall in any way diminish or adversely affect the rights of
any director, officer, employee or agent of the Corporation hereunder in respect
of any occurrence or matter arising prior to any such repeal or modification.
(g) The Corporation may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the Corporation
or another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the Corporation would
have the power to indemnify such person against such expense, liability or loss
under the New York Business Corporation Law. To the extent that the Corporation
maintains any policy or policies providing such insurance, each such director or
officer, and each such agent or employee to which rights to indemnification have
been granted as provided in paragraph (h) of this Section 501, shall be covered
by such policy or policies in accordance with its or their terms to the maximum
extent of the coverage thereunder for any such director, officer, employee or
agent.
(h) The Corporation may, to the extent authorized from time to time
by the Board of Directors or the stockholders of the Corporation by resolution
thereof, grant rights to indemnification, and rights to be paid by the
Corporation the expenses incurred in defending any proceeding in advance of its
final disposition, to any employee or agent of the Corporation to the fullest
extent of the provisions of this Section 501 with respect to the indemnification
and advancement of expenses of directors and officers of the Corporation, or to
any directors or officers of the Corporation to the extent such rights are
permitted by law and not available under this Section 501.
(i) If any provision or provisions of this Section 501 shall be held
to be invalid, illegal or unenforceable for any reason whatsoever: (1) the
validity, legality and enforceability of the remaining provisions of this
Section 501 (including, without limitation, each portion of any paragraph of
this Section 501 containing any such provision held to be invalid, illegal or
unenforceable, that is not itself held to be invalid, illegal or unenforceable)
shall not in any way be affected or impaired thereby; and (2) to the fullest
extent possible, the provisions of this Section 501 (including, without
limitation, each such portion of any paragraph of this Section 501 containing
any such provision held to be invalid, illegal or unenforceable) shall be
construed so as to give effect to the intent manifested by the provision held
invalid, illegal or unenforceable.
(j) For purposes of this By-Law:
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(1) "Change of Control" means
(A) The acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or
more of either (i) the then outstanding shares of the Corporation's Common Stock
or (ii) the combined voting power of the then outstanding voting securities of
the Corporation entitled to vote generally in the election of directors (the
"Corporation Voting Securities"); provided, however, that for purposes of this
subsection (a), the following acquisitions shall not constitute a Change of
Control; (i) any acquisition directly from the Corporation, (ii) any acquisition
by the Corporation, (iii) any acquisition by any employee benefit plan (or
related trust) sponsored or maintained by the Company or (iv) any acquisition
pursuant to a transaction which complies with clauses (i), (ii) and (iii) of
paragraph (C) of this Section 501(j)(1); or
(B) Individuals who, as of September __, 1997, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to September __, 1997 whose election, or nomination for
election by the Corporation's stockholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than the
Board; or
(C) Consummation by the Corporation of a reorganization,
merger or consolidation or sale or other disposition of all or substantially all
of the assets of the Corporation or the acquisition of assets of another entity
(a "Business Combination"), in each case, unless, following such Business
Combination, (i) all or substantially all of the individuals and entities who
were the beneficial owners, respectively, of the outstanding common stock and
outstanding voting securities of the Corporation immediately prior to such
Business Combination beneficially own, directly or indirectly, more than 60% of,
respectively, the then outstanding shares of common stock and the combined
voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the Corporation or all or
substantially all of the Corporation's assets either directly or
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through one or more subsidiaries) in substantially the same proportions as their
ownership, immediately prior to such Business Combination, of the Corporation's
outstanding common stock and outstanding voting securities, as the case may be,
(ii) no Person (excluding any employee benefit plan (or related trust) of the
Corporation or such corporation resulting from such Business Combination)
beneficially owns, directly or indirectly, 20% or more of, respectively, the
then outstanding shares of common stock of the corporation resulting from such
Business Combination or the combined voting power of the then outstanding voting
securities of such corporation except to the extent that such ownership existed
prior to the Business Combination and (iii) at least a majority of the members
of the board of directors of the corporation resulting from such Business
Combination were members of the Incumbent Board at the time of the execution of
the initial agreement, or of the action of the Board, providing for such
Business Combination; or
(D) Approval by the stockholders of the Corporation of a
complete liquidation or dissolution of the Corporation.
(2) "Disinterested Director" means a director of the
Corporation who is not and was not a party to the action or proceeding in
respect of which indemnification is sought by the claimant.
(3) "Independent Counsel" means a law firm, a member of a law
firm, or an independent practitioner, that is experienced in matters of
corporation law and shall include any person who, under the applicable standards
of professional conduct then prevailing, would not have a conflict of interest
in representing either the Corporation or the claimant in an action to determine
the claimant's rights under this By-Law.
(k) Any notice, request or other communication required or
permitted to be given to the Corporation under this By-Law shall be in writing
and either delivered in person or sent by telecopy, telex, telegram, overnight
mail or courier service, or certified or registered mail, postage prepaid,
return receipt requested, to the Secretary of the Corporation and shall be
effective only upon receipt by the Secretary.
ARTICLE VI. SHARES OF CAPITAL STOCK
Section 601. Authority to Sign Share Certificates. Every share certificate
of the Corporation shall be signed by the President and by the Secretary or one
of the Assistant Secretaries. Certificates may be signed by a facsimile
signature of the President and the Secretary or one of the Assistant Secretaries
of the Corporation.
Section 602. Lost of Destroyed Certificates. Any person claiming a share
certificate to be lost, destroyed or wrongfully
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taken shall receive a replacement certificate if such person shall have: (a)
requested such replacement certificate before the Corporation has notice that
the shares have been acquired by a bona fide purchaser; (b) provided the
Corporation with an indemnity agreement satisfactory in form and substance to
the Board of Directors, or the President or the Secretary; and (c) satisfied any
other reasonable requirements (including providing an affidavit and a surety
bond) fixed by the Board of Directors, or the President or the Secretary.
ARTICLE VII. GENERAL
Section 701. Fiscal Year. The fiscal year of the Corporation shall begin
on the first (1st) day of January in each year and end on the thirty-first
(31st) day of December in each year.
Section 702. Record Date. The Board of Directors may fix any time
whatsoever not less than ten (10) nor more than fifty (50) days prior to the
date of any meeting of stockholders, or the date for the payment of any dividend
or distribution, or the date for the allotment of rights, or the date when any
change or conversion or exchange of shares will be made or will go into effect,
as a record date for the determination of the stockholders entitled to notice
of, or to vote at, any such meetings, or entitled to receive payment of any such
dividend or distribution, or to receive any such allotment of rights, or to
exercise the rights in respect to any such change, conversion or exchange of
shares.
Section 703. Emergency By-Laws. In the event of any emergency resulting
from a nuclear attack or similar disaster, and during the continuance of such
emergency, the following By-Laws provisions shall be in effect, notwithstanding
any other provisions of the By-Laws:
(a) A meeting of the Board of Directors or of any Committee thereof may be
called by any Officer or Director upon one (1) hour's notice to all persons
entitled to notice whom, in the sole judgment of the notifier, it is feasible to
notify;
(b) The Director or Directors in attendance at the meeting of the Board of
Directors or of any Committee thereof shall constitute a quorum; and
(c) These By-Laws may be amended or repealed, in whole or in part, by a
majority vote of the Directors attending any meeting of the Board of Directors,
provided such amendment or repeal shall only be effective for the duration of
such emergency.
Section 704. Severability. If any provision of these By-Laws is illegal or
unenforceable as such, such illegality or unenforceability shall not affect any
other provision of these
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By-Laws and such other provisions shall continue in full force and effect.
ARTICLE VIII. AMENDMENT OR REPEAL.
Section 801. Amendment or Repeal by the Board of Directors. These By-Laws
may be amended or repealed, in whole or in part, by a majority vote of members
of the Board of Directors at any regular or special meeting of the Board duly
convened. Notice need not be given of the purpose of the meeting of the Board of
Directors at which the amendment or repeal is to be considered.
Section 802. Recording Amendments and Repeals. The text of all amendments
and repeals to these By-Laws shall be attached to the By-Laws with a notation of
the date and vote of such amendment or repeal.
ARTICLE IX. APPROVAL OF AMENDED BY-LAWS AND RECORD OF AMENDMENTS AND REPEALS.
Section 901. Approval and Effective Date. These Amended and Restated
By-laws have been approved as the By-laws of the Corporation this 23rd day of
September, 1997, and shall be effective as of said date.
--------------------------------------
GERALD P. ROSENBERG
Section 902. Amendments or Repeals.
Date Amended
Section Involved or Repealed Approved By
- ---------------- ----------- -----------
102, 103, 104, 105, September 23, 1997 Board of Directors
106, 107, 108, 201, of the Corporation
202, 205, 207, 210,
401, 402, 403, 501,
502, 902
17
CHANGE OF CONTROL
EMPLOYMENT AGREEMENT
AGREEMENT by and between State Bancorp, Inc., a New York corporation
(the "Company") and Thomas F. Goldrick, Jr. (the "Executive"), dated as of the
24th day of September, 1997.
The Board of Directors of the Company (the "Board"), has determined
that it is in the best interests of the Company and its shareholders to assure
that the Company will have the continued dedication of the Executive,
notwithstanding the possibility, threat or occurrence of a Change of Control (as
defined below) of the Company. The Board believes it is imperative to diminish
the inevitable distraction of the Executive by virtue of the personal
uncertainties and risks created by a pending or threatened Change of Control and
to encourage the Executive's full attention and dedication to the Company
currently and in the event of any threatened or pending Change of Control, and
to provide the Executive with compensation and benefits arrangements upon a
Change of Control which ensure that the compensation and benefits expectations
of the Executive will be satisfied and which are competitive with those of other
corporations. Therefore, in order
<PAGE>
to accomplish these objectives, the Board has caused the Company to enter into
this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions. (a) The "Effective Date" shall mean the
first date during the Change of Control Period (as defined in Section 1(b)) on
which a Change of Control (as defined in Section 2) occurs. Anything in this
Agreement to the contrary notwithstanding, if a Change of Control occurs and if
the Executive's employment with the Company is terminated prior to the date on
which the Change of Control occurs, and if it is reasonably demonstrated by the
Executive that such termination of employment (i) was at the request of a third
party who has taken steps reasonably calculated to effect a Change of Control or
(ii) otherwise arose in connection with or anticipation of a Change of Control,
then for all purposes of this Agreement the "Effective Date" shall mean the date
immediately prior to the date of such termination of employment.
(b) The "Change of Control Period" shall mean the period commencing
on the date hereof and ending on the third anniversary of the date hereof;
provided, however, that commencing on the date one year after the date hereof,
and on each annual anniversary of
<PAGE>
such date (such date and each annual anniversary thereof shall be hereinafter
referred to as the "Renewal Date"), unless previously terminated, the Change of
Control Period shall be automatically extended so as to terminate three years
from such Renewal Date, unless at least 60 days prior to the Renewal Date the
Company shall give notice to the Executive that the Change of Control Period
shall not be so extended.
2. Change of Control. For the purpose of this Agreement, a "Change
of Control" shall mean:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")) (a "Person") of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange
Act) of 20% or more of either (i) the then outstanding shares of common
stock of the Company (the "Outstanding Company Common Stock") or (ii) the
combined voting power of the then outstanding voting securities of the
Company entitled to vote generally in the election of directors (the
"Outstanding Company Voting Securities"); provided, however, that for
purposes of this subsection (a), the following acquisitions shall not
constitute a Change of Control: (i) any acquisition directly from the
Company, (ii) any acquisition by the Company, (iii) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by the
Company or any corporation controlled by the Company or (iv) any
acquisition pursuant to a transaction which complies with clauses (i),
(ii) and (iii) of subsection (c) of this Section 2; or
(b) Individuals who, as of the date hereof, constitute the Board
(the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the date
<PAGE>
hereof whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption
of office occurs as a result of an actual or threatened election contest
with respect to the election or removal of directors or other actual or
threatened solicitation of proxies or consents by or on behalf of a Person
other than the Board; or
(c) Consummation by the Company of a reorganization, merger or
consolidation or sale or other disposition of all or substantially all of
the assets of the Company or the acquisition of assets of another entity
(a "Business Combination"), in each case, unless, following such Business
Combination, (i) all or substantially all of the individuals and entities
who were the beneficial owners, respectively, of the Outstanding Company
Common Stock and Outstanding Company Voting Securities immediately prior
to such Business Combination beneficially own, directly or indirectly,
more than 60% of, respectively, the then outstanding shares of common
stock and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of directors, as the
case may be, of the corporation resulting from such Business Combination
(including, without limitation, a corporation which as a result of such
transaction owns the Company or all or substantially all of the Company's
assets either directly or through one or more subsidiaries) in
substantially the same proportions as their ownership, immediately prior
to such Business Combination of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be, (ii) no Person
(excluding any employee benefit plan (or related trust) of the Company or
such corporation resulting from such Business Combination) beneficially
owns, directly or indirectly, 20% or more of, respectively, the then
outstanding shares of common stock of the corporation resulting from such
Business Combination or the combined voting power of the then outstanding
voting securities of such corporation except to the extent that such
ownership existed prior to the Business Combination and (iii) at least a
majority of the members of the board of directors of the corporation
resulting from such Business Combination were members of the Incumbent
Board at the time of the execution of
<PAGE>
the initial agreement, or of the action of the Board, providing for such
Business Combination; or
(d) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
3. Employment Period. The Company hereby agrees to continue the
Executive in its employ, and the Executive hereby agrees to remain in the employ
of the Company subject to the terms and conditions of this Agreement, for the
period commencing on the Effective Date and ending on the third anniversary of
such date (the "Employment Period").
4. Terms of Employment. (a) Position and Duties. (i) During the
Employment Period, (A) the Executive's position (including status, offices,
titles and reporting requirements), authority, duties and responsibilities shall
be at least commensurate in all material respects with the most significant of
those held, exercised and assigned to the Executive at any time during the
120-day period immediately preceding the Effective Date and (B) the Executive's
services shall be performed at the location where the Executive was employed
immediately preceding the Effective Date or any office or location less than 10
miles from such location.
<PAGE>
(ii) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the Executive agrees
to devote reasonable attention and time during normal business hours to the
business and affairs of the Company and, to the extent necessary to discharge
the responsibilities assigned to the Executive hereunder, to use the Executive's
reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period it shall not be a violation of
this Agreement for the Executive to (A) serve on corporate, civic or charitable
boards or committees, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions and (C) manage personal investments, so long
as such activities do not significantly interfere with the performance of the
Executive's responsibilities as an employee of the Company in accordance with
this Agreement. It is expressly understood and agreed that to the extent that
any such activities have been conducted by the Executive prior to the Effective
Date, the continued conduct of such activities (or the conduct of activities
similar in nature and scope thereto) subsequent to the Effective Date shall not
thereafter be deemed to interfere with the performance of the Executive's
responsibilities to the Company.
<PAGE>
(b) Compensation. (i) Base Salary. During the Employment Period, the
Executive shall receive an annual base salary ("Annual Base Salary"), which
shall be paid at a monthly rate, at least equal to twelve times the highest
monthly base salary paid or payable, including any base salary which has been
earned but deferred, to the Executive by the Company and its affiliated
companies in respect of the twelve-month period immediately preceding the month
in which the Effective Date occurs. During the Employment Period, the Annual
Base Salary shall be reviewed no more than 12 months after the last salary
increase awarded to the Executive prior to the Effective Date and thereafter at
least annually. Any increase in Annual Base Salary shall not serve to limit or
reduce any other obligation to the Executive under this Agreement. Annual Base
Salary shall not be reduced after any such increase and the term Annual Base
Salary as utilized in this Agreement shall refer to Annual Base Salary as so
increased. As used in this Agreement, the term "affiliated companies" shall
include any company controlled by, controlling or under common control with the
Company.
<PAGE>
(ii) Annual Bonus. In addition to Annual Base Salary, the
Executive shall be awarded, for each fiscal year ending during the Employment
Period, an annual bonus (the "Annual Bonus") in cash at least equal to the
Executive's highest bonus for the last three full fiscal years prior to the
Effective Date (annualized in the event that the Executive was not employed by
the Company for the whole of such fiscal year) (the "Recent Annual Bonus"). Each
such Annual Bonus shall be paid no later than the end of the third month of the
fiscal year next following the fiscal year for which the Annual Bonus is
awarded, unless the Executive shall elect to defer the receipt of such Annual
Bonus.
(iii) Incentive, Savings and Retirement Plans. During the
Employment Period, the Executive shall be entitled to participate in all
incentive, savings and retirement plans, practices, policies and programs
applicable generally to other peer executives of the Company and its affiliated
companies, but in no event shall such plans, practices, policies and programs
provide the Executive with incentive opportunities (measured with respect to
both regular and special incentive opportunities, to the extent,
if any, that such distinction is applicable), savings opportunities and
retirement benefit opportunities, in each case, less favorable, in the
aggregate, than the most favorable of those provided by the
<PAGE>
Company and its affiliated companies for the Executive under such plans,
practices, policies and programs as in effect at any time during the 120-day
period immediately preceding the Effective Date or if more favorable to the
Executive, those provided generally at any time after the Effective Date to
other peer executives of the Company and its affiliated companies.
(iv) Welfare Benefit Plans. During the Employment Period, the
Executive and/or the Executive's family, as the case may be, shall be eligible
for participation in and shall receive all benefits under welfare benefit plans,
practices, policies and programs provided by the Company and its affiliated
companies (including, without limitation, medical, prescription, dental,
disability, salary continuance, employee life, group life, accidental death and
travel accident insurance plans and programs) to the extent applicable generally
to other peer executives of the Company and its affiliated companies, but in no
event shall such plans, practices, policies and programs provide the Executive
with benefits which are less favorable, in the aggregate, than the most
favorable of such plans, practices, policies and programs in effect for the
Executive at any time during the 120-day period immediately
<PAGE>
preceding the Effective Date or, if more favorable to the Executive, those
provided generally at any time after the Effective Date to other peer executives
of the Company and its affiliated companies.
(v) Expenses. During the Employment Period, the Executive shall
be entitled to receive prompt reimbursement for all reasonable expenses incurred
by the Executive in accordance with the most favorable policies, practices and
procedures of the Company and its affiliated companies in effect for the
Executive at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive, as in effect generally at
any time thereafter with respect to other peer executives of the Company and its
affiliated companies.
(vi) Fringe Benefits. During the Employment Period, the
Executive shall be entitled to fringe benefits, including, without limitation,
tax and financial planning services, payment of club dues, and, if applicable,
use of an automobile and payment of related expenses, in accordance with the
most favorable plans, practices, programs and policies of the Company and its
affiliated companies in effect for the Executive at any time during the 120-day
period immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time
<PAGE>
thereafter with respect to other peer executives of the Company and its
affiliated companies.
(vii) Office and Support Staff. During the Employment Period,
the Executive shall be entitled to an office or offices of a size and with
furnishings and other appointments, and to exclusive personal secretarial and
other assistance, at least equal to the most favorable of the foregoing provided
to the Executive by the Company and its affiliated companies at any time during
the 120-day period immediately preceding the Effective Date or, if more
favorable to the Executive, as provided generally at any time thereafter with
respect to other peer executives of the Company and its affiliated companies.
(viii) Vacation. During the Employment Period, the Executive
shall be entitled to paid vacation in accordance with the most favorable plans,
policies, programs and practices of the Company and its affiliated companies as
in effect for the Executive at any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect to other peer executives of
the Company and its affiliated companies.
<PAGE>
(ix) On the Effective Date, all stock options previously granted to
the Executive shall become fully vested and immediately exercisable and all
restrictions on shares of restricted stock previously awarded to the Executive
shall immediately lapse.
5. Termination of Employment. (a) Death or Disability. The
Executive's employment shall terminate automatically upon the Executive's death
during the Employment Period. If the Company determines in good faith that the
Disability of the Executive has occurred during the Employment Period (pursuant
to the definition of Disability set forth below), it may give to the Executive
written notice in accordance with Section 12(b) of this Agreement of its
intention to terminate the Executive's employment. In such event, the
Executive's employment with the Company shall terminate effective on the 30th
day after receipt of such notice by the Executive (the "Disability Effective
Date"), provided that, within the 30 days after such receipt, the Executive
shall not have returned to full-time performance of the Executive's duties. For
purposes of this Agreement, "Disability" shall mean the absence of the Executive
from the Executive's duties with the Company on a full-time basis for 180
consecutive business days as a result of incapacity due to mental or physical
illness which is determined to be total and permanent by a physician selected by
the Company or
<PAGE>
its insurers and acceptable to the Executive or the Executive's legal
representative.
(b) Cause. The Company may terminate the Executive's employment
during the Employment Period for Cause. For purposes of this Agreement, "Cause"
shall mean:
(i) fraud, misappropriation or intentional material damage to
the property or business of the Company, or
(ii) commission of a felony as determined by a court of
competent jurisdiction, whose determination is final and non-appealable.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "intentional" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or upon the instructions of the Chief Executive Officer or
a senior officer of the Company or based upon the advice of counsel for the
Company shall be conclusively presumed to be done, or omitted to be done, by the
Executive in good faith and in the best interests of the Company. The
<PAGE>
cessation of employment of the Executive shall not be deemed to be for Cause
unless and until there shall have been delivered to the Executive a copy of a
resolution duly adopted by the affirmative vote of not less than three-quarters
of the entire membership of the Board at a meeting of the Board called and held
for such purpose (after reasonable notice is provided to the Executive and the
Executive is given an opportunity, together with counsel, to be heard before the
Board), finding that, in the good faith opinion of the Board, the Executive is
guilty of the conduct described in subparagraph (i) or (ii) above, and
specifying the particulars thereof in detail.
(c) Good Reason. The Executive's employment may be terminated by the
Executive for Good Reason. For purposes of this Agreement, "Good Reason" shall
mean:
(i) without the express written consent of the Executive, the
assignment to the Executive of any duties inconsistent in any respect with
the Executive's position (including status, offices, titles and reporting
requirements), authority, duties or responsibilities as contemplated by
Section 4(a) of this Agreement, or any other action by the Company which
results in a diminution in such position, authority, duties or
responsibilities, excluding for this purpose an isolated, insubstantial
and inadvertent action not taken in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by the Executive;
(ii) any failure by the Company to comply with any of the
provisions of Section 4(b) of this Agreement, other than an isolated,
insubstantial and inadvertent failure not occurring
<PAGE>
in bad faith and which is remedied by the Company promptly after receipt
of notice thereof given by the Executive;
(iii) without the express written consent of the Executive,
the Company's requiring the Executive to be based at any office or
location other than as provided in Section 4(a)(i)(B) hereof or the
Company's requiring the Executive to travel on Company business to a
substantially greater extent than required during the one-year period
prior to the Effective Date;
(iv) any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted by this
Agreement; or
(v) any failure by the Company to comply with and satisfy
Section 11(c) of this Agreement.
For purposes of this Section 5(c), any good faith determination of "Good Reason"
made by the Executive shall be conclusive. Anything in this Agreement to the
contrary notwithstanding, a termination by the Executive for any reason during
the 30-day period immediately following the first anniversary of the Effective
Date shall be deemed to be a termination for Good Reason for all purposes of
this Agreement.
(d) Notice of Termination. Any termination by the Company for Cause,
or by the Executive for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 12(b) of
this Agreement. For
<PAGE>
purposes of this Agreement, a "Notice of Termination" means a written notice
which (i) indicates the specific termination provision in this Agreement relied
upon, (ii) to the extent applicable, sets forth in reasonable detail the facts
and circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated and (iii) if the Date of Termination
(as defined below) is other than the date of receipt of such notice, specifies
the termination date (which date shall be not more than thirty days after the
giving of such notice). The failure by the Executive or the Company to set forth
in the Notice of Termination any fact or circumstance which contributes to a
showing of Good Reason or Cause shall not waive any right of the Executive or
the Company, respectively, hereunder or preclude the Executive or the Company,
respectively, from asserting such fact or circumstance in enforcing the
Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if the
Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination or
any later date specified therein, as the case may be, (ii) if the Executive's
employment is terminated by the Company other than for Cause or Disability, the
date on
<PAGE>
which the Company notifies the Executive of such termination and (iii) if the
Executive's employment is terminated by reason of death or Disability, the date
of death of the Executive or the Disability Effective Date, as the case may be.
6. Obligations of the Company upon Termination. (a) Good Reason;
Other Than for Cause, Death or Disability. If, during the Employment Period, the
Company shall terminate the Executive's employment other than for Cause or
Disability or the Executive shall terminate employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in
cash within 30 days after the Date of Termination the aggregate of the
following amounts:
A. the sum of (1) the Executive's Annual Base Salary
through the Date of Termination to the extent not theretofore paid,
(2) the product of (x) the higher of (I) the Recent Annual Bonus and
(II) the Annual Bonus paid or payable, including any bonus or
portion thereof which has been earned but deferred (and annualized
for any fiscal year consisting of less than twelve full months or
during which the Executive was employed for less than twelve full
months), for the most recently completed fiscal year during the
Employment Period, if any (such higher amount being referred to as
the "Highest Annual Bonus") and (y) a fraction, the numerator of
which is the number of days in the current fiscal year through the
Date of Termination, and the denominator of which is 365 and (3) any
compensation previously deferred by the Executive (together with any
accrued interest or earnings thereon) and any accrued vacation pay,
in each case to the extent
<PAGE>
not theretofore paid (the sum of the amounts described in clauses
(1), (2), and (3) shall be hereinafter referred to as the "Accrued
Obligations"); and
B. the amount equal to the product of (1) three and (2)
the sum of (x) the Executive's Annual Base Salary and (y) the
Highest Annual Bonus; and
C. a lump sum in cash equal to the sum of (A) the
Company contributions to the Employee Stock Ownership Plan (the
"ESOP") that would have been made on behalf of the Executive during
the three year period following the Date of Termination if the
Executive's employment had continued during such period, assuming
Company contributions to the ESOP of a percentage of annual gross
compensation equal to the average percentage of annual gross
compensation contributed to the ESOP during the three-year period
prior to the Date of Termination, and (B) the amount that would have
been credited during the three year period following the Date of
Termination to the Executive's "Deferred Compensation Account" under
Section 4(a) of the Deferred Compensation Agreement by and between
State Bank of Long Island and the Executive, dated as of April 1,
1994, if the Executive's employment had continued during such
period, assuming Company contributions to the ESOP of a percentage
of annual gross compensation equal to the average percentage of
annual gross compensation contributed to the ESOP during the
three-year period prior to the Date of Termination; and
(ii) for three years after the Executive's Date of
Termination, or such longer period as may be provided by the terms of the
appropriate plan, program, practice or policy, the Company shall continue
benefits to the Executive and/or the Executive's family at least equal to
those which would have been provided to them in accordance with the plans,
programs, practices and policies described in Section 4(b)(iv) of this
Agreement if the Executive's employment had not been terminated or, if
more favorable to the Executive, as in effect generally at any time
thereafter with respect to other peer executives of the Company and its
affiliated companies and their families, provided, however, that if the
Executive becomes reemployed with another employer and is eligible to
receive medical or other welfare benefits under another employer-provided
plan, the medical and other welfare benefits described herein shall
<PAGE>
be secondary to those provided under such other plan during such
applicable period of eligibility, and for purposes of determining
eligibility (but not the time of commencement of benefits) of the
Executive for retiree benefits pursuant to such plans, practices, programs
and policies, the Executive shall be considered to have remained employed
until three years after the Date of Termination and to have retired on the
last day of such period;
(iii) without limiting the generality of clause (ii) above,
the Company shall provide the Executive with coverage under the Company's
group life insurance as then in effect, or equivalent benefits, at no cost
to the Executive, for three years following the Date of Termination at a
level determined on the basis of three times the Executive's Annual Base
Salary, and the Executive's participation in the Company's
Hospital/Medical/Surgical insurance plan shall be continued on the same
basis as prior to the Date of Termination, or equivalent benefits shall be
provided by the Company, at no direct cost to the Executive for a period
of three years from the Date of Termination;
(iv) the Company shall, at its sole expense as incurred,
provide the Executive with outplacement services the scope and provider of
which shall be selected by the Executive in the Executive's sole
discretion;
(v) the Executive shall be entitled to full time use for a
period of three years after the Date of Termination of an automobile of
his selection comparable in all respects to the automobile furnished to
the Executive by the Company for his use during the 120-day period prior
to the termination of his employment and shall receive an automobile
allowance of $3,600.00 per annum for a period of three years following the
Date of Termination; and
(vi) to the extent not theretofore paid or provided, the
Company shall timely pay or provide to the Executive any other amounts or
benefits required to be paid or provided or which the Executive is
eligible to receive under any plan, program, policy or practice or
contract or agreement of the
<PAGE>
Company and its affiliated companies (such other amounts and benefits
shall be hereinafter referred to as the "Other Benefits").
(b) Death. If the Executive's employment is terminated by reason of
the Executive's death during the Employment Period, this Agreement shall
terminate without further obligations to the Executive's legal representatives
under this Agreement, other than for payment of Accrued Obligations and the
timely payment or provision of Other Benefits. Accrued Obligations shall be paid
to the Executive's estate or beneficiary, as applicable, in a lump sum in cash
within 30 days of the Date of Termination. With respect to the provision of
Other Benefits, the term Other Benefits as utilized in this Section 6(b) shall
include, without limitation, and the Executive's estate and/or beneficiaries
shall be entitled to receive, benefits at least equal to the most favorable
benefits provided by the Company and affiliated companies to the estates and
beneficiaries of peer executives of the Company and such affiliated companies
under such plans, programs, practices and policies relating to death benefits,
if any, as in effect with respect to other peer executives and their
beneficiaries at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive's estate and/or the
Executive's beneficiaries, as in effect on the date of the Executive's death
<PAGE>
with respect to other peer executives of the Company and its affiliated
companies and their beneficiaries.
(c) Disability. If the Executive's employment is terminated by
reason of the Executive's Disability during the Employment Period, this
Agreement shall terminate without further obligations to the Executive, other
than for payment of Accrued Obligations and the timely payment or provision of
Other Benefits. Accrued Obligations shall be paid to the Executive in a lump sum
in cash within 30 days of the Date of Termination. With respect to the provision
of Other Benefits, the term Other Benefits as utilized in this Section 6(c)
shall include, and the Executive shall be entitled after the Disability
Effective Date to receive, disability and other benefits at least equal to the
most favorable of those generally provided by the Company and its affiliated
companies to disabled executives and/or their families in accordance with such
plans, programs, practices and policies relating to disability, if any, as in
effect generally with respect to other peer executives and their families at any
time during the 120-day period immediately preceding the Effective Date or, if
more favorable to the Executive and/or the Executive's family, as in
<PAGE>
effect at any time thereafter generally with respect to other peer executives of
the Company and its affiliated companies and their families.
(d) Cause; Other than for Good Reason. If the Executive's employment
shall be terminated for Cause during the Employment Period, this Agreement shall
terminate without further obligations to the Executive other than the obligation
to pay to the Executive (x) the Annual Base Salary through the Date of
Termination, (y) the amount of any compensation previously deferred by the
Executive, and (z) Other Benefits, in each case to the extent theretofore
unpaid. If the Executive voluntarily terminates employment during the Employment
Period, excluding a termination for Good Reason, this Agreement shall terminate
without further obligations to the Executive, other than for Accrued Obligations
and the timely payment or provision of Other Benefits. In such case, all Accrued
Obligations shall be paid to the Executive in a lump sum in cash within 30 days
of the Date of Termination.
7. Non-exclusivity of Rights. Nothing in this Agreement shall
prevent or limit the Executive's continuing or future participation in any plan,
program, policy or practice provided by the Company or any of its affiliated
companies and for which the Executive may qualify, nor, subject to Section
12(f), shall
<PAGE>
anything herein limit or otherwise affect such rights as the Executive may have
under any contract or agreement with the Company or any of its affiliated
companies. Amounts which are vested benefits or which the Executive is otherwise
entitled to receive under any plan, policy, practice or program of or any
contract or agreement with the Company or any of its affiliated companies at or
subsequent to the Date of Termination shall be payable in accordance with such
plan, policy, practice or program or contract or agreement except as explicitly
modified by this Agreement.
8. Full Settlement; Legal Fees. The Company's obligation to make the
payments provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement and except as
specifically provided in Section 6(a)(ii), such amounts shall not be reduced
whether or not the Executive obtains other employment. The Company agrees to pay
as
<PAGE>
incurred, to the full extent permitted by law, all legal fees and expenses which
the Executive may reasonably incur as a result of any contest (regardless of the
outcome thereof) by the Company, the Executive or others of the validity or
enforceability of, or liability or entitlement under, any provision of this
Agreement or any guarantee of performance thereof (whether such contest is
between the Company and the Executive or between either of them and any third
party, and including as a result of any contest by the Executive about the
amount of any payment pursuant to this Agreement), plus in each case interest on
any delayed payment at the applicable Federal rate provided for in Section
7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code").
9. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstanding, in
the event it shall be determined that any payment or distribution by the Company
to or for the benefit of the Executive (whether paid or payable or distributed
or distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this Section
9) (a "Payment") would be subject to the excise tax imposed by Section 4999 of
the Code or any corresponding provisions of state or local tax laws, or any
interest or penalties are
<PAGE>
incurred by the Executive with respect to such excise tax (such excise tax,
together with any such interest and penalties, are hereinafter collectively
referred to as the "Excise Tax"), then the Executive shall be entitled to
receive an additional payment (a "Gross-Up Payment") in an amount such that
after payment by the Executive of all taxes (including any interest or penalties
imposed with respect to such taxes), including, without limitation, any income
taxes (and any interest and penalties imposed with respect thereto) and Excise
Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon the Payments.
(b) Subject to the provisions of Section 9(c), all determinations
required to be made under this Section 9, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determination, shall be made by Deloitte and
Touche LLP or such other certified public accounting firm as may be designated
by the Executive (the "Accounting Firm"), which shall provide detailed
supporting calculations both to the Company and the Executive within 15 business
days of the receipt of notice from
<PAGE>
the Executive that there has been a Payment, or such earlier time as is
requested by the Company. In the event that the Accounting Firm is serving as
accountant or auditor for the individual, entity or group effecting the Change
of Control, the Executive shall appoint another nationally recognized accounting
firm to make the determinations required hereunder (which accounting firm shall
then be referred to as the Accounting Firm hereunder). All fees and expenses of
the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment,
as determined pursuant to this Section 9, shall be paid by the Company to the
Executive within five days of the receipt of the Accounting Firm's
determination. Any determination by the Accounting Firm shall be binding upon
the Company and the Executive. As a result of the uncertainty in the application
of Section 4999 of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that Gross-Up Payments which will not
have been made by the Company should have been made ("Underpayment"), consistent
with the calculations required to be made hereunder. In the event that the
Company exhausts its remedies pursuant to Section 9(c) and the Executive
thereafter is required to make a payment of any Excise Tax, the Accounting Firm
shall determine the amount of the Underpayment that has occurred and any such
Underpayment shall be
<PAGE>
promptly paid by the Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim
by the Internal Revenue Service that, if successful, would require the payment
by the Company of the Gross-Up Payment. Such notification shall be given as soon
as practicable but no later than ten business days after the Executive is
informed in writing of such claim and shall apprise the Company of the nature of
such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day period
following the date on which the Executive gives such notice to the Company (or
such shorter period ending on the date that any payment of taxes with respect to
such claim is due). If the Company notifies the Executive in writing prior to
the expiration of such period that it desires to contest such claim, the
Executive shall:
(i) give the Company any information reasonably requested by
the Company relating to such claim,
(ii) take such action in connection with contesting such claim
as the Company shall reasonably request in writing from time to
time, including, without limitation,
<PAGE>
accepting legal representation with respect to such claim by an
attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order
effectively to contest such claim, and
(iv) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this Section 9(c), the Company shall control all proceedings taken in connection
with such contest and, at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either direct
the Executive to pay the tax claimed and sue for a refund or contest the claim
in any permissible manner, and the Executive agrees to prosecute such contest to
a determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to pay
such claim and sue for a
<PAGE>
refund, the Company shall advance the amount of such payment to the Executive,
on an interest-free basis and shall indemnify and hold the Executive harmless,
on an after-tax basis, from any Excise Tax or income tax (including interest or
penalties with respect thereto) imposed with respect to such advance or with
respect to any imputed income with respect to such advance; and further provided
that any extension of the statute of limitations relating to payment of taxes
for the taxable year of the Executive with respect to which such contested
amount is claimed to be due is limited solely to such contested amount.
Furthermore, the Company's control of the contest shall be limited to issues
with respect to which a Gross-Up Payment would be payable hereunder and the
Executive shall be entitled to settle or contest, as the case may be, any other
issue raised by the Internal Revenue Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount advanced by
the Company pursuant to Section 9(c), the Executive becomes entitled to receive
any refund with respect to such claim, the Executive shall (subject to the
Company's complying with the requirements of Section 9(c)) promptly pay to the
Company the
<PAGE>
amount of such refund (together with any interest paid or credited thereon after
taxes applicable thereto). If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 9(c), a determination is made that
the Executive shall not be entitled to any refund with respect to such claim and
the Company does not notify the Executive in writing of its intent to contest
such denial of refund prior to the expiration of 30 days after such
determination, then such advance shall be forgiven and shall not be required to
be repaid and the amount of such advance shall offset, to the extent thereof,
the amount of Gross-Up Payment required to be paid.
10. Confidential Information. The Executive shall hold in a
fiduciary capacity for the benefit of the Company all secret or confidential
information, knowledge or data relating to the Company or any of its affiliated
companies, and their respective businesses, which shall have been obtained by
the Executive during the Executive's employment by the Company or any of its
affiliated companies and which shall not be or become public knowledge (other
than by acts by the Executive or representatives of the Executive in violation
of this Agreement). After termination of the Executive's employment with the
Company, the Executive shall not, without the prior written consent of the
Company or as may
<PAGE>
otherwise be required by law or legal process, communicate or divulge any such
information, knowledge or data to anyone other than the Company and those
designated by it. In no event shall an asserted violation of the provisions of
this Section 10 constitute a basis for deferring or withholding any amounts
otherwise payable to the Executive under this Agreement.
11. Successors. (a) This Agreement is personal to the Executive and
without the prior written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the
<PAGE>
Company would be required to perform it if no such succession had taken place.
As used in this Agreement, "Company" shall mean the Company as hereinbefore
defined and any successor to its business and/or assets as aforesaid which
assumes and agrees to perform this Agreement by operation of law, or otherwise.
12. Miscellaneous. (a) This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without
reference to principles of conflict of laws. The captions of this Agreement are
not part of the provisions hereof and shall have no force or effect. This
Agreement may not be amended or modified otherwise than by a written agreement
executed by the parties hereto or their respective successors and legal
representatives.
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive:
Thomas F. Goldrick, Jr.
1 Pell Lane
Syosset, New York 11791
If to the Company:
<PAGE>
State Bancorp, Inc.
Two Jericho Plaza
Jericho, New York 11753
Attention: General Counsel
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state, local or foreign taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision hereof or any other provision of this Agreement or
the failure to assert any right the Executive or the Company may have hereunder,
including, without limitation, the right of the Executive to terminate
employment for
<PAGE>
Good Reason pursuant to Section 5(c)(i)-(v) of this Agreement, shall not be
deemed to be a waiver of such provision or right or any other provision or right
of this Agreement.
(f) The Executive and the Company acknowledge that, except as may
otherwise be provided under any other written agreement between the Executive
and the Company, the employment of the Executive by the Company is "at will"
and, prior to the Effective Date, the Executive's employment may be terminated
by either the Executive or the Company at any time prior to the Effective Date,
in which case the Executive shall have no further rights under this Agreement.
From and after the Effective Date this Agreement shall supersede any other
agreement between the parties with respect to the subject matter hereof.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's
hand and, pursuant to the authorization from its Board of Directors, the Company
has caused this Agreement to be executed in its name on its behalf, all as of
the day and year first above written.
---------------------------------------------
Thomas F. Goldrick, Jr.
STATE BANCORP, INC.
By
------------------------------------------
CHANGE OF CONTROL
EMPLOYMENT AGREEMENT
AGREEMENT by and between State Bancorp, Inc., a New York corporation
(the "Company") and Daniel T. Rowe (the "Executive"), dated as of the 24th day
of September, 1997.
The Board of Directors of the Company (the "Board"), has determined
that it is in the best interests of the Company and its shareholders to assure
that the Company will have the continued dedication of the Executive,
notwithstanding the possibility, threat or occurrence of a Change of Control (as
defined below) of the Company. The Board believes it is imperative to diminish
the inevitable distraction of the Executive by virtue of the personal
uncertainties and risks created by a pending or threatened Change of Control and
to encourage the Executive's full attention and dedication to the Company
currently and in the event of any threatened or pending Change of Control, and
to provide the Executive with compensation and benefits arrangements upon a
Change of Control which ensure that the compensation and benefits expectations
of the Executive will be satisfied and which are competitive with those of other
corporations. Therefore, in order
<PAGE>
to accomplish these objectives, the Board has caused the Company to enter into
this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions. (a) The "Effective Date" shall mean the
first date during the Change of Control Period (as defined in Section 1(b)) on
which a Change of Control (as defined in Section 2) occurs. Anything in this
Agreement to the contrary notwithstanding, if a Change of Control occurs and if
the Executive's employment with the Company is terminated prior to the date on
which the Change of Control occurs, and if it is reasonably demonstrated by the
Executive that such termination of employment (i) was at the request of a third
party who has taken steps reasonably calculated to effect a Change of Control or
(ii) otherwise arose in connection with or anticipation of a Change of Control,
then for all purposes of this Agreement the "Effective Date" shall mean the date
immediately prior to the date of such termination of employment.
(b) The "Change of Control Period" shall mean the period commencing
on the date hereof and ending on the third anniversary of the date hereof;
provided, however, that commencing on the date one year after the date hereof,
and on each annual anniversary of
<PAGE>
such date (such date and each annual anniversary thereof shall be hereinafter
referred to as the "Renewal Date"), unless previously terminated, the Change of
Control Period shall be automatically extended so as to terminate three years
from such Renewal Date, unless at least 60 days prior to the Renewal Date the
Company shall give notice to the Executive that the Change of Control Period
shall not be so extended.
2. Change of Control. For the purpose of this Agreement, a "Change
of Control" shall mean:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")) (a "Person") of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange
Act) of 20% or more of either (i) the then outstanding shares of common
stock of the Company (the "Outstanding Company Common Stock") or (ii) the
combined voting power of the then outstanding voting securities of the
Company entitled to vote generally in the election of directors (the
"Outstanding Company Voting Securities"); provided, however, that for
purposes of this subsection (a), the following acquisitions shall not
constitute a Change of Control: (i) any acquisition directly from the
Company, (ii) any acquisition by the Company, (iii) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by the
Company or any corporation controlled by the Company or (iv) any
acquisition pursuant to a transaction which complies with clauses (i),
(ii) and (iii) of subsection (c) of this Section 2; or
(b) Individuals who, as of the date hereof, constitute the Board
(the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the date
<PAGE>
hereof whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption
of office occurs as a result of an actual or threatened election contest
with respect to the election or removal of directors or other actual or
threatened solicitation of proxies or consents by or on behalf of a Person
other than the Board; or
(c) Consummation by the Company of a reorganization, merger or
consolidation or sale or other disposition of all or substantially all of
the assets of the Company or the acquisition of assets of another entity
(a "Business Combination"), in each case, unless, following such Business
Combination, (i) all or substantially all of the individuals and entities
who were the beneficial owners, respectively, of the Outstanding Company
Common Stock and Outstanding Company Voting Securities immediately prior
to such Business Combination beneficially own, directly or indirectly,
more than 60% of, respectively, the then outstanding shares of common
stock and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of directors, as the
case may be, of the corporation resulting from such Business Combination
(including, without limitation, a corporation which as a result of such
transaction owns the Company or all or substantially all of the Company's
assets either directly or through one or more subsidiaries) in
substantially the same proportions as their ownership, immediately prior
to such Business Combination of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be, (ii) no Person
(excluding any employee benefit plan (or related trust) of the Company or
such corporation resulting from such Business Combination) beneficially
owns, directly or indirectly, 20% or more of, respectively, the then
outstanding shares of common stock of the corporation resulting from such
Business Combination or the combined voting power of the then outstanding
voting securities of such corporation except to the extent that such
ownership existed prior to the Business Combination and (iii) at least a
majority of the members of the board of directors of the corporation
resulting from such Business Combination were members of the Incumbent
Board at the time of the execution of
<PAGE>
the initial agreement, or of the action of the Board, providing for such
Business Combination; or
(d) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
3. Employment Period. The Company hereby agrees to continue the
Executive in its employ, and the Executive hereby agrees to remain in the employ
of the Company subject to the terms and conditions of this Agreement, for the
period commencing on the Effective Date and ending on the third anniversary of
such date (the "Employment Period").
4. Terms of Employment. (a) Position and Duties. (i) During the
Employment Period, (A) the Executive's position (including status, offices,
titles and reporting requirements), authority, duties and responsibilities shall
be at least commensurate in all material respects with the most significant of
those held, exercised and assigned to the Executive at any time during the
120-day period immediately preceding the Effective Date and (B) the Executive's
services shall be performed at the location where the Executive was employed
immediately preceding the Effective Date or any office or location less than 10
miles from such location.
<PAGE>
(ii) During the Employment Period, and excluding any periods
of vacation and sick leave to which the Executive is entitled, the Executive
agrees to devote reasonable attention and time during normal business hours to
the business and affairs of the Company and, to the extent necessary to
discharge the responsibilities assigned to the Executive hereunder, to use the
Executive's reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period it shall not be a violation of
this Agreement for the Executive to (A) serve on corporate, civic or charitable
boards or committees, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions and (C) manage personal investments, so long
as such activities do not significantly interfere with the performance of the
Executive's responsibilities as an employee of the Company in accordance with
this Agreement. It is expressly understood and agreed that to the extent that
any such activities have been conducted by the Executive prior to the Effective
Date, the continued conduct of such activities (or the conduct of activities
similar in nature and scope thereto) subsequent to the Effective Date shall not
thereafter be deemed to interfere with the performance of the Executive's
responsibilities to the Company.
<PAGE>
(b) Compensation. (i) Base Salary. During the Employment Period, the
Executive shall receive an annual base salary ("Annual Base Salary"), which
shall be paid at a monthly rate, at least equal to twelve times the highest
monthly base salary paid or payable, including any base salary which has been
earned but deferred, to the Executive by the Company and its affiliated
companies in respect of the twelve-month period immediately preceding the month
in which the Effective Date occurs. During the Employment Period, the Annual
Base Salary shall be reviewed no more than 12 months after the last salary
increase awarded to the Executive prior to the Effective Date and thereafter at
least annually. Any increase in Annual Base Salary shall not serve to limit or
reduce any other obligation to the Executive under this Agreement. Annual Base
Salary shall not be reduced after any such increase and the term Annual Base
Salary as utilized in this Agreement shall refer to Annual Base Salary as so
increased. As used in this Agreement, the term "affiliated companies" shall
include any company controlled by, controlling or under common control with the
Company.
<PAGE>
(ii) Annual Bonus. In addition to Annual Base Salary, the
Executive shall be awarded, for each fiscal year ending during the Employment
Period, an annual bonus (the "Annual Bonus") in cash at least equal to the
Executive's highest bonus for the last three full fiscal years prior to the
Effective Date (annualized in the event that the Executive was not employed by
the Company for the whole of such fiscal year) (the "Recent Annual Bonus"). Each
such Annual Bonus shall be paid no later than the end of the third month of the
fiscal year next following the fiscal year for which the Annual Bonus is
awarded, unless the Executive shall elect to defer the receipt of such Annual
Bonus.
(iii) Incentive, Savings and Retirement Plans. During the
Employment Period, the Executive shall be entitled to participate in all
incentive, savings and retirement plans, practices, policies and programs
applicable generally to other peer executives of the Company and its affiliated
companies, but in no event shall such plans, practices, policies and programs
provide the Executive with incentive opportunities (measured with respect to
both regular and special incentive opportunities, to the extent, if any, that
such distinction is applicable), savings opportunities and retirement benefit
opportunities, in each case, less favorable, in the aggregate, than the most
favorable of those provided by the
<PAGE>
Company and its affiliated companies for the Executive under such plans,
practices, policies and programs as in effect at any time during the 120-day
period immediately preceding the Effective Date or if more favorable to the
Executive, those provided generally at any time after the Effective Date to
other peer executives of the Company and its affiliated companies.
(iv) Welfare Benefit Plans. During the Employment Period, the
Executive and/or the Executive's family, as the case may be, shall be eligible
for participation in and shall receive all benefits under welfare benefit plans,
practices, policies and programs provided by the Company and its affiliated
companies (including, without limitation, medical, prescription, dental,
disability, salary continuance, employee life, group life, accidental death and
travel accident insurance plans and programs) to the extent applicable generally
to other peer executives of the Company and its affiliated companies, but in no
event shall such plans, practices, policies and programs provide the Executive
with benefits which are less favorable, in the aggregate, than the most
favorable of such plans, practices, policies and programs in effect for the
Executive at any time during the 120-day period immediately
<PAGE>
preceding the Effective Date or, if more favorable to the Executive, those
provided generally at any time after the Effective Date to other peer executives
of the Company and its affiliated companies.
(v) Expenses. During the Employment Period, the Executive
shall be entitled to receive prompt reimbursement for all reasonable expenses
incurred by the Executive in accordance with the most favorable policies,
practices and procedures of the Company and its affiliated companies in effect
for the Executive at any time during the 120-day period immediately preceding
the Effective Date or, if more favorable to the Executive, as in effect
generally at any time thereafter with respect to other peer executives of the
Company and its affiliated companies.
(vi) Fringe Benefits. During the Employment Period, the
Executive shall be entitled to fringe benefits, including, without limitation,
tax and financial planning services, payment of club dues, and, if applicable,
use of an automobile and payment of related expenses, in accordance with the
most favorable plans, practices, programs and policies of the Company and its
affiliated companies in effect for the Executive at any time during the 120-day
period immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time
<PAGE>
thereafter with respect to other peer executives of the Company and its
affiliated companies.
(vii) Office and Support Staff. During the Employment Period,
the Executive shall be entitled to an office or offices of a size and with
furnishings and other appointments, and to exclusive personal secretarial and
other assistance, at least equal to the most favorable of the foregoing provided
to the Executive by the Company and its affiliated companies at any time during
the 120-day period immediately preceding the Effective Date or, if more
favorable to the Executive, as provided generally at any time thereafter with
respect to other peer executives of the Company and its affiliated companies.
(viii) Vacation. During the Employment Period, the Executive
shall be entitled to paid vacation in accordance with the most favorable plans,
policies, programs and practices of the Company and its affiliated companies as
in effect for the Executive at any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect to other peer executives of
the Company and its affiliated companies.
<PAGE>
(ix) On the Effective Date, all stock options previously
granted to the Executive shall become fully vested and immediately exercisable
and all restrictions on shares of restricted stock previously awarded to the
Executive shall immediately lapse.
5. Termination of Employment. (a) Death or Disability. The
Executive's employment shall terminate automatically upon the Executive's death
during the Employment Period. If the Company determines in good faith that the
Disability of the Executive has occurred during the Employment Period (pursuant
to the definition of Disability set forth below), it may give to the Executive
written notice in accordance with Section 12(b) of this Agreement of its
intention to terminate the Executive's employment. In such event, the
Executive's employment with the Company shall terminate effective on the 30th
day after receipt of such notice by the Executive (the "Disability Effective
Date"), provided that, within the 30 days after such receipt, the Executive
shall not have returned to full-time performance of the Executive's duties. For
purposes of this Agreement, "Disability" shall mean the absence of the Executive
from the Executive's duties with the Company on a full-time basis for 180
consecutive business days as a result of incapacity due to mental or physical
illness which is determined to be total and permanent by a physician selected by
the Company or
<PAGE>
its insurers and acceptable to the Executive or the Executive's legal
representative.
(b) Cause. The Company may terminate the Executive's employment
during the Employment Period for Cause. For purposes of this Agreement, "Cause"
shall mean:
(i) fraud, misappropriation or intentional material damage to
the property or business of the Company, or
(ii) commission of a felony as determined by a court of
competent jurisdiction, whose determination is final and non-appealable.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "intentional" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or upon the instructions of the Chief Executive Officer or
a senior officer of the Company or based upon the advice of counsel for the
Company shall be conclusively presumed to be done, or omitted to be done, by the
Executive in good faith and in the best interests of the Company. The
<PAGE>
cessation of employment of the Executive shall not be deemed to be for Cause
unless and until there shall have been delivered to the Executive a copy of a
resolution duly adopted by the affirmative vote of not less than three-quarters
of the entire membership of the Board at a meeting of the Board called and held
for such purpose (after reasonable notice is provided to the Executive and the
Executive is given an opportunity, together with counsel, to be heard before the
Board), finding that, in the good faith opinion of the Board, the Executive is
guilty of the conduct described in subparagraph (i) or (ii) above, and
specifying the particulars thereof in detail.
(c) Good Reason. The Executive's employment may be terminated by
the Executive for Good Reason. For purposes of this Agreement, "Good Reason"
shall mean:
(i) without the express written consent of the Executive,
the assignment to the Executive of any duties inconsistent in any respect
with the Executive's position (including status, offices, titles and
reporting requirements), authority, duties or responsibilities as
contemplated by Section 4(a) of this Agreement, or any other action by the
Company which results in a diminution in such position, authority, duties
or responsibilities, excluding for this purpose an isolated, insubstantial
and inadvertent action not taken in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by the Executive;
(ii) any failure by the Company to comply with any of the
provisions of Section 4(b) of this Agreement, other than an isolated,
insubstantial and inadvertent failure not occurring
<PAGE>
in bad faith and which is remedied by the Company promptly after receipt
of notice thereof given by the Executive;
(iii) without the express written consent of the Executive,
the Company's requiring the Executive to be based at any office or
location other than as provided in Section 4(a)(i)(B) hereof or the
Company's requiring the Executive to travel on Company business to a
substantially greater extent than required during the one-year period
prior to the Effective Date;
(iv) any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted by this
Agreement; or
(v) any failure by the Company to comply with and satisfy
Section 11(c) of this Agreement.
For purposes of this Section 5(c), any good faith determination of "Good Reason"
made by the Executive shall be conclusive. Anything in this Agreement to the
contrary notwithstanding, a termination by the Executive for any reason during
the 30-day period immediately following the first anniversary of the Effective
Date shall be deemed to be a termination for Good Reason for all purposes of
this Agreement.
(d) Notice of Termination. Any termination by the Company for
Cause, or by the Executive for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 12(b) of
this Agreement. For
<PAGE>
purposes of this Agreement, a "Notice of Termination" means a written notice
which (i) indicates the specific termination provision in this Agreement relied
upon, (ii) to the extent applicable, sets forth in reasonable detail the facts
and circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated and (iii) if the Date of Termination
(as defined below) is other than the date of receipt of such notice, specifies
the termination date (which date shall be not more than thirty days after the
giving of such notice). The failure by the Executive or the Company to set forth
in the Notice of Termination any fact or circumstance which contributes to a
showing of Good Reason or Cause shall not waive any right of the Executive or
the Company, respectively, hereunder or preclude the Executive or the Company,
respectively, from asserting such fact or circumstance in enforcing the
Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if the
Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination or
any later date specified therein, as the case may be, (ii) if the Executive's
employment is terminated by the Company other than for Cause or Disability, the
date on
<PAGE>
which the Company notifies the Executive of such termination and (iii) if the
Executive's employment is terminated by reason of death or Disability, the date
of death of the Executive or the Disability Effective Date, as the case may be.
6. Obligations of the Company upon Termination. (a) Good Reason;
Other Than for Cause, Death or Disability. If, during the Employment Period, the
Company shall terminate the Executive's employment other than for Cause or
Disability or the Executive shall terminate employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in
cash within 30 days after the Date of Termination the aggregate of the
following amounts:
A. the sum of (1) the Executive's Annual Base Salary
through the Date of Termination to the extent not theretofore paid,
(2) the product of (x) the higher of (I) the Recent Annual Bonus and
(II) the Annual Bonus paid or payable, including any bonus or
portion thereof which has been earned but deferred (and annualized
for any fiscal year consisting of less than twelve full months or
during which the Executive was employed for less than twelve full
months), for the most recently completed fiscal year during the
Employment Period, if any (such higher amount being referred to as
the "Highest Annual Bonus") and (y) a fraction, the numerator of
which is the number of days in the current fiscal year through the
Date of Termination, and the denominator of which is 365 and (3) any
compensation previously deferred by the Executive (together with any
accrued interest or earnings thereon) and any accrued vacation pay,
in each case to the extent
<PAGE>
not theretofore paid (the sum of the amounts described in clauses
(1), (2), and (3) shall be hereinafter referred to as the "Accrued
Obligations"); and
B. the amount equal to the product of (1) 3 and (2) the
sum of (x) the Executive's Annual Base Salary and (y) the Highest
Annual Bonus; and
C. a lump sum in cash equal to the sum of (A) the
Company contributions to the Employee Stock Ownership Plan (the
"ESOP") that would have been made on behalf of the Executive during
the three year period following the Date of Termination if the
Executive's employment had continued during such period, assuming
Company contributions to the ESOP of a percentage of annual gross
compensation equal to the average percentage of annual gross
compensation contributed to the ESOP during the three-year period
prior to the Date of Termination, and (B) the amount that would have
been credited during the three year period following the Date of
Termination to the Executive's "Deferred Compensation Account" under
Section 4(a) of the Deferred Compensation Agreement by and between
State Bank of Long Island and the Executive, dated as of April 1,
1994, if the Executive's employment had continued during such
period, assuming Company contributions to the ESOP of a percentage
of annual gross compensation equal to the average percentage of
annual gross compensation contributed to the ESOP during the
three-year period prior to the Date of Termination; and
(ii) for three years after the Executive's Date of Termination
or such longer period as may be provided by the terms of the appropriate
plan, program, practice or policy, the Company shall continue benefits to
the Executive and/or the Executive's family at least equal to those which
would have been provided to them in accordance with the plans, programs,
practices and policies described in Section 4(b)(iv) of this Agreement if
the Executive's employment had not been terminated or, if more favorable
to the Executive, as in effect generally at any time thereafter with
respect to other peer executives of the Company and its affiliated
companies and their families, provided, however, that if the Executive
becomes reemployed with another employer and is eligible to receive
medical or other welfare benefits under another employer-provided plan,
the medical and other welfare benefits described herein shall
<PAGE>
be secondary to those provided under such other plan during such
applicable period of eligibility, and for purposes of determining
eligibility (but not the time of commencement of benefits) of the
Executive for retiree benefits pursuant to such plans, practices, programs
and policies, the Executive shall be considered to have remained employed
until three years after the Date of Termination and to have retired on the
last day of such period;
(iii) without limiting the generality of clause (ii) above,
the Company shall provide the Executive with coverage under the Company's
group life insurance as then in effect, or equivalent benefits, at no cost
to the Executive, for three years following the Date of Termination at a
level determined on the basis of three times the Executive's Annual Base
Salary, and the Executive's participation in the Company's
Hospital/Medical/Surgical insurance plan shall be continued on the same
basis as prior to the Date of Termination, or equivalent benefits shall be
provided by the Company, at no direct cost to the Executive for a period
of three years from the Date of Termination;
(iv) the Company shall, at its sole expense as incurred,
provide the Executive with outplacement services the scope and provider of
which shall be selected by the Executive in the Executive's sole
discretion;
(v) the Executive shall be entitled to full time use for a
period of three years after the Date of Termination of an automobile of
his selection comparable in all respects to the automobile furnished to
the Executive by the Company for his use during the 120-day period prior
to the termination of his employment and shall receive an automobile
allowance of $3,600.00 per annum for a period of three years following the
Date of Termination; and
(vi) to the extent not theretofore paid or provided, the
Company shall timely pay or provide to the Executive any other amounts or
benefits required to be paid or provided or which the Executive is
eligible to receive under any plan, program, policy or practice or
contract or agreement of the
<PAGE>
Company and its affiliated companies (such other amounts and benefits
shall be hereinafter referred to as the "Other Benefits").
(b) Death. If the Executive's employment is terminated by reason of
the Executive's death during the Employment Period, this Agreement shall
terminate without further obligations to the Executive's legal representatives
under this Agreement, other than for payment of Accrued Obligations and the
timely payment or provision of Other Benefits. Accrued Obligations shall be paid
to the Executive's estate or beneficiary, as applicable, in a lump sum in cash
within 30 days of the Date of Termination. With respect to the provision of
Other Benefits, the term Other Benefits as utilized in this Section 6(b) shall
include, without limitation, and the Executive's estate and/or beneficiaries
shall be entitled to receive, benefits at least equal to the most favorable
benefits provided by the Company and affiliated companies to the estates and
beneficiaries of peer executives of the Company and such affiliated companies
under such plans, programs, practices and policies relating to death benefits,
if any, as in effect with respect to other peer executives and their
beneficiaries at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive's estate and/or the
Executive's beneficiaries, as in effect on the date of the Executive's death
<PAGE>
with respect to other peer executives of the Company and its affiliated
companies and their beneficiaries.
(c) Disability. If the Executive's employment is terminated by
reason of the Executive's Disability during the Employment Period, this
Agreement shall terminate without further obligations to the Executive, other
than for payment of Accrued Obligations and the timely payment or provision of
Other Benefits. Accrued Obligations shall be paid to the Executive in a lump sum
in cash within 30 days of the Date of Termination. With respect to the provision
of Other Benefits, the term Other Benefits as utilized in this Section 6(c)
shall include, and the Executive shall be entitled after the Disability
Effective Date to receive, disability and other benefits at least equal to the
most favorable of those generally provided by the Company and its affiliated
companies to disabled executives and/or their families in accordance with such
plans, programs, practices and policies relating to disability, if any, as in
effect generally with respect to other peer executives and their families at any
time during the 120-day period immediately preceding the Effective Date or, if
more favorable to the Executive and/or the Executive's family, as in
<PAGE>
effect at any time thereafter generally with respect to other peer executives of
the Company and its affiliated companies and their families.
(d) Cause; Other than for Good Reason. If the Executive's employment
shall be terminated for Cause during the Employment Period, this Agreement shall
terminate without further obligations to the Executive other than the obligation
to pay to the Executive (x) the Annual Base Salary through the Date of
Termination, (y) the amount of any compensation previously deferred by the
Executive, and (z) Other Benefits, in each case to the extent theretofore
unpaid. If the Executive voluntarily terminates employment during the Employment
Period, excluding a termination for Good Reason, this Agreement shall terminate
without further obligations to the Executive, other than for Accrued Obligations
and the timely payment or provision of Other Benefits. In such case, all Accrued
Obligations shall be paid to the Executive in a lump sum in cash within 30 days
of the Date of Termination.
7. Non-exclusivity of Rights. Nothing in this Agreement shall
prevent or limit the Executive's continuing or future participation in any plan,
program, policy or practice provided by the Company or any of its affiliated
companies and for which the Executive may qualify, nor, subject to Section
12(f), shall
<PAGE>
anything herein limit or otherwise affect such rights as the Executive may have
under any contract or agreement with the Company or any of its affiliated
companies. Amounts which are vested benefits or which the Executive is otherwise
entitled to receive under any plan, policy, practice or program of or any
contract or agreement with the Company or any of its affiliated companies at or
subsequent to the Date of Termination shall be payable in accordance with such
plan, policy, practice or program or contract or agreement except as explicitly
modified by this Agreement.
8. Full Settlement; Legal Fees. The Company's obligation to make the
payments provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement and except as
specifically provided in Section 6(a)(ii), such amounts shall not be reduced
whether or not the Executive obtains other employment. The Company agrees to pay
as
<PAGE>
incurred, to the full extent permitted by law, all legal fees and expenses which
the Executive may reasonably incur as a result of any contest (regardless of the
outcome thereof) by the Company, the Executive or others of the validity or
enforceability of, or liability or entitlement under, any provision of this
Agreement or any guarantee of performance thereof (whether such contest is
between the Company and the Executive or between either of them and any third
party, and including as a result of any contest by the Executive about the
amount of any payment pursuant to this Agreement), plus in each case interest on
any delayed payment at the applicable Federal rate provided for in Section
7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code").
9. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstanding, in
the event it shall be determined that any payment or distribution by the Company
to or for the benefit of the Executive (whether paid or payable or distributed
or distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this Section
9) (a "Payment") would be subject to the excise tax imposed by Section 4999 of
the Code or any corresponding provisions of state or local tax laws, or any
interest or penalties are
<PAGE>
incurred by the Executive with respect to such excise tax (such excise tax,
together with any such interest and penalties, are hereinafter collectively
referred to as the "Excise Tax"), then the Executive shall be entitled to
receive an additional payment (a "Gross-Up Payment") in an amount such that
after payment by the Executive of all taxes (including any interest or penalties
imposed with respect to such taxes), including, without limitation, any income
taxes (and any interest and penalties imposed with respect thereto) and Excise
Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon the Payments.
(b) Subject to the provisions of Section 9(c), all determinations
required to be made under this Section 9, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determination, shall be made by Deloitte and
Touche LLP or such other certified public accounting firm as may be designated
by the Executive (the "Accounting Firm"), which shall provide detailed
supporting calculations both to the Company and the Executive within 15 business
days of the receipt of notice from
<PAGE>
the Executive that there has been a Payment, or such earlier time as is
requested by the Company. In the event that the Accounting Firm is serving as
accountant or auditor for the individual, entity or group effecting the Change
of Control, the Executive shall appoint another nationally recognized accounting
firm to make the determinations required hereunder (which accounting firm shall
then be referred to as the Accounting Firm hereunder). All fees and expenses of
the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment,
as determined pursuant to this Section 9, shall be paid by the Company to the
Executive within five days of the receipt of the Accounting Firm's
determination. Any determination by the Accounting Firm shall be binding upon
the Company and the Executive. As a result of the uncertainty in the application
of Section 4999 of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that Gross-Up Payments which will not
have been made by the Company should have been made ("Underpayment"), consistent
with the calculations required to be made hereunder. In the event that the
Company exhausts its remedies pursuant to Section 9(c) and the Executive
thereafter is required to make a payment of any Excise Tax, the Accounting Firm
shall determine the amount of the Underpayment that has occurred and any such
Underpayment shall be
<PAGE>
promptly paid by the Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim
by the Internal Revenue Service that, if successful, would require the payment
by the Company of the Gross-Up Payment. Such notification shall be given as soon
as practicable but no later than ten business days after the Executive is
informed in writing of such claim and shall apprise the Company of the nature of
such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day period
following the date on which the Executive gives such notice to the Company (or
such shorter period ending on the date that any payment of taxes with respect to
such claim is due). If the Company notifies the Executive in writing prior to
the expiration of such period that it desires to contest such claim, the
Executive shall:
(i) give the Company any information reasonably requested by
the Company relating to such claim,
(ii) take such action in connection with contesting such claim
as the Company shall reasonably request in writing from time to
time, including, without limitation,
<PAGE>
accepting legal representation with respect to such claim by an
attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order
effectively to contest such claim, and
(iv) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this Section 9(c), the Company shall control all proceedings taken in connection
with such contest and, at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either direct
the Executive to pay the tax claimed and sue for a refund or contest the claim
in any permissible manner, and the Executive agrees to prosecute such contest to
a determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to pay
such claim and sue for a
<PAGE>
refund, the Company shall advance the amount of such payment to the Executive,
on an interest-free basis and shall indemnify and hold the Executive harmless,
on an after-tax basis, from any Excise Tax or income tax (including interest or
penalties with respect thereto) imposed with respect to such advance or with
respect to any imputed income with respect to such advance; and further provided
that any extension of the statute of limitations relating to payment of taxes
for the taxable year of the Executive with respect to which such contested
amount is claimed to be due is limited solely to such contested amount.
Furthermore, the Company's control of the contest shall be limited to issues
with respect to which a Gross-Up Payment would be payable hereunder and the
Executive shall be entitled to settle or contest, as the case may be, any other
issue raised by the Internal Revenue Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount advanced by
the Company pursuant to Section 9(c), the Executive becomes entitled to receive
any refund with respect to such claim, the Executive shall (subject to the
Company's complying with the requirements of Section 9(c)) promptly pay to the
Company the
<PAGE>
amount of such refund (together with any interest paid or credited thereon after
taxes applicable thereto). If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 9(c), a determination is made that
the Executive shall not be entitled to any refund with respect to such claim and
the Company does not notify the Executive in writing of its intent to contest
such denial of refund prior to the expiration of 30 days after such
determination, then such advance shall be forgiven and shall not be required to
be repaid and the amount of such advance shall offset, to the extent thereof,
the amount of Gross-Up Payment required to be paid.
10. Confidential Information. The Executive shall hold in a
fiduciary capacity for the benefit of the Company all secret or confidential
information, knowledge or data relating to the Company or any of its affiliated
companies, and their respective businesses, which shall have been obtained by
the Executive during the Executive's employment by the Company or any of its
affiliated companies and which shall not be or become public knowledge (other
than by acts by the Executive or representatives of the Executive in violation
of this Agreement). After termination of the Executive's employment with the
Company, the Executive shall not, without the prior written consent of the
Company or as may
<PAGE>
otherwise be required by law or legal process, communicate or divulge any such
information, knowledge or data to anyone other than the Company and those
designated by it. In no event shall an asserted violation of the provisions of
this Section 10 constitute a basis for deferring or withholding any amounts
otherwise payable to the Executive under this Agreement.
11. Successors. (a) This Agreement is personal to the Executive and
without the prior written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the
<PAGE>
Company would be required to perform it if no such succession had taken place.
As used in this Agreement, "Company" shall mean the Company as hereinbefore
defined and any successor to its business and/or assets as aforesaid which
assumes and agrees to perform this Agreement by operation of law, or otherwise.
12. Miscellaneous. (a) This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without
reference to principles of conflict of laws. The captions of this Agreement are
not part of the provisions hereof and shall have no force or effect. This
Agreement may not be amended or modified otherwise than by a written agreement
executed by the parties hereto or their respective successors and legal
representatives.
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive:
Daniel T. Rowe
P.O. Box 162
East Setauket, New York 11733
If to the Company:
<PAGE>
State Bancorp, Inc.
Two Jericho Plaza
Jericho, New York 11753
Attention: General Counsel
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state, local or foreign taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision hereof or any other provision of this Agreement or
the failure to assert any right the Executive or the Company may have hereunder,
including, without limitation, the right of the Executive to terminate
employment for
<PAGE>
Good Reason pursuant to Section 5(c)(i)-(v) of this Agreement, shall not be
deemed to be a waiver of such provision or right or any other provision or right
of this Agreement.
(f) The Executive and the Company acknowledge that, except as may
otherwise be provided under any other written agreement between the Executive
and the Company, the employment of the Executive by the Company is "at will"
and, prior to the Effective Date, the Executive's employment may be terminated
3by either the Executive or the Company at any time prior to the Effective Date,
in which case the Executive shall have no further rights under this Agreement.
From and after the Effective Date this Agreement shall supersede any other
agreement between the parties with respect to the subject matter hereof.
<PAGE>
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's
hand and, pursuant to the authorization from its Board of Directors, the Company
has caused this Agreement to be executed in its name on its behalf, all as of
the day and year first above written.
--------------------------------------
Daniel T. Rowe
STATE BANCORP, INC.
By
-----------------------------------
CHANGE OF CONTROL
EMPLOYMENT AGREEMENT
AGREEMENT by and between State Bancorp, Inc., a New York corporation
(the "Company") and Richard W. Merzbacher (the "Executive"), dated as of the
24th day of September, 1997.
The Board of Directors of the Company (the "Board"), has determined
that it is in the best interests of the Company and its shareholders to assure
that the Company will have the continued dedication of the Executive,
notwithstanding the possibility, threat or occurrence of a Change of Control (as
defined below) of the Company. The Board believes it is imperative to diminish
the inevitable distraction of the Executive by virtue of the personal
uncertainties and risks created by a pending or threatened Change of Control and
to encourage the Executive's full attention and dedication to the Company
currently and in the event of any threatened or pending Change of Control, and
to provide the Executive with compensation and benefits arrangements upon a
Change of Control which ensure that the compensation and benefits expectations
of the Executive will be satisfied and which are competitive with those of other
corporations. Therefore, in order
<PAGE>
to accomplish these objectives, the Board has caused the Company to enter into
this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions. (a) The "Effective Date" shall mean the
first date during the Change of Control Period (as defined in Section 1(b)) on
which a Change of Control (as defined in Section 2) occurs. Anything in this
Agreement to the contrary notwithstanding, if a Change of Control occurs and if
the Executive's employment with the Company is terminated prior to the date on
which the Change of Control occurs, and if it is reasonably demonstrated by the
Executive that such termination of employment (i) was at the request of a third
party who has taken steps reasonably calculated to effect a Change of Control or
(ii) otherwise arose in connection with or anticipation of a Change of Control,
then for all purposes of this Agreement the "Effective Date" shall mean the date
immediately prior to the date of such termination of employment.
(b) The "Change of Control Period" shall mean the period commencing
on the date hereof and ending on the third anniversary of the date hereof;
provided, however, that commencing on the date one year after the date hereof,
and on each annual anniversary of
<PAGE>
such date (such date and each annual anniversary thereof shall be hereinafter
referred to as the "Renewal Date"), unless previously terminated, the Change of
Control Period shall be automatically extended so as to terminate three years
from such Renewal Date, unless at least 60 days prior to the Renewal Date the
Company shall give notice to the Executive that the Change of Control Period
shall not be so extended.
2. Change of Control. For the purpose of this Agreement, a "Change
of Control" shall mean:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")) (a "Person") of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange
Act) of 20% or more of either (i) the then outstanding shares of common
stock of the Company (the "Outstanding Company Common Stock") or (ii) the
combined voting power of the then outstanding voting securities of the
Company entitled to vote generally in the election of directors (the
"Outstanding Company Voting Securities"); provided, however, that for
purposes of this subsection (a), the following acquisitions shall not
constitute a Change of Control: (i) any acquisition directly from the
Company, (ii) any acquisition by the Company, (iii) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by the
Company or any corporation controlled by the Company or (iv) any
acquisition pursuant to a transaction which complies with clauses (i),
(ii) and (iii) of subsection (c) of this Section 2; or
(b) Individuals who, as of the date hereof, constitute the Board
(the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the date
<PAGE>
hereof whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption
of office occurs as a result of an actual or threatened election contest
with respect to the election or removal of directors or other actual or
threatened solicitation of proxies or consents by or on behalf of a Person
other than the Board; or
(c) Consummation by the Company of a reorganization, merger or
consolidation or sale or other disposition of all or substantially all of
the assets of the Company or the acquisition of assets of another entity
(a "Business Combination"), in each case, unless, following such Business
Combination, (i) all or substantially all of the individuals and entities
who were the beneficial owners, respectively, of the Outstanding Company
Common Stock and Outstanding Company Voting Securities immediately prior
to such Business Combination beneficially own, directly or indirectly,
more than 60% of, respectively, the then outstanding shares of common
stock and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of directors, as the
case may be, of the corporation resulting from such Business Combination
(including, without limitation, a corporation which as a result of such
transaction owns the Company or all or substantially all of the Company's
assets either directly or through one or more subsidiaries) in
substantially the same proportions as their ownership, immediately prior
to such Business Combination of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be, (ii) no Person
(excluding any employee benefit plan (or related trust) of the Company or
such corporation resulting from such Business Combination) beneficially
owns, directly or indirectly, 20% or more of, respectively, the then
outstanding shares of common stock of the corporation resulting from such
Business Combination or the combined voting power of the then outstanding
voting securities of such corporation except to the extent that such
ownership existed prior to the Business Combination and (iii) at least a
majority of the members of the board of directors of the corporation
resulting from such Business Combination were members of the Incumbent
Board at the time of the execution of
<PAGE>
the initial agreement, or of the action of the Board, providing for such
Business Combination; or
(d) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
3. Employment Period. The Company hereby agrees to continue the
Executive in its employ, and the Executive hereby agrees to remain in the employ
of the Company subject to the terms and conditions of this Agreement, for the
period commencing on the Effective Date and ending on the third anniversary of
such date (the "Employment Period").
4. Terms of Employment. (a) Position and Duties. (i) During the
Employment Period, (A) the Executive's position (including status, offices,
titles and reporting requirements), authority, duties and responsibilities shall
be at least commensurate in all material respects with the most significant of
those held, exercised and assigned to the Executive at any time during the
120-day period immediately preceding the Effective Date and (B) the Executive's
services shall be performed at the location where the Executive was employed
immediately preceding the Effective Date or any office or location less than 10
miles from such location.
<PAGE>
(ii) During the Employment Period, and excluding any periods
of vacation and sick leave to which the Executive is entitled, the Executive
agrees to devote reasonable attention and time during normal business hours to
the business and affairs of the Company and, to the extent necessary to
discharge the responsibilities assigned to the Executive hereunder, to use the
Executive's reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period it shall not be a violation of
this Agreement for the Executive to (A) serve on corporate, civic or charitable
boards or committees, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions and (C) manage personal investments, so long
as such activities do not significantly interfere with the performance of the
Executive's responsibilities as an employee of the Company in accordance with
this Agreement. It is expressly understood and agreed that to the extent that
any such activities have been conducted by the Executive prior to the Effective
Date, the continued conduct of such activities (or the conduct of activities
similar in nature and scope thereto) subsequent to the Effective Date shall not
thereafter be deemed to interfere with the performance of the Executive's
responsibilities to the Company.
<PAGE>
(b) Compensation. (i) Base Salary. During the Employment Period, the
Executive shall receive an annual base salary ("Annual Base Salary"), which
shall be paid at a monthly rate, at least equal to twelve times the highest
monthly base salary paid or payable, including any base salary which has been
earned but deferred, to the Executive by the Company and its affiliated
companies in respect of the twelve-month period immediately preceding the month
in which the Effective Date occurs. During the Employment Period, the Annual
Base Salary shall be reviewed no more than 12 months after the last salary
increase awarded to the Executive prior to the Effective Date and thereafter at
least annually. Any increase in Annual Base Salary shall not serve to limit or
reduce any other obligation to the Executive under this Agreement. Annual Base
Salary shall not be reduced after any such increase and the term Annual Base
Salary as utilized in this Agreement shall refer to Annual Base Salary as so
increased. As used in this Agreement, the term "affiliated companies" shall
include any company controlled by, controlling or under common control with the
Company.
<PAGE>
(ii) Annual Bonus. In addition to Annual Base Salary, the
Executive shall be awarded, for each fiscal year ending during the Employment
Period, an annual bonus (the "Annual Bonus") in cash at least equal to the
Executive's highest bonus for the last three full fiscal years prior to the
Effective Date (annualized in the event that the Executive was not employed by
the Company for the whole of such fiscal year) (the "Recent Annual Bonus"). Each
such Annual Bonus shall be paid no later than the end of the third month of the
fiscal year next following the fiscal year for which the Annual Bonus is
awarded, unless the Executive shall elect to defer the receipt of such Annual
Bonus.
(iii) Incentive, Savings and Retirement Plans. During the
Employment Period, the Executive shall be entitled to participate in all
incentive, savings and retirement plans, practices, policies and programs
applicable generally to other peer executives of the Company and its affiliated
companies, but in no event shall such plans, practices, policies and programs
provide the Executive with incentive opportunities (measured with respect to
both regular and special incentive opportunities, to the extent, if any, that
such distinction is applicable), savings opportunities and retirement benefit
opportunities, in each case, less favorable, in the aggregate, than the most
favorable of those provided by the
<PAGE>
Company and its affiliated companies for the Executive under such plans,
practices, policies and programs as in effect at any time during the 120-day
period immediately preceding the Effective Date or if more favorable to the
Executive, those provided generally at any time after the Effective Date to
other peer executives of the Company and its affiliated companies.
(iv) Welfare Benefit Plans. During the Employment Period, the
Executive and/or the Executive's family, as the case may be, shall be eligible
for participation in and shall receive all benefits under welfare benefit plans,
practices, policies and programs provided by the Company and its affiliated
companies (including, without limitation, medical, prescription, dental,
disability, salary continuance, employee life, group life, accidental death and
travel accident insurance plans and programs) to the extent applicable generally
to other peer executives of the Company and its affiliated companies, but in no
event shall such plans, practices, policies and programs provide the Executive
with benefits which are less favorable, in the aggregate, than the most
favorable of such plans, practices, policies and programs in effect for the
Executive at any time during the 120-day period immediately
<PAGE>
preceding the Effective Date or, if more favorable to the Executive, those
provided generally at any time after the Effective Date to other peer executives
of the Company and its affiliated companies.
(v) Expenses. During the Employment Period, the Executive
shall be entitled to receive prompt reimbursement for all reasonable expenses
incurred by the Executive in accordance with the most favorable policies,
practices and procedures of the Company and its affiliated companies in effect
for the Executive at any time during the 120-day period immediately preceding
the Effective Date or, if more favorable to the Executive, as in effect
generally at any time thereafter with respect to other peer executives of the
Company and its affiliated companies.
(vi) Fringe Benefits. During the Employment Period, the
Executive shall be entitled to fringe benefits, including, without limitation,
tax and financial planning services, payment of club dues, and, if applicable,
use of an automobile and payment of related expenses, in accordance with the
most favorable plans, practices, programs and policies of the Company and its
affiliated companies in effect for the Executive at any time during the 120-day
period immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time
<PAGE>
thereafter with respect to other peer executives of the Company and its
affiliated companies.
(vii) Office and Support Staff. During the Employment Period,
the Executive shall be entitled to an office or offices of a size and with
furnishings and other appointments, and to exclusive personal secretarial and
other assistance, at least equal to the most favorable of the foregoing provided
to the Executive by the Company and its affiliated companies at any time during
the 120-day period immediately preceding the Effective Date or, if more
favorable to the Executive, as provided generally at any time thereafter with
respect to other peer executives of the Company and its affiliated companies.
(viii) Vacation. During the Employment Period, the Executive
shall be entitled to paid vacation in accordance with the most favorable plans,
policies, programs and practices of the Company and its affiliated companies as
in effect for the Executive at any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect to other peer executives of
the Company and its affiliated companies.
<PAGE>
(ix) On the Effective Date, all stock options previously
granted to the Executive shall become fully vested and immediately exercisable
and all restrictions on shares of restricted stock previously awarded to the
Executive shall immediately lapse.
5. Termination of Employment. (a) Death or Disability. The
Executive's employment shall terminate automatically upon the Executive's death
during the Employment Period. If the Company determines in good faith that the
Disability of the Executive has occurred during the Employment Period (pursuant
to the definition of Disability set forth below), it may give to the Executive
written notice in accordance with Section 12(b) of this Agreement of its
intention to terminate the Executive's employment. In such event, the
Executive's employment with the Company shall terminate effective on the 30th
day after receipt of such notice by the Executive (the "Disability Effective
Date"), provided that, within the 30 days after such receipt, the Executive
shall not have returned to full-time performance of the Executive's duties. For
purposes of this Agreement, "Disability" shall mean the absence of the Executive
from the Executive's duties with the Company on a full-time basis for 180
consecutive business days as a result of incapacity due to mental or physical
illness which is determined to be total and permanent by a physician selected by
the Company or
<PAGE>
its insurers and acceptable to the Executive or the Executive's legal
representative.
(b) Cause. The Company may terminate the Executive's employment
during the Employment Period for Cause. For purposes of this Agreement, "Cause"
shall mean:
(i) fraud, misappropriation or intentional material damage to
the property or business of the Company, or
(ii) commission of a felony as determined by a court of
competent jurisdiction, whose determination is final and non-appealable.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "intentional" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or upon the instructions of the Chief Executive Officer or
a senior officer of the Company or based upon the advice of counsel for the
Company shall be conclusively presumed to be done, or omitted to be done, by the
Executive in good faith and in the best interests of the Company. The
<PAGE>
cessation of employment of the Executive shall not be deemed to be for Cause
unless and until there shall have been delivered to the Executive a copy of a
resolution duly adopted by the affirmative vote of not less than three-quarters
of the entire membership of the Board at a meeting of the Board called and held
for such purpose (after reasonable notice is provided to the Executive and the
Executive is given an opportunity, together with counsel, to be heard before the
Board), finding that, in the good faith opinion of the Board, the Executive is
guilty of the conduct described in subparagraph (i) or (ii) above, and
specifying the particulars thereof in detail.
(c) Good Reason. The Executive's employment may be terminated by the
Executive for Good Reason. For purposes of this Agreement, "Good Reason" shall
mean:
(i) without the express written consent of the Executive, the
assignment to the Executive of any duties inconsistent in any respect with
the Executive's position (including status, offices, titles and reporting
requirements), authority, duties or responsibilities as contemplated by
Section 4(a) of this Agreement, or any other action by the Company which
results in a diminution in such position, authority, duties or
responsibilities, excluding for this purpose an isolated, insubstantial
and inadvertent action not taken in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by the Executive;
(ii) any failure by the Company to comply with any of the
provisions of Section 4(b) of this Agreement, other than an isolated,
insubstantial and inadvertent failure not occurring
<PAGE>
in bad faith and which is remedied by the Company promptly after receipt
of notice thereof given by the Executive;
(iii) without the express written consent of the Executive,
the Company's requiring the Executive to be based at any office or
location other than as provided in Section 4(a)(i)(B) hereof or the
Company's requiring the Executive to travel on Company business to a
substantially greater extent than required during the one-year period
prior to the Effective Date;
(iv) any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted by this
Agreement; or
(v) any failure by the Company to comply with and satisfy
Section 11(c) of this Agreement.
For purposes of this Section 5(c), any good faith determination of "Good Reason"
made by the Executive shall be conclusive. Anything in this Agreement to the
contrary notwithstanding, a termination by the Executive for any reason during
the 30-day period immediately following the first anniversary of the Effective
Date shall be deemed to be a termination for Good Reason for all purposes of
this Agreement.
(d) Notice of Termination. Any termination by the Company for Cause,
or by the Executive for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 12(b) of
this Agreement. For
<PAGE>
purposes of this Agreement, a "Notice of Termination" means a written notice
which (i) indicates the specific termination provision in this Agreement relied
upon, (ii) to the extent applicable, sets forth in reasonable detail the facts
and circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated and (iii) if the Date of Termination
(as defined below) is other than the date of receipt of such notice, specifies
the termination date (which date shall be not more than thirty days after the
giving of such notice). The failure by the Executive or the Company to set forth
in the Notice of Termination any fact or circumstance which contributes to a
showing of Good Reason or Cause shall not waive any right of the Executive or
the Company, respectively, hereunder or preclude the Executive or the Company,
respectively, from asserting such fact or circumstance in enforcing the
Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if the
Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination or
any later date specified therein, as the case may be, (ii) if the Executive's
employment is terminated by the Company other than for Cause or Disability, the
date on
<PAGE>
which the Company notifies the Executive of such termination and (iii) if the
Executive's employment is terminated by reason of death or Disability, the date
of death of the Executive or the Disability Effective Date, as the case may be.
6. Obligations of the Company upon Termination. (a) Good Reason;
Other Than for Cause, Death or Disability. If, during the Employment Period, the
Company shall terminate the Executive's employment other than for Cause or
Disability or the Executive shall terminate employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in
cash within 30 days after the Date of Termination the aggregate of the
following amounts:
A. the sum of (1) the Executive's Annual Base Salary
through the Date of Termination to the extent not theretofore paid,
(2) the product of (x) the higher of (I) the Recent Annual Bonus and
(II) the Annual Bonus paid or payable, including any bonus or
portion thereof which has been earned but deferred (and annualized
for any fiscal year consisting of less than twelve full months or
during which the Executive was employed for less than twelve full
months), for the most recently completed fiscal year during the
Employment Period, if any (such higher amount being referred to as
the "Highest Annual Bonus") and (y) a fraction, the numerator of
which is the number of days in the current fiscal year through the
Date of Termination, and the denominator of which is 365 and (3) any
compensation previously deferred by the Executive (together with any
accrued interest or earnings thereon) and any accrued vacation pay,
in each case to the extent
<PAGE>
not theretofore paid (the sum of the amounts described in clauses
(1), (2), and (3) shall be hereinafter referred to as the "Accrued
Obligations"); and
B. the amount equal to the product of (1) 3 and (2) the
sum of (x) the Executive's Annual Base Salary and (y) the Highest
Annual Bonus; and
C. a lump sum in cash equal to the sum of (A) the
Company contributions to the Employee Stock Ownership Plan (the
"ESOP") that would have been made on behalf of the Executive during
the three year period following the Date of Termination if the
Executive's employment had continued during such period, assuming
Company contributions to the ESOP of a percentage of annual gross
compensation equal to the average percentage of annual gross
compensation contributed to the ESOP during the three-year period
prior to the Date of Termination, and (B) the amount that would have
been credited during the three year period following the Date of
Termination to the Executive's "Deferred Compensation Account" under
Section 4(a) of the Deferred Compensation Agreement by and between
State Bank of Long Island and the Executive, dated as of April 1,
1994, if the Executive's employment had continued during such
period, assuming Company contributions to the ESOP of a percentage
of annual gross compensation equal to the average percentage of
annual gross compensation contributed to the ESOP during the
three-year period prior to the Date of Termination; and
(ii) for three years after the Executive's Date of Termination,
or such longer period as may be provided by the terms of the appropriate
plan, program, practice or policy, the Company shall continue benefits to
the Executive and/or the Executive's family at least equal to those which
would have been provided to them in accordance with the plans, programs,
practices and policies described in Section 4(b)(iv) of this Agreement if
the Executive's employment had not been terminated or, if more favorable
to the Executive, as in effect generally at any time thereafter with
respect to other peer executives of the Company and its affiliated
companies and their families, provided, however, that if the Executive
becomes reemployed with another employer and is eligible to receive
medical or other welfare benefits under another employer-provided plan,
the medical and other welfare benefits described herein shall
<PAGE>
be secondary to those provided under such other plan during such
applicable period of eligibility, and for purposes of determining
eligibility (but not the time of commencement of benefits) of the
Executive for retiree benefits pursuant to such plans, practices, programs
and policies, the Executive shall be considered to have remained employed
until three years after the Date of Termination and to have retired on the
last day of such period;
(iii) without limiting the generality of clause (ii) above,
the Company shall provide the Executive with coverage under the Company's
group life insurance as then in effect, or equivalent benefits, at no cost
to the Executive, for three years following the Date of Termination at a
level determined on the basis of three times the Executive's Annual Base
Salary, and the Executive's participation in the Company's
Hospital/Medical/Surgical insurance plan shall be continued on the same
basis as prior to the Date of Termination, or equivalent benefits shall be
provided by the Company, at no direct cost to the Executive for a period
of three years from the Date of Termination;
(iv) the Company shall, at its sole expense as incurred,
provide the Executive with outplacement services the scope and provider of
which shall be selected by the Executive in the Executive's sole
discretion;
(v) the Executive shall be entitled to full time use for a
period of three years after the Date of Termination of an automobile of
his selection comparable in all respects to the automobile furnished to
the Executive by the Company for his use during the 120-day period prior
to the termination of his employment and shall receive an automobile
allowance of $3,600.00 per annum for a period of three years following the
Date of Termination; and
(vi) to the extent not theretofore paid or provided, the
Company shall timely pay or provide to the Executive any other amounts or
benefits required to be paid or provided or which the Executive is
eligible to receive under any plan, program, policy or practice or
contract or agreement of the
<PAGE>
Company and its affiliated companies (such other amounts and benefits
shall be hereinafter referred to as the "Other Benefits").
(b) Death. If the Executive's employment is terminated by reason of
the Executive's death during the Employment Period, this Agreement shall
terminate without further obligations to the Executive's legal representatives
under this Agreement, other than for payment of Accrued Obligations and the
timely payment or provision of Other Benefits. Accrued Obligations shall be paid
to the Executive's estate or beneficiary, as applicable, in a lump sum in cash
within 30 days of the Date of Termination. With respect to the provision of
Other Benefits, the term Other Benefits as utilized in this Section 6(b) shall
include, without limitation, and the Executive's estate and/or beneficiaries
shall be entitled to receive, benefits at least equal to the most favorable
benefits provided by the Company and affiliated companies to the estates and
beneficiaries of peer executives of the Company and such affiliated companies
under such plans, programs, practices and policies relating to death benefits,
if any, as in effect with respect to other peer executives and their
beneficiaries at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive's estate and/or the
Executive's beneficiaries, as in effect on the date of the Executive's death
<PAGE>
with respect to other peer executives of the Company and its affiliated
companies and their beneficiaries.
(c) Disability. If the Executive's employment is terminated by
reason of the Executive's Disability during the Employment Period, this
Agreement shall terminate without further obligations to the Executive, other
than for payment of Accrued Obligations and the timely payment or provision of
Other Benefits. Accrued Obligations shall be paid to the Executive in a lump sum
in cash within 30 days of the Date of Termination. With respect to the provision
of Other Benefits, the term Other Benefits as utilized in this Section 6(c)
shall include, and the Executive shall be entitled after the Disability
Effective Date to receive, disability and other benefits at least equal to the
most favorable of those generally provided by the Company and its affiliated
companies to disabled executives and/or their families in accordance with such
plans, programs, practices and policies relating to disability, if any, as in
effect generally with respect to other peer executives and their families at any
time during the 120-day period immediately preceding the Effective Date or, if
more favorable to the Executive and/or the Executive's family, as in
<PAGE>
effect at any time thereafter generally with respect to other peer executives of
the Company and its affiliated companies and their families.
(d) Cause; Other than for Good Reason. If the Executive's employment
shall be terminated for Cause during the Employment Period, this Agreement shall
terminate without further obligations to the Executive other than the obligation
to pay to the Executive (x) the Annual Base Salary through the Date of
Termination, (y) the amount of any compensation previously deferred by the
Executive, and (z) Other Benefits, in each case to the extent theretofore
unpaid. If the Executive voluntarily terminates employment during the Employment
Period, excluding a termination for Good Reason, this Agreement shall terminate
without further obligations to the Executive, other than for Accrued Obligations
and the timely payment or provision of Other Benefits. In such case, all Accrued
Obligations shall be paid to the Executive in a lump sum in cash within 30 days
of the Date of Termination.
7. Non-exclusivity of Rights. Nothing in this Agreement shall
prevent or limit the Executive's continuing or future participation in any plan,
program, policy or practice provided by the Company or any of its affiliated
companies and for which the Executive may qualify, nor, subject to Section
12(f), shall
<PAGE>
anything herein limit or otherwise affect such rights as the Executive may have
under any contract or agreement with the Company or any of its affiliated
companies. Amounts which are vested benefits or which the Executive is otherwise
entitled to receive under any plan, policy, practice or program of or any
contract or agreement with the Company or any of its affiliated companies at or
subsequent to the Date of Termination shall be payable in accordance with such
plan, policy, practice or program or contract or agreement except as explicitly
modified by this Agreement.
8. Full Settlement; Legal Fees. The Company's obligation to make the
payments provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement and except as
specifically provided in Section 6(a)(ii), such amounts shall not be reduced
whether or not the Executive obtains other employment. The Company agrees to pay
as
<PAGE>
incurred, to the full extent permitted by law, all legal fees and expenses which
the Executive may reasonably incur as a result of any contest (regardless of the
outcome thereof) by the Company, the Executive or others of the validity or
enforceability of, or liability or entitlement under, any provision of this
Agreement or any guarantee of performance thereof (whether such contest is
between the Company and the Executive or between either of them and any third
party, and including as a result of any contest by the Executive about the
amount of any payment pursuant to this Agreement), plus in each case interest on
any delayed payment at the applicable Federal rate provided for in Section
7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code").
9. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstanding, in
the event it shall be determined that any payment or distribution by the Company
to or for the benefit of the Executive (whether paid or payable or distributed
or distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this Section
9) (a "Payment") would be subject to the excise tax imposed by Section 4999 of
the Code or any corresponding provisions of state or local tax laws, or any
interest or penalties are
<PAGE>
incurred by the Executive with respect to such excise tax (such excise tax,
together with any such interest and penalties, are hereinafter collectively
referred to as the "Excise Tax"), then the Executive shall be entitled to
receive an additional payment (a "Gross-Up Payment") in an amount such that
after payment by the Executive of all taxes (including any interest or penalties
imposed with respect to such taxes), including, without limitation, any income
taxes (and any interest and penalties imposed with respect thereto) and Excise
Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon the Payments.
(b) Subject to the provisions of Section 9(c), all determinations
required to be made under this Section 9, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determination, shall be made by Deloitte and
Touche LLP or such other certified public accounting firm as may be designated
by the Executive (the "Accounting Firm"), which shall provide detailed
supporting calculations both to the Company and the Executive within 15 business
days of the receipt of notice from
<PAGE>
the Executive that there has been a Payment, or such earlier time as is
requested by the Company. In the event that the Accounting Firm is serving as
accountant or auditor for the individual, entity or group effecting the Change
of Control, the Executive shall appoint another nationally recognized accounting
firm to make the determinations required hereunder (which accounting firm shall
then be referred to as the Accounting Firm hereunder). All fees and expenses of
the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment,
as determined pursuant to this Section 9, shall be paid by the Company to the
Executive within five days of the receipt of the Accounting Firm's
determination. Any determination by the Accounting Firm shall be binding upon
the Company and the Executive. As a result of the uncertainty in the application
of Section 4999 of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that Gross-Up Payments which will not
have been made by the Company should have been made ("Underpayment"), consistent
with the calculations required to be made hereunder. In the event that the
Company exhausts its remedies pursuant to Section 9(c) and the Executive
thereafter is required to make a payment of any Excise Tax, the Accounting Firm
shall determine the amount of the Underpayment that has occurred and any such
Underpayment shall be
<PAGE>
promptly paid by the Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim
by the Internal Revenue Service that, if successful, would require the payment
by the Company of the Gross-Up Payment. Such notification shall be given as soon
as practicable but no later than ten business days after the Executive is
informed in writing of such claim and shall apprise the Company of the nature of
such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day period
following the date on which the Executive gives such notice to the Company (or
such shorter period ending on the date that any payment of taxes with respect to
such claim is due). If the Company notifies the Executive in writing prior to
the expiration of such period that it desires to contest such claim, the
Executive shall:
(i) give the Company any information reasonably requested by
the Company relating to such claim,
(ii) take such action in connection with contesting such claim
as the Company shall reasonably request in writing from time to
time, including, without limitation,
<PAGE>
accepting legal representation with respect to such claim by an
attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order
effectively to contest such claim, and
(iv) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this Section 9(c), the Company shall control all proceedings taken in connection
with such contest and, at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either direct
the Executive to pay the tax claimed and sue for a refund or contest the claim
in any permissible manner, and the Executive agrees to prosecute such contest to
a determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to pay
such claim and sue for a
<PAGE>
refund, the Company shall advance the amount of such payment to the Executive,
on an interest-free basis and shall indemnify and hold the Executive harmless,
on an after-tax basis, from any Excise Tax or income tax (including interest or
penalties with respect thereto) imposed with respect to such advance or with
respect to any imputed income with respect to such advance; and further provided
that any extension of the statute of limitations relating to payment of taxes
for the taxable year of the Executive with respect to which such contested
amount is claimed to be due is limited solely to such contested amount.
Furthermore, the Company's control of the contest shall be limited to issues
with respect to which a Gross-Up Payment would be payable hereunder and the
Executive shall be entitled to settle or contest, as the case may be, any other
issue raised by the Internal Revenue Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount advanced by
the Company pursuant to Section 9(c), the Executive becomes entitled to receive
any refund with respect to such claim, the Executive shall (subject to the
Company's complying with the requirements of Section 9(c)) promptly pay to the
Company the
<PAGE>
amount of such refund (together with any interest paid or credited thereon after
taxes applicable thereto). If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 9(c), a determination is made that
the Executive shall not be entitled to any refund with respect to such claim and
the Company does not notify the Executive in writing of its intent to contest
such denial of refund prior to the expiration of 30 days after such
determination, then such advance shall be forgiven and shall not be required to
be repaid and the amount of such advance shall offset, to the extent thereof,
the amount of Gross-Up Payment required to be paid.
10. Confidential Information. The Executive shall hold in a
fiduciary capacity for the benefit of the Company all secret or confidential
information, knowledge or data relating to the Company or any of its affiliated
companies, and their respective businesses, which shall have been obtained by
the Executive during the Executive's employment by the Company or any of its
affiliated companies and which shall not be or become public knowledge (other
than by acts by the Executive or representatives of the Executive in violation
of this Agreement). After termination of the Executive's employment with the
Company, the Executive shall not, without the prior written consent of the
Company or as may
<PAGE>
otherwise be required by law or legal process, communicate or divulge any such
information, knowledge or data to anyone other than the Company and those
designated by it. In no event shall an asserted violation of the provisions of
this Section 10 constitute a basis for deferring or withholding any amounts
otherwise payable to the Executive under this Agreement.
11. Successors. (a) This Agreement is personal to the Executive and
without the prior written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the
<PAGE>
Company would be required to perform it if no such succession had taken place.
As used in this Agreement, "Company" shall mean the Company as hereinbefore
defined and any successor to its business and/or assets as aforesaid which
assumes and agrees to perform this Agreement by operation of law, or otherwise.
12. Miscellaneous. (a) This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without
reference to principles of conflict of laws. The captions of this Agreement are
not part of the provisions hereof and shall have no force or effect. This
Agreement may not be amended or modified otherwise than by a written agreement
executed by the parties hereto or their respective successors and legal
representatives.
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive:
Richard W. Merzbacher
75 Fairview Road
Farmingdale, New York 11735
If to the Company:
<PAGE>
State Bancorp, Inc.
Two Jericho Plaza
Jericho, New York 11753
Attention: General Counsel
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state, local or foreign taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision hereof or any other provision of this Agreement or
the failure to assert any right the Executive or the Company may have hereunder,
including, without limitation, the right of the Executive to terminate
employment for
<PAGE>
Good Reason pursuant to Section 5(c)(i)-(v) of this Agreement, shall not be
deemed to be a waiver of such provision or right or any other provision or right
of this Agreement.
(f) The Executive and the Company acknowledge that, except as may
otherwise be provided under any other written agreement between the Executive
and the Company, the employment of the Executive by the Company is "at will"
and, prior to the Effective Date, the Executive's employment may be terminated
by either the Executive or the Company at any time prior to the Effective Date,
in which case the Executive shall have no further rights under this Agreement.
From and after the Effective Date this Agreement shall supersede any other
agreement between the parties with respect to the subject matter hereof.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's
hand and, pursuant to the authorization from its Board of Directors, the Company
has caused this Agreement to be executed in its name on its behalf, all as of
the day and year first above written.
--------------------------------------
Richard W. Merzbacher
STATE BANCORP, INC.
By
-----------------------------------
CHANGE OF CONTROL
EMPLOYMENT AGREEMENT
AGREEMENT by and between State Bancorp, Inc., a New York corporation
(the "Company") and Brian K. Finneran (the "Executive"), dated as of the 29th
day of October, 1997.
The Board of Directors of the Company (the "Board"), has determined
that it is in the best interests of the Company and its shareholders to assure
that the Company will have the continued dedication of the Executive,
notwithstanding the possibility, threat or occurrence of a Change of Control (as
defined below) of the Company. The Board believes it is imperative to diminish
the inevitable distraction of the Executive by virtue of the personal
uncertainties and risks created by a pending or threatened Change of Control and
to encourage the Executive's full attention and dedication to the Company
currently and in the event of any threatened or pending Change of Control, and
to provide the Executive with compensation and benefits arrangements upon a
Change of Control which ensure that the compensation and benefits expectations
of the Executive will be satisfied and which are competitive with those of other
corporations. Therefore, in order
<PAGE>
to accomplish these objectives, the Board has caused the Company to enter into
this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions. (a) The "Effective Date" shall mean the
first date during the Change of Control Period (as defined in Section 1(b)) on
which a Change of Control (as defined in Section 2) occurs. Anything in this
Agreement to the contrary notwithstanding, if a Change of Control occurs and if
the Executive's employment with the Company is terminated prior to the date on
which the Change of Control occurs, and if it is reasonably demonstrated by the
Executive that such termination of employment (i) was at the request of a third
party who has taken steps reasonably calculated to effect a Change of Control or
(ii) otherwise arose in connection with or anticipation of a Change of Control,
then for all purposes of this Agreement the "Effective Date" shall mean the date
immediately prior to the date of such termination of employment.
(b) The "Change of Control Period" shall mean the period commencing
on the date hereof and ending on the third anniversary of the date hereof;
provided, however, that commencing on the date one year after the date hereof,
and on each annual anniversary of
<PAGE>
such date (such date and each annual anniversary thereof shall be hereinafter
referred to as the "Renewal Date"), unless previously terminated, the Change of
Control Period shall be automatically extended so as to terminate three years
from such Renewal Date, unless at least 60 days prior to the Renewal Date the
Company shall give notice to the Executive that the Change of Control Period
shall not be so extended.
2. Change of Control. For the purpose of this Agreement, a "Change
of Control" shall mean:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")) (a "Person") of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange
Act) of 20% or more of either (i) the then outstanding shares of common
stock of the Company (the "Outstanding Company Common Stock") or (ii) the
combined voting power of the then outstanding voting securities of the
Company entitled to vote generally in the election of directors (the
"Outstanding Company Voting Securities"); provided, however, that for
purposes of this subsection (a), the following acquisitions shall not
constitute
<PAGE>
a Change of Control: (i) any acquisition directly from the Company, (ii)
any acquisition by the Company, (iii) any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by the Company or
any corporation controlled by the Company or (iv) any acquisition pursuant
to a transaction which complies with clauses (i), (ii) and (iii) of
subsection (c) of this Section 2; or
(b) Individuals who, as of the date hereof, constitute the Board
(the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or nomination for
election by the Company's shareholders, was approved by a vote of at least
a majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board,
but excluding, for this purpose, any such individual whose initial
assumption of office occurs as a result of an actual or threatened
election contest with respect to the election or removal of directors or
other actual or threatened solicitation of proxies or consents by or on
behalf of a Person other than the Board; or
<PAGE>
(c) Consummation by the Company of a reorganization, merger or
consolidation or sale or other disposition of all or substantially all of
the assets of the Company or the acquisition of assets of another entity
(a "Business Combination"), in each case, unless, following such Business
Combination, (i) all or substantially all of the individuals and entities
who were the beneficial owners, respectively, of the Outstanding Company
Common Stock and Outstanding Company Voting Securities immediately prior
to such Business Combination beneficially own, directly or indirectly,
more than 60% of, respectively, the then outstanding shares of common
stock and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of directors, as the
case may be, of the corporation resulting from such Business Combination
(including, without limitation, a corporation which as a result of such
transaction owns the Company or all or substantially all of the Company's
assets either directly or through one or more subsidiaries) in
substantially the same proportions as their ownership, immediately prior
to such Business Combination of the Outstanding Company Common Stock and
Outstanding Company Voting
<PAGE>
Securities, as the case may be, (ii) no Person (excluding any employee
benefit plan (or related trust) of the Company or such corporation
resulting from such Business Combination) beneficially owns, directly or
indirectly, 20% or more of, respectively, the then outstanding shares of
common stock of the corporation resulting from such Business Combination
or the combined voting power of the then outstanding voting securities of
such corporation except to the extent that such ownership existed prior to
the Business Combination and (iii) at least a majority of the members of
the board of directors of the corporation resulting from such Business
Combination were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the Board,
providing for such Business Combination; or
(d) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
3. Employment Period. The Company hereby agrees to continue the
Executive in its employ, and the Executive hereby agrees to remain in the employ
of the Company subject to the terms and conditions of this Agreement, for the
period commencing on the Effective Date and ending on the second anniversary of
such date (the "Employment Period").
<PAGE>
4. Terms of Employment. (a) Position and Duties. (i) During the
Employment Period, (A) the Executive's position (including status, offices,
titles and reporting requirements), authority, duties and responsibilities shall
be at least commensurate in all material respects with the most significant of
those held, exercised and assigned to the Executive at any time during the
120-day period immediately preceding the Effective Date and (B) the Executive's
services shall be performed at the location where the Executive was employed
immediately preceding the Effective Date or any office or location less than 10
miles from such location.
(ii) During the Employment Period, and excluding any periods
of vacation and sick leave to which the Executive is entitled, the Executive
agrees to devote reasonable attention and time during normal business hours to
the business and affairs of the Company and, to the extent necessary to
discharge the responsibilities assigned to the Executive hereunder, to use the
Executive's reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period it shall not be a violation of
this Agreement for the Executive to (A)
<PAGE>
serve on corporate, civic or charitable boards or committees, (B) deliver
lectures, fulfill speaking engagements or teach at educational institutions and
(C) manage personal investments, so long as such activities do not significantly
interfere with the performance of the Executive's responsibilities as an
employee of the Company in accordance with this Agreement. It is expressly
understood and agreed that to the extent that any such activities have been
conducted by the Executive prior to the Effective Date, the continued conduct of
such activities (or the conduct of activities similar in nature and scope
thereto) subsequent to the Effective Date shall not thereafter be deemed to
interfere with the performance of the Executive's responsibilities to the
Company.
(b) Compensation. (i) Base Salary. During the Employment Period, the
Executive shall receive an annual base salary ("Annual Base Salary"), which
shall be paid at a monthly rate, at least equal to twelve times the highest
monthly base salary paid or payable, including any base salary which has been
earned but deferred, to the Executive by the Company and its affiliated
companies in respect of the twelve-month period immediately preceding the month
in which the Effective Date occurs. During the Employment Period, the Annual
Base Salary shall be reviewed no more than 12 months after the last salary
increase
<PAGE>
awarded to the Executive prior to the Effective Date and thereafter at least
annually. Any increase in Annual Base Salary shall not serve to limit or reduce
any other obligation to the Executive under this Agreement. Annual Base Salary
shall not be reduced after any such increase and the term Annual Base Salary as
utilized in this Agreement shall refer to Annual Base Salary as so increased. As
used in this Agreement, the term "affiliated companies" shall include any
company controlled by, controlling or under common control with the Company.
(ii) Annual Bonus. In addition to Annual Base Salary, the
Executive shall be awarded, for each fiscal year ending during the Employment
Period, an annual bonus (the "Annual Bonus") in cash at least equal to the
Executive's highest bonus for the last three full fiscal years prior to the
Effective Date (annualized in the event that the Executive was not employed by
the Company for the whole of such fiscal year) (the "Recent Annual Bonus"). Each
such Annual Bonus shall be paid no later than the end of the third month of the
fiscal year next following the fiscal year for which the Annual Bonus is
awarded, unless the Executive shall elect to defer the receipt of such Annual
Bonus.
<PAGE>
(iii) Incentive, Savings and Retirement Plans. During the
Employment Period, the Executive shall be entitled to participate in all
incentive, savings and retirement plans, practices, policies and programs
applicable generally to other peer executives of the Company and its affiliated
companies, but in no event shall such plans, practices, policies and programs
provide the Executive with incentive opportunities (measured with respect to
both regular and special incentive opportunities, to the extent, if any, that
such distinction is applicable), savings opportunities and retirement benefit
opportunities, in each case, less favorable, in the aggregate, than the most
favorable of those provided by the Company and its affiliated companies for the
Executive under such plans, practices, policies and programs as in effect at any
time during the 120-day period immediately preceding the Effective Date or if
more favorable to the Executive, those provided generally at any time after the
Effective Date to other peer executives of the Company and its affiliated
companies.
(iv) Welfare Benefit Plans. During the Employment Period, the
Executive and/or the Executive's family, as the case may be, shall be eligible
for participation in and shall receive all benefits under welfare benefit plans,
practices, policies and programs provided by the Company and its affiliated
companies
<PAGE>
(including, without limitation, medical, prescription, dental, disability,
salary continuance, employee life, group life, accidental death and travel
accident insurance plans and programs) to the extent applicable generally to
other peer executives of the Company and its affiliated companies, but in no
event shall such plans, practices, policies and programs provide the Executive
with benefits which are less favorable, in the aggregate, than the most
favorable of such plans, practices, policies and programs in effect for the
Executive at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive, those provided generally
at any time after the Effective Date to other peer executives of the Company and
its affiliated companies.
(v) Expenses. During the Employment Period, the Executive
shall be entitled to receive prompt reimbursement for all reasonable expenses
incurred by the Executive in accordance with the most favorable policies,
practices and procedures of the Company and its affiliated companies in effect
for the Executive at any time during the 120-day period immediately preceding
the Effective Date or, if more favorable to the Executive, as in effect
<PAGE>
generally at any time thereafter with respect to other peer executives of the
Company and its affiliated companies.
(vi) Fringe Benefits. During the Employment Period, the
Executive shall be entitled to fringe benefits, including, without limitation,
tax and financial planning services, payment of club dues, and, if applicable,
use of an automobile and payment of related expenses, in accordance with the
most favorable plans, practices, programs and policies of the Company and its
affiliated companies in effect for the Executive at any time during the 120-day
period immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to other
peer executives of the Company and its affiliated companies.
(vii) Office and Support Staff. During the Employment Period,
the Executive shall be entitled to an office or offices of a size and with
furnishings and other appointments, and to exclusive personal secretarial and
other assistance, at least equal to the most favorable of the foregoing provided
to the Executive by the Company and its affiliated companies at any time during
the 120-day period immediately preceding the Effective Date or, if more
favorable to the Executive, as provided generally at
<PAGE>
any time thereafter with respect to other peer executives of the Company and its
affiliated companies.
(viii) Vacation. During the Employment Period, the Executive
shall be entitled to paid vacation in accordance with the most favorable plans,
policies, programs and practices of the Company and its affiliated companies as
in effect for the Executive at any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect to other peer executives of
the Company and its affiliated companies.
(ix) On the Effective Date, all stock options previously
granted to the Executive shall become fully vested and immediately exercisable
and all restrictions on shares of restricted stock previously awarded to the
Executive shall immediately lapse.
5. Termination of Employment. (a) Death or Disability. The
Executive's employment shall terminate automatically upon the Executive's death
during the Employment Period. If the Company determines in good faith that the
Disability of the Executive has
<PAGE>
occurred during the Employment Period (pursuant to the definition of Disability
set forth below), it may give to the Executive written notice in accordance with
Section 12(b) of this Agreement of its intention to terminate the Executive's
employment. In such event, the Executive's employment with the Company shall
terminate effective on the 30th day after receipt of such notice by the
Executive (the "Disability Effective Date"), provided that, within the 30 days
after such receipt, the Executive shall not have returned to full-time
performance of the Executive's duties. For purposes of this Agreement,
"Disability" shall mean the absence of the Executive from the Executive's duties
with the Company on a full-time basis for 180 consecutive business days as a
result of incapacity due to mental or physical illness which is determined to be
total and permanent by a physician selected by the Company or its insurers and
acceptable to the Executive or the Executive's legal representative.
(b) Cause. The Company may terminate the Executive's employment
during the Employment Period for Cause. For purposes of this Agreement, "Cause"
shall mean:
(i) fraud, misappropriation or intentional material damage to
the property or business of the Company, or
<PAGE>
(ii) commission of a felony as determined by a court of
competent jurisdiction, whose determination is final and non-appealable.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "intentional" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or upon the instructions of the Chief Executive Officer or
a senior officer of the Company or based upon the advice of counsel for the
Company shall be conclusively presumed to be done, or omitted to be done, by the
Executive in good faith and in the best interests of the Company. The cessation
of employment of the Executive shall not be deemed to be for Cause unless and
until there shall have been delivered to the Executive a copy of a resolution
duly adopted by the affirmative vote of not less than three-quarters of the
entire membership of the Board at a meeting of the Board called and held for
such purpose (after reasonable notice is provided to the Executive and the
Executive is given an opportunity, together with counsel, to be
<PAGE>
heard before the Board), finding that, in the good faith opinion of the Board,
the Executive is guilty of the conduct described in subparagraph (i) or (ii)
above, and specifying the particulars thereof in detail.
(c) Good Reason. The Executive's employment may be terminated by
the Executive for Good Reason. For purposes of this Agreement, "Good Reason"
shall mean:
(i) without the express written consent of the Executive, the
assignment to the Executive of any duties inconsistent in any respect with
the Executive's position (including status, offices, titles and reporting
requirements), authority, duties or responsibilities as contemplated by
Section 4(a) of this Agreement, or any other action by the Company which
results in a diminution in such position, authority, duties or
responsibilities, excluding for this purpose an isolated, insubstantial
and inadvertent action not taken in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by the Executive;
(ii) any failure by the Company to comply with any of the
provisions of Section 4(b) of this Agreement, other than an
<PAGE>
isolated, insubstantial and inadvertent failure not occurring in bad faith
and which is remedied by the Company promptly after receipt of notice
thereof given by the Executive;
(iii) without the express written consent of the Executive,
the Company's requiring the Executive to be based at any office or
location other than as provided in Section 4(a)(i)(B) hereof or the
Company's requiring the Executive to travel on Company business to a
substantially greater extent than required during the one-year period
prior to the Effective Date;
(iv) any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted by this
Agreement; or
(v) any failure by the Company to comply with and satisfy
Section 11(c) of this Agreement.
For purposes of this Section 5(c), any good faith determination of "Good Reason"
made by the Executive shall be conclusive. Anything
<PAGE>
in this Agreement to the contrary notwithstanding, a termination by the
Executive for any reason during the 30-day period immediately following the
first anniversary of the Effective Date shall be deemed to be a termination for
Good Reason for all purposes of this Agreement.
(d) Notice of Termination. Any termination by the Company for
Cause, or by the Executive for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 12(b) of
this Agreement. For purposes of this Agreement, a "Notice of Termination" means
a written notice which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
the Executive's employment under the provision so indicated and (iii) if the
Date of Termination (as defined below) is other than the date of receipt of such
notice, specifies the termination date (which date shall be not more than thirty
days after the giving of such notice). The failure by the Executive or the
Company to set forth in the Notice of Termination any fact or circumstance which
contributes to a showing of Good Reason or Cause shall not waive any right of
the Executive or the Company, respectively, hereunder
<PAGE>
or preclude the Executive or the Company, respectively, from asserting such fact
or circumstance in enforcing the Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if the
Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination or
any later date specified therein, as the case may be, (ii) if the Executive's
employment is terminated by the Company other than for Cause or Disability, the
date on which the Company notifies the Executive of such termination and (iii)
if the Executive's employment is terminated by reason of death or Disability,
the date of death of the Executive or the Disability Effective Date, as the case
may be.
6. Obligations of the Company upon Termination.
(a) Good Reason; Other Than for Cause, Death or Disability. If,
during the Employment Period, the Company shall terminate the Executive's
employment other than for Cause or Disability or the Executive shall terminate
employment for Good Reason:
<PAGE>
(i) the Company shall pay to the Executive in a lump sum in
cash within 30 days after the Date of Termination the aggregate of the
following amounts:
A. the sum of (1) the Executive's Annual Base Salary
through the Date of Termination to the extent not theretofore paid,
(2) the product of (x) the higher of (I) the Recent Annual Bonus and
(II) the Annual Bonus paid or payable, including any bonus or
portion thereof which has been earned but deferred (and annualized
for any fiscal year consisting of less than twelve full months or
during which the Executive was employed for less than twelve full
months), for the most recently completed fiscal year during the
Employment Period, if any (such higher amount being referred to as
the "Highest Annual Bonus") and (y) a fraction, the numerator of
which is the number of days in the current fiscal year through the
Date of Termination, and the denominator of which is 365 and (3) any
compensation previously deferred by the Executive (together with any
accrued interest or earnings thereon) and any accrued vacation pay,
in each case to the extent not theretofore paid (the sum of the
amounts described in
<PAGE>
clauses (1), (2), and (3) shall be hereinafter referred to as the
"Accrued Obligations"); and
B. the amount equal to the product of (1) two and (2)
the sum of (x) the Executive's Annual Base Salary and (y) the
Highest Annual Bonus; and
C. a lump sum in cash equal to the sum of the Company
contributions to the Employee Stock Ownership Plan (the "ESOP") that
would have been made on behalf of the Executive during the two year
period following the Date of Termination if the Executive's
employment had continued during such period, assuming Company
contributions to the ESOP of a percentage of annual gross
compensation equal to the average percentage of annual gross
compensation contributed to the ESOP during the three-year period
prior to the Date of Termination; and
(ii) for two years after the Executive's Date of Termination,
or such longer period as may be provided by the terms of the appropriate
plan, program, practice or policy, the Company shall continue benefits to
the Executive and/or the
<PAGE>
Executive's family at least equal to those which would have been provided
to them in accordance with the plans, programs, practices and policies
described in Section 4(b)(iv) of this Agreement if the Executive's
employment had not been terminated or, if more favorable to the Executive,
as in effect generally at any time thereafter with respect to other peer
executives of the Company and its affiliated companies and their families,
provided, however, that if the Executive becomes reemployed with another
employer and is eligible to receive medical or other welfare benefits
under another employer-provided plan, the medical and other welfare
benefits described herein shall be secondary to those provided under such
other plan during such applicable period of eligibility, and for purposes
of determining eligibility (but not the time of commencement of benefits)
of the Executive for retiree benefits pursuant to such plans, practices,
programs and policies, the Executive shall be considered to have remained
employed until two years after the Date of Termination and to have retired
on the last day of such period;
(iii) without limiting the generality of clause (ii) above,
the Company shall provide the Executive with coverage under the Company's
group life insurance as then in
<PAGE>
effect, or equivalent benefits, at no cost to the Executive, for two years
following the Date of Termination at a level determined on the basis of
three times the Executive's Annual Base Salary, and the Executive's
participation in the Company's Hospital/Medical/Surgical insurance plan
shall be continued on the same basis as prior to the Date of Termination,
or equivalent benefits shall be provided by the Company, at no direct cost
to the Executive for a period of two years from the Date of Termination;
(iv) the Company shall, at its sole expense as incurred,
provide the Executive with outplacement services the scope and provider of
which shall be selected by the Executive in the Executive's sole
discretion;
(v) the Executive shall be entitled to full time use for a
period of two years after the Date of Termination of an automobile of his
selection comparable in all respects to the automobile furnished to the
Executive by the Company for his use during the 120-day period prior to
the termination of his employment and shall receive an automobile
allowance of
<PAGE>
$3,600.00 per annum for a period of two years following the Date of
Termination; and
(vi) to the extent not theretofore paid or provided, the
Company shall timely pay or provide to the Executive any other amounts or
benefits required to be paid or provided or which the Executive is
eligible to receive under any plan, program, policy or practice or
contract or agreement of the Company and its affiliated companies (such
other amounts and benefits shall be hereinafter referred to as the "Other
Benefits").
(b) Death. If the Executive's employment is terminated by reason of
the Executive's death during the Employment Period, this Agreement shall
terminate without further obligations to the Executive's legal representatives
under this Agreement, other than for payment of Accrued Obligations and the
timely payment or provision of Other Benefits. Accrued Obligations shall be paid
to the Executive's estate or beneficiary, as applicable, in a lump sum in cash
within 30 days of the Date of Termination. With respect to the provision of
Other Benefits, the term Other Benefits as utilized in this Section 6(b) shall
include, without limitation,
<PAGE>
and the Executive's estate and/or beneficiaries shall be entitled to receive,
benefits at least equal to the most favorable benefits provided by the Company
and affiliated companies to the estates and beneficiaries of peer executives of
the Company and such affiliated companies under such plans, programs, practices
and policies relating to death benefits, if any, as in effect with respect to
other peer executives and their beneficiaries at any time during the 120-day
period immediately preceding the Effective Date or, if more favorable to the
Executive's estate and/or the Executive's beneficiaries, as in effect on the
date of the Executive's death with respect to other peer executives of the
Company and its affiliated companies and their beneficiaries.
(c) Disability. If the Executive's employment is terminated by
reason of the Executive's Disability during the Employment Period, this
Agreement shall terminate without further obligations to the Executive, other
than for payment of Accrued Obligations and the timely payment or provision of
Other Benefits. Accrued Obligations shall be paid to the Executive in a lump sum
in cash within 30 days of the Date of Termination. With respect to the provision
of Other Benefits, the term Other Benefits as
<PAGE>
utilized in this Section 6(c) shall include, and the Executive shall be entitled
after the Disability Effective Date to receive, disability and other benefits at
least equal to the most favorable of those generally provided by the Company and
its affiliated companies to disabled executives and/or their families in
accordance with such plans, programs, practices and policies relating to
disability, if any, as in effect generally with respect to other peer executives
and their families at any time during the 120-day period immediately preceding
the Effective Date or, if more favorable to the Executive and/or the Executive's
family, as in effect at any time thereafter generally with respect to other peer
executives of the Company and its affiliated companies and their families.
(d) Cause; Other than for Good Reason. If the Executive's employment
shall be terminated for Cause during the Employment Period, this Agreement shall
terminate without further obligations to the Executive other than the obligation
to pay to the Executive (x) the Annual Base Salary through the Date of
Termination, (y) the amount of any compensation previously deferred by the
Executive, and (z) Other Benefits, in each case to the extent theretofore
unpaid. If the Executive voluntarily terminates employment during the Employment
Period, excluding a termination
<PAGE>
for Good Reason, this Agreement shall terminate without further obligations to
the Executive, other than for Accrued Obligations and the timely payment or
provision of Other Benefits. In such case, all Accrued Obligations shall be paid
to the Executive in a lump sum in cash within 30 days of the Date of
Termination.
7. Non-exclusivity of Rights. Nothing in this Agreement shall
prevent or limit the Executive's continuing or future participation in any plan,
program, policy or practice provided by the Company or any of its affiliated
companies and for which the Executive may qualify, nor, subject to Section
12(f), shall anything herein limit or otherwise affect such rights as the
Executive may have under any contract or agreement with the Company or any of
its affiliated companies. Amounts which are vested benefits or which the
Executive is otherwise entitled to receive under any plan, policy, practice or
program of or any contract or agreement with the Company or any of its
affiliated companies at or subsequent to the Date of Termination shall be
payable in accordance with such plan, policy, practice or program or contract or
agreement except as explicitly modified by this Agreement.
<PAGE>
8. Full Settlement; Legal Fees. The Company's obligation to make the
payments provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement and except as
specifically provided in Section 6(a)(ii), such amounts shall not be reduced
whether or not the Executive obtains other employment. The Company agrees to pay
as incurred, to the full extent permitted by law, all legal fees and expenses
which the Executive may reasonably incur as a result of any contest (regardless
of the outcome thereof) by the Company, the Executive or others of the validity
or enforceability of, or liability or entitlement under, any provision of this
Agreement or any guarantee of performance thereof (whether such contest is
between the Company and the Executive or between either of them and any third
party, and including as a result of any contest by the Executive about the
amount of any payment pursuant to this Agreement), plus in each case interest on
any delayed payment at the applicable Federal rate provided for in Section
7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code").
<PAGE>
9. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstanding, in
the event it shall be determined that any payment or distribution by the Company
to or for the benefit of the Executive (whether paid or payable or distributed
or distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this Section
9) (a "Payment") would be subject to the excise tax imposed by Section 4999 of
the Code or any corresponding provisions of state or local tax laws, or any
interest or penalties are incurred by the Executive with respect to such excise
tax (such excise tax, together with any such interest and penalties, are
hereinafter collectively referred to as the "Excise Tax"), then the Executive
shall be entitled to receive an additional payment (a "Gross-Up Payment") in an
amount such that after payment by the Executive of all taxes (including any
interest or penalties imposed with respect to such taxes), including, without
limitation, any income taxes (and any interest and penalties imposed with
respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the
<PAGE>
Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments.
(b) Subject to the provisions of Section 9(c), all determinations
required to be made under this Section 9, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determination, shall be made by Deloitte and
Touche LLP or such other certified public accounting firm as may be designated
by the Executive (the "Accounting Firm"), which shall provide detailed
supporting calculations both to the Company and the Executive within 15 business
days of the receipt of notice from the Executive that there has been a Payment,
or such earlier time as is requested by the Company. In the event that the
Accounting Firm is serving as accountant or auditor for the individual, entity
or group effecting the Change of Control, the Executive shall appoint another
nationally recognized accounting firm to make the determinations required
hereunder (which accounting firm shall then be referred to as the Accounting
Firm hereunder). All fees and expenses of the Accounting Firm shall be borne
solely by the Company. Any Gross-Up Payment, as determined pursuant to this
Section 9, shall be paid by the Company to the Executive within five days of the
receipt of the Accounting Firm's determination.
<PAGE>
Any determination by the Accounting Firm shall be binding upon the Company and
the Executive. As a result of the uncertainty in the application of Section 4999
of the Code at the time of the initial determination by the Accounting Firm
hereunder, it is possible that Gross-Up Payments which will not have been made
by the Company should have been made ("Underpayment"), consistent with the
calculations required to be made hereunder. In the event that the Company
exhausts its remedies pursuant to Section 9(c) and the Executive thereafter is
required to make a payment of any Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the benefit of the
Executive.
(c) The Executive shall notify the Company in writing of any claim
by the Internal Revenue Service that, if successful, would require the payment
by the Company of the Gross-Up Payment. Such notification shall be given as soon
as practicable but no later than ten business days after the Executive is
informed in writing of such claim and shall apprise the Company of the nature of
such claim and the date on which such claim is requested to be
<PAGE>
paid. The Executive shall not pay such claim prior to the expiration of the
30-day period following the date on which the Executive gives such notice to the
Company (or such shorter period ending on the date that any payment of taxes
with respect to such claim is due). If the Company notifies the Executive in
writing prior to the expiration of such period that it desires to contest such
claim, the Executive shall:
(i) give the Company any information reasonably requested by
the Company relating to such claim,
(ii) take such action in connection with contesting such claim
as the Company shall reasonably request in writing from time to
time, including, without limitation, accepting legal representation
with respect to such claim by an attorney reasonably selected by the
Company,
(iii) cooperate with the Company in good faith in order
effectively to contest such claim, and
(iv) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions
<PAGE>
of this Section 9(c), the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forgo any
and all administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option, either
direct the Executive to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and the Executive agrees to prosecute such
contest to a determination before any administrative tribunal, in a court of
initial jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to pay
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis and shall indemnify and hold
the Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to such advance;
and further provided that any extension of the statute of limitations relating
to payment of taxes for the taxable year of the Executive with respect to which
such contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, the
<PAGE>
Company's control of the contest shall be limited to issues with respect to
which a Gross-Up Payment would be payable hereunder and the Executive shall be
entitled to settle or contest, as the case may be, any other issue raised by the
Internal Revenue Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount advanced by
the Company pursuant to Section 9(c), the Executive becomes entitled to receive
any refund with respect to such claim, the Executive shall (subject to the
Company's complying with the requirements of Section 9(c)) promptly pay to the
Company the amount of such refund (together with any interest paid or credited
thereon after taxes applicable thereto). If, after the receipt by the Executive
of an amount advanced by the Company pursuant to Section 9(c), a determination
is made that the Executive shall not be entitled to any refund with respect to
such claim and the Company does not notify the Executive in writing of its
intent to contest such denial of refund prior to the expiration of 30 days after
such determination, then such advance shall be forgiven and shall not be
required to be repaid and the amount of such advance shall offset, to the extent
thereof, the amount of Gross-Up Payment required to be paid.
<PAGE>
10. Confidential Information. The Executive shall hold in a
fiduciary capacity for the benefit of the Company all secret or confidential
information, knowledge or data relating to the Company or any of its affiliated
companies, and their respective businesses, which shall have been obtained by
the Executive during the Executive's employment by the Company or any of its
affiliated companies and which shall not be or become public knowledge (other
than by acts by the Executive or representatives of the Executive in violation
of this Agreement). After termination of the Executive's employment with the
Company, the Executive shall not, without the prior written consent of the
Company or as may otherwise be required by law or legal process, communicate or
divulge any such information, knowledge or data to anyone other than the Company
and those designated by it. In no event shall an asserted violation of the
provisions of this Section 10 constitute a basis for deferring or withholding
any amounts otherwise payable to the Executive under this Agreement.
11. Successors. (a)This Agreement is personal to the Executive and
without the prior written consent of the Company shall not be assignable by the
Executive otherwise than by will or
<PAGE>
the laws of descent and distribution. This Agreement shall inure to the benefit
of and be enforceable by the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
12. Miscellaneous. (a) This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without
reference to principles of conflict of laws. The captions of this Agreement are
not part of the provisions hereof and shall have no force or effect. This
Agreement may not be amended or modified otherwise than by a written agreement
executed
<PAGE>
by the parties hereto or their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive:
Brian K. Finneran
61-37 68th Street
Middle Village, New York 11379-1140
If to the Company:
State Bancorp, Inc.
Two Jericho Plaza
Jericho, New York 11753
Attention: General Counsel
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
<PAGE>
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state, local or foreign taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision hereof or any other provision of this Agreement or
the failure to assert any right the Executive or the Company may have hereunder,
including, without limitation, the right of the Executive to terminate
employment for Good Reason pursuant to Section 5(c)(i)-(v) of this Agreement,
shall not be deemed to be a waiver of such provision or right or any other
provision or right of this Agreement.
(f) The Executive and the Company acknowledge that, except as may
otherwise be provided under any other written agreement between the Executive
and the Company, the employment of the Executive by the Company is "at will"
and, prior to the Effective Date, the Executive's employment may be terminated
by either the Executive or the Company at any time prior to the
<PAGE>
Effective Date, in which case the Executive shall have no further rights under
this Agreement. From and after the Effective Date this Agreement shall supersede
any other agreement between the parties with respect to the subject matter
hereof.
<PAGE>
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's
hand and, pursuant to the authorization from its Board of Directors, the Company
has caused this Agreement to be executed in its name on its behalf, all as of
the day and year first above written.
--------------------------------------
Brian K. Finneran
STATE BANCORP, INC.
By
-----------------------------------
CHANGE OF CONTROL
EMPLOYMENT AGREEMENT NO. 5
AGREEMENT by and between State Bancorp, Inc., a New York corporation
(the "Company") and Frederick C. Braun (the "Executive"), dated as of the 29th
day of October, 1997.
The Board of Directors of the Company (the "Board"), has determined
that it is in the best interests of the Company and its shareholders to assure
that the Company will have the continued dedication of the Executive,
notwithstanding the possibility, threat or occurrence of a Change of Control (as
defined below) of the Company. The Board believes it is imperative to diminish
the inevitable distraction of the Executive by virtue of the personal
uncertainties and risks created by a pending or threatened Change of Control and
to encourage the Executive's full attention and dedication to the Company
currently and in the event of any threatened or pending Change of Control, and
to provide the Executive with compensation and benefits arrangements upon a
Change of Control which ensure that the compensation and benefits expectations
of the Executive will be satisfied and which are competitive with those of other
corporations. Therefore, in order
<PAGE>
to accomplish these objectives, the Board has caused the Company to enter into
this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions. (a) The "Effective Date" shall mean the
first date during the Change of Control Period (as defined in Section 1(b)) on
which a Change of Control (as defined in Section 2) occurs. Anything in this
Agreement to the contrary notwithstanding, if a Change of Control occurs and if
the Executive's employment with the Company is terminated prior to the date on
which the Change of Control occurs, and if it is reasonably demonstrated by the
Executive that such termination of employment (i) was at the request of a third
party who has taken steps reasonably calculated to effect a Change of Control or
(ii) otherwise arose in connection with or anticipation of a Change of Control,
then for all purposes of this Agreement the "Effective Date" shall mean the date
immediately prior to the date of such termination of employment.
(b) The "Change of Control Period" shall mean the period commencing
on the date hereof and ending on the third anniversary of the date hereof;
provided, however, that commencing on the date one year after the date hereof,
and on each annual anniversary of
<PAGE>
such date (such date and each annual anniversary thereof shall be hereinafter
referred to as the "Renewal Date"), unless previously terminated, the Change of
Control Period shall be automatically extended so as to terminate three years
from such Renewal Date, unless at least 60 days prior to the Renewal Date the
Company shall give notice to the Executive that the Change of Control Period
shall not be so extended.
2. Change of Control. For the purpose of this Agreement, a "Change
of Control" shall mean:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")) (a "Person") of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange
Act) of 20% or more of either (i) the then outstanding shares of common
stock of the Company (the "Outstanding Company Common Stock") or (ii) the
combined voting power of the then outstanding voting securities of the
Company entitled to vote generally in the election of directors (the
"Outstanding Company Voting Securities"); provided, however, that for
purposes of this subsection (a), the following acquisitions shall not
constitute a Change of Control: (i) any acquisition directly from the
Company, (ii) any acquisition by the Company, (iii) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by the
Company or any corporation controlled by the Company or (iv) any
acquisition pursuant to a transaction which complies with clauses (i),
(ii) and (iii) of subsection (c) of this Section 2; or
(b) Individuals who, as of the date hereof, constitute the Board
(the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the date
<PAGE>
hereof whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption
of office occurs as a result of an actual or threatened election contest
with respect to the election or removal of directors or other actual or
threatened solicitation of proxies or consents by or on behalf of a Person
other than the Board; or
(c) Consummation by the Company of a reorganization, merger or
consolidation or sale or other disposition of all or substantially all of
the assets of the Company or the acquisition of assets of another entity
(a "Business Combination"), in each case, unless, following such Business
Combination, (i) all or substantially all of the individuals and entities
who were the beneficial owners, respectively, of the Outstanding Company
Common Stock and Outstanding Company Voting Securities immediately prior
to such Business Combination beneficially own, directly or indirectly,
more than 60% of, respectively, the then outstanding shares of common
stock and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of directors, as the
case may be, of the corporation resulting from such Business Combination
(including, without limitation, a corporation which as a result of such
transaction owns the Company or all or substantially all of the Company's
assets either directly or through one or more subsidiaries) in
substantially the same proportions as their ownership, immediately prior
to such Business Combination of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be, (ii) no Person
(excluding any employee benefit plan (or related trust) of the Company or
such corporation resulting from such Business Combination) beneficially
owns, directly or indirectly, 20% or more of, respectively, the then
outstanding shares of common stock of the corporation resulting from such
Business Combination or the combined voting power of the then outstanding
voting securities of such corporation except to the extent that such
ownership existed prior to the Business Combination and (iii) at least a
majority of the members of the board of directors of the corporation
resulting from such Business Combination were members of the Incumbent
Board at the time of the execution of
<PAGE>
the initial agreement, or of the action of the Board, providing for such
Business Combination; or
(d) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
3. Employment Period. The Company hereby agrees to continue the
Executive in its employ, and the Executive hereby agrees to remain in the employ
of the Company subject to the terms and conditions of this Agreement, for the
period commencing on the Effective Date and ending on the second anniversary of
such date (the "Employment Period").
4. Terms of Employment. (a) Position and Duties. (i) During the
Employment Period, (A) the Executive's position (including status, offices,
titles and reporting requirements), authority, duties and responsibilities shall
be at least commensurate in all material respects with the most significant of
those held, exercised and assigned to the Executive at any time during the
120-day period immediately preceding the Effective Date and (B) the Executive's
services shall be performed at the location where the Executive was employed
immediately preceding the Effective Date or any office or location less than 10
miles from such location.
<PAGE>
(ii) During the Employment Period, and excluding any periods
of vacation and sick leave to which the Executive is entitled, the Executive
agrees to devote reasonable attention and time during normal business hours to
the business and affairs of the Company and, to the extent necessary to
discharge the responsibilities assigned to the Executive hereunder, to use the
Executive's reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period it shall not be a violation of
this Agreement for the Executive to (A) serve on corporate, civic or charitable
boards or committees, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions and (C) manage personal investments, so long
as such activities do not significantly interfere with the performance of the
Executive's responsibilities as an employee of the Company in accordance with
this Agreement. It is expressly understood and agreed that to the extent that
any such activities have been conducted by the Executive prior to the Effective
Date, the continued conduct of such activities (or the conduct of activities
similar in nature and scope thereto) subsequent to the Effective Date shall not
thereafter be deemed to interfere with the performance of the Executive's
responsibilities to the Company.
<PAGE>
(b) Compensation. (i) Base Salary. During the Employment Period, the
Executive shall receive an annual base salary ("Annual Base Salary"), which
shall be paid at a monthly rate, at least equal to twelve times the highest
monthly base salary paid or payable, including any base salary which has been
earned but deferred, to the Executive by the Company and its affiliated
companies in respect of the twelve-month period immediately preceding the month
in which the Effective Date occurs. During the Employment Period, the Annual
Base Salary shall be reviewed no more than 12 months after the last salary
increase awarded to the Executive prior to the Effective Date and thereafter at
least annually. Any increase in Annual Base Salary shall not serve to limit or
reduce any other obligation to the Executive under this Agreement. Annual Base
Salary shall not be reduced after any such increase and the term Annual Base
Salary as utilized in this Agreement shall refer to Annual Base Salary as so
increased. As used in this Agreement, the term "affiliated companies" shall
include any company controlled by, controlling or under common control with the
Company.
<PAGE>
(ii) Annual Bonus. In addition to Annual Base Salary, the
Executive shall be awarded, for each fiscal year ending during the Employment
Period, an annual bonus (the "Annual Bonus") in cash at least equal to the
Executive's highest bonus for the last three full fiscal years prior to the
Effective Date (annualized in the event that the Executive was not employed by
the Company for the whole of such fiscal year) (the "Recent Annual Bonus"). Each
such Annual Bonus shall be paid no later than the end of the third month of the
fiscal year next following the fiscal year for which the Annual Bonus is
awarded, unless the Executive shall elect to defer the receipt of such Annual
Bonus.
(iii) Incentive, Savings and Retirement Plans. During the
Employment Period, the Executive shall be entitled to participate in all
incentive, savings and retirement plans, practices, policies and programs
applicable generally to other peer executives of the Company and its affiliated
companies, but in no event shall such plans, practices, policies and programs
provide the Executive with incentive opportunities (measured with respect to
both regular and special incentive opportunities, to the extent, if any, that
such distinction is applicable), savings opportunities and retirement benefit
opportunities, in each case, less favorable, in the aggregate, than the most
favorable of those provided by the
<PAGE>
Company and its affiliated companies for the Executive under such plans,
practices, policies and programs as in effect at any time during the 120-day
period immediately preceding the Effective Date or if more favorable to the
Executive, those provided generally at any time after the Effective Date to
other peer executives of the Company and its affiliated companies.
(iv) Welfare Benefit Plans. During the Employment Period, the
Executive and/or the Executive's family, as the case may be, shall be eligible
for participation in and shall receive all benefits under welfare benefit plans,
practices, policies and programs provided by the Company and its affiliated
companies (including, without limitation, medical, prescription, dental,
disability, salary continuance, employee life, group life, accidental death and
travel accident insurance plans and programs) to the extent applicable generally
to other peer executives of the Company and its affiliated companies, but in no
event shall such plans, practices, policies and programs provide the Executive
with benefits which are less favorable, in the aggregate, than the most
favorable of such plans, practices, policies and programs in effect for the
Executive at any time during the 120-day period immediately
<PAGE>
preceding the Effective Date or, if more favorable to the Executive, those
provided generally at any time after the Effective Date to other peer executives
of the Company and its affiliated companies.
(v) Expenses. During the Employment Period, the Executive
shall be entitled to receive prompt reimbursement for all reasonable expenses
incurred by the Executive in accordance with the most favorable policies,
practices and procedures of the Company and its affiliated companies in effect
for the Executive at any time during the 120-day period immediately preceding
the Effective Date or, if more favorable to the Executive, as in effect
generally at any time thereafter with respect to other peer executives of the
Company and its affiliated companies.
(vi) Fringe Benefits. During the Employment Period, the
Executive shall be entitled to fringe benefits, including, without limitation,
tax and financial planning services, payment of club dues, and, if applicable,
use of an automobile and payment of related expenses, in accordance with the
most favorable plans, practices, programs and policies of the Company and its
affiliated companies in effect for the Executive at any time during the 120-day
period immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time
<PAGE>
thereafter with respect to other peer executives of the Company and its
affiliated companies.
(vii) Office and Support Staff. During the Employment Period,
the Executive shall be entitled to an office or offices of a size and with
furnishings and other appointments, and to exclusive personal secretarial and
other assistance, at least equal to the most favorable of the foregoing provided
to the Executive by the Company and its affiliated companies at any time during
the 120-day period immediately preceding the Effective Date or, if more
favorable to the Executive, as provided generally at any time thereafter with
respect to other peer executives of the Company and its affiliated companies.
(viii) Vacation. During the Employment Period, the Executive
shall be entitled to paid vacation in accordance with the most favorable plans,
policies, programs and practices of the Company and its affiliated companies as
in effect for the Executive at any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect to other peer executives of
the Company and its affiliated companies.
<PAGE>
(ix) On the Effective Date, all stock options previously
granted to the Executive shall become fully vested and immediately exercisable
and all restrictions on shares of restricted stock previously awarded to the
Executive shall immediately lapse.
5. Termination of Employment. (a) Death or Disability. The
Executive's employment shall terminate automatically upon the Executive's death
during the Employment Period. If the Company determines in good faith that the
Disability of the Executive has occurred during the Employment Period (pursuant
to the definition of Disability set forth below), it may give to the Executive
written notice in accordance with Section 12(b) of this Agreement of its
intention to terminate the Executive's employment. In such event, the
Executive's employment with the Company shall terminate effective on the 30th
day after receipt of such notice by the Executive (the "Disability Effective
Date"), provided that, within the 30 days after such receipt, the Executive
shall not have returned to full-time performance of the Executive's duties. For
purposes of this Agreement, "Disability" shall mean the absence of the Executive
from the Executive's duties with the Company on a full-time basis for 180
consecutive business days as a result of incapacity due to mental or physical
illness which is determined to be total and permanent by a physician selected by
the Company or
<PAGE>
its insurers and acceptable to the Executive or the Executive's legal
representative.
(b) Cause. The Company may terminate the Executive's employment
during the Employment Period for Cause. For purposes of this Agreement, "Cause"
shall mean:
(i) fraud, misappropriation or intentional material damage to
the property or business of the Company, or
(ii) commission of a felony as determined by a court of
competent jurisdiction, whose determination is final and non-appealable.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "intentional" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or upon the instructions of the Chief Executive Officer or
a senior officer of the Company or based upon the advice of counsel for the
Company shall be conclusively presumed to be done, or omitted to be done, by the
Executive in good faith and in the best interests of the Company. The
<PAGE>
cessation of employment of the Executive shall not be deemed to be for Cause
unless and until there shall have been delivered to the Executive a copy of a
resolution duly adopted by the affirmative vote of not less than three-quarters
of the entire membership of the Board at a meeting of the Board called and held
for such purpose (after reasonable notice is provided to the Executive and the
Executive is given an opportunity, together with counsel, to be heard before the
Board), finding that, in the good faith opinion of the Board, the Executive is
guilty of the conduct described in subparagraph (i) or (ii) above, and
specifying the particulars thereof in detail.
(c) Good Reason. The Executive's employment may be terminated by the
Executive for Good Reason. For purposes of this Agreement, "Good Reason" shall
mean:
(i) without the express written consent of the Executive, the
assignment to the Executive of any duties inconsistent in any respect with
the Executive's position (including status, offices, titles and reporting
requirements), authority, duties or responsibilities as contemplated by
Section 4(a) of this Agreement, or any other action by the Company which
results in a diminution in such position, authority, duties or
responsibilities, excluding for this purpose an isolated, insubstantial
and inadvertent action not taken in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by the Executive;
(ii) any failure by the Company to comply with any of the
provisions of Section 4(b) of this Agreement, other than an isolated,
insubstantial and inadvertent failure not occurring
<PAGE>
in bad faith and which is remedied by the Company promptly after receipt
of notice thereof given by the Executive;
(iii) without the express written consent of the Executive,
the Company's requiring the Executive to be based at any office or
location other than as provided in Section 4(a)(i)(B) hereof or the
Company's requiring the Executive to travel on Company business to a
substantially greater extent than required during the one-year period
prior to the Effective Date;
(iv) any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted by this
Agreement; or
(v) any failure by the Company to comply with and satisfy
Section 11(c) of this Agreement.
For purposes of this Section 5(c), any good faith determination of "Good Reason"
made by the Executive shall be conclusive. Anything in this Agreement to the
contrary notwithstanding, a termination by the Executive for any reason during
the 30-day period immediately following the first anniversary of the Effective
Date shall be deemed to be a termination for Good Reason for all purposes of
this Agreement.
(d) Notice of Termination. Any termination by the Company for Cause,
or by the Executive for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 12(b) of
this Agreement. For
<PAGE>
purposes of this Agreement, a "Notice of Termination" means a written notice
which (i) indicates the specific termination provision in this Agreement relied
upon, (ii) to the extent applicable, sets forth in reasonable detail the facts
and circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated and (iii) if the Date of Termination
(as defined below) is other than the date of receipt of such notice, specifies
the termination date (which date shall be not more than thirty days after the
giving of such notice). The failure by the Executive or the Company to set forth
in the Notice of Termination any fact or circumstance which contributes to a
showing of Good Reason or Cause shall not waive any right of the Executive or
the Company, respectively, hereunder or preclude the Executive or the Company,
respectively, from asserting such fact or circumstance in enforcing the
Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if the
Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination or
any later date specified therein, as the case may be, (ii) if the Executive's
employment is terminated by the Company other than for Cause or Disability, the
date on
<PAGE>
which the Company notifies the Executive of such termination and (iii) if the
Executive's employment is terminated by reason of death or Disability, the date
of death of the Executive or the Disability Effective Date, as the case may be.
6. Obligations of the Company upon Termination. (a) Good Reason;
Other Than for Cause, Death or Disability. If, during the Employment Period, the
Company shall terminate the Executive's employment other than for Cause or
Disability or the Executive shall terminate employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in
cash within 30 days after the Date of Termination the aggregate of the
following amounts:
A. the sum of (1) the Executive's Annual Base Salary
through the Date of Termination to the extent not theretofore paid,
(2) the product of (x) the higher of (I) the Recent Annual Bonus and
(II) the Annual Bonus paid or payable, including any bonus or
portion thereof which has been earned but deferred (and annualized
for any fiscal year consisting of less than twelve full months or
during which the Executive was employed for less than twelve full
months), for the most recently completed fiscal year during the
Employment Period, if any (such higher amount being referred to as
the "Highest Annual Bonus") and (y) a fraction, the numerator of
which is the number of days in the current fiscal year through the
Date of Termination, and the denominator of which is 365 and (3) any
compensation previously deferred by the Executive (together with any
accrued interest or earnings thereon) and any accrued vacation pay,
in each case to the extent
<PAGE>
not theretofore paid (the sum of the amounts described in clauses
(1), (2), and (3) shall be hereinafter referred to as the "Accrued
Obligations"); and
B. the amount equal to the product of (1) two and (2)
the sum of (x) the Executive's Annual Base Salary and (y) the
Highest Annual Bonus; and
C. a lump sum in cash equal to the sum of the Company
contributions to the Employee Stock Ownership Plan (the "ESOP") that
would have been made on behalf of the Executive during the two year
period following the Date of Termination if the Executive's
employment had continued during such period, assuming Company
contributions to the ESOP of a percentage of annual gross
compensation equal to the average percentage of annual gross
compensation contributed to the ESOP during the three-year period
prior to the Date of Termination; and
(ii) for two years after the Executive's Date of Termination,
or such longer period as may be provided by the terms of the appropriate
plan, program, practice or policy, the Company shall continue benefits to
the Executive and/or the Executive's family at least equal to those which
would have been provided to them in accordance with the plans, programs,
practices and policies described in Section 4(b)(iv) of this Agreement if
the Executive's employment had not been terminated or, if more favorable
to the Executive, as in effect generally at any time thereafter with
respect to other peer executives of the Company and its affiliated
companies and their families, provided, however, that if the Executive
becomes reemployed with another employer and is eligible to receive
medical or other welfare benefits under another employer-provided plan,
the medical and other welfare benefits described herein shall be secondary
to those provided under such other plan during such applicable period of
eligibility, and for purposes of determining eligibility (but not the time
of commencement of benefits) of the Executive for retiree benefits
pursuant to such plans, practices, programs and policies, the Executive
shall be considered to have remained employed until two years after the
Date of Termination and to have retired on the last day of such period;
(iii) without limiting the generality of clause (ii) above,
the Company shall provide the Executive with coverage under the Company's
group life insurance as then in effect, or
<PAGE>
equivalent benefits, at no cost to the Executive, for two years following
the Date of Termination at a level determined on the basis of three times
the Executive's Annual Base Salary, and the Executive's participation in
the Company's Hospital/Medical/Surgical insurance plan shall be continued
on the same basis as prior to the Date of Termination, or equivalent
benefits shall be provided by the Company, at no direct cost to the
Executive for a period of two years from the Date of Termination;
(iv) the Company shall, at its sole expense as incurred,
provide the Executive with outplacement services the scope and provider of
which shall be selected by the Executive in the Executive's sole
discretion;
(v) the Executive shall be entitled to full time use for a
period of two years after the Date of Termination of an automobile of his
selection comparable in all respects to the automobile furnished to the
Executive by the Company for his use during the 120-day period prior to
the termination of his employment and shall receive an automobile
allowance of $3,600.00 per annum for a period of two years following the
Date of Termination; and
(vi) to the extent not theretofore paid or provided, the
Company shall timely pay or provide to the Executive any other amounts or
benefits required to be paid or provided or which the Executive is
eligible to receive under any plan, program, policy or practice or
contract or agreement of the Company and its affiliated companies (such
other amounts and benefits shall be hereinafter referred to as the "Other
Benefits").
(b) Death. If the Executive's employment is terminated by reason of
the Executive's death during the Employment Period, this Agreement shall
terminate without further obligations to the Executive's legal representatives
under this Agreement, other than
<PAGE>
for payment of Accrued Obligations and the timely payment or provision of Other
Benefits. Accrued Obligations shall be paid to the Executive's estate or
beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of
Termination. With respect to the provision of Other Benefits, the term Other
Benefits as utilized in this Section 6(b) shall include, without limitation, and
the Executive's estate and/or beneficiaries shall be entitled to receive,
benefits at least equal to the most favorable benefits provided by the Company
and affiliated companies to the estates and beneficiaries of peer executives of
the Company and such affiliated companies under such plans, programs, practices
and policies relating to death benefits, if any, as in effect with respect to
other peer executives and their beneficiaries at any time during the 120-day
period immediately preceding the Effective Date or, if more favorable to the
Executive's estate and/or the Executive's beneficiaries, as in effect on the
date of the Executive's death with respect to other peer executives of the
Company and its affiliated companies and their beneficiaries.
(c) Disability. If the Executive's employment is terminated by
reason of the Executive's Disability during the Employment Period, this
Agreement shall terminate without further obligations to the Executive, other
than for payment of Accrued
<PAGE>
Obligations and the timely payment or provision of Other Benefits. Accrued
Obligations shall be paid to the Executive in a lump sum in cash within 30 days
of the Date of Termination. With respect to the provision of Other Benefits, the
term Other Benefits as utilized in this Section 6(c) shall include, and the
Executive shall be entitled after the Disability Effective Date to receive,
disability and other benefits at least equal to the most favorable of those
generally provided by the Company and its affiliated companies to disabled
executives and/or their families in accordance with such plans, programs,
practices and policies relating to disability, if any, as in effect generally
with respect to other peer executives and their families at any time during the
120-day period immediately preceding the Effective Date or, if more favorable to
the Executive and/or the Executive's family, as in effect at any time thereafter
generally with respect to other peer executives of the Company and its
affiliated companies and their families.
(d) Cause; Other than for Good Reason. If the Executive's employment
shall be terminated for Cause during the Employment Period, this Agreement shall
terminate without further
<PAGE>
obligations to the Executive other than the obligation to pay to the Executive
(x) the Annual Base Salary through the Date of Termination, (y) the amount of
any compensation previously deferred by the Executive, and (z) Other Benefits,
in each case to the extent theretofore unpaid. If the Executive voluntarily
terminates employment during the Employment Period, excluding a termination for
Good Reason, this Agreement shall terminate without further obligations to the
Executive, other than for Accrued Obligations and the timely payment or
provision of Other Benefits. In such case, all Accrued Obligations shall be paid
to the Executive in a lump sum in cash within 30 days of the Date of
Termination.
7. Non-exclusivity of Rights. Nothing in this Agreement shall
prevent or limit the Executive's continuing or future participation in any plan,
program, policy or practice provided by the Company or any of its affiliated
companies and for which the Executive may qualify, nor, subject to Section
12(f), shall anything herein limit or otherwise affect such rights as the
Executive may have under any contract or agreement with the Company or any of
its affiliated companies. Amounts which are vested benefits or which the
Executive is otherwise entitled to receive under any plan, policy, practice or
program of or any contract or agreement with the Company or any of its
affiliated companies at or
<PAGE>
subsequent to the Date of Termination shall be payable in accordance with such
plan, policy, practice or program or contract or agreement except as explicitly
modified by this Agreement.
8. Full Settlement; Legal Fees. The Company's obligation to make the
payments provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement and except as
specifically provided in Section 6(a)(ii), such amounts shall not be reduced
whether or not the Executive obtains other employment. The Company agrees to pay
as incurred, to the full extent permitted by law, all legal fees and expenses
which the Executive may reasonably incur as a result of any contest (regardless
of the outcome thereof) by the Company, the Executive or others of the validity
or enforceability of, or liability or entitlement under, any provision of this
Agreement or any guarantee of performance thereof (whether such contest is
<PAGE>
between the Company and the Executive or between either of them and any third
party, and including as a result of any contest by the Executive about the
amount of any payment pursuant to this Agreement), plus in each case interest on
any delayed payment at the applicable Federal rate provided for in Section
7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code").
9. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstanding, in
the event it shall be determined that any payment or distribution by the Company
to or for the benefit of the Executive (whether paid or payable or distributed
or distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this Section
9) (a "Payment") would be subject to the excise tax imposed by Section 4999 of
the Code or any corresponding provisions of state or local tax laws, or any
interest or penalties are incurred by the Executive with respect to such excise
tax (such excise tax, together with any such interest and penalties, are
hereinafter collectively referred to as the "Excise Tax"), then the Executive
shall be entitled to receive an additional payment (a "Gross-Up Payment") in an
amount such that after payment by the Executive of all taxes (including any
interest or penalties imposed
<PAGE>
with respect to such taxes), including, without limitation, any income taxes
(and any interest and penalties imposed with respect thereto) and Excise Tax
imposed upon the Gross-Up Payment, the Executive retains an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon the Payments.
(b) Subject to the provisions of Section 9(c), all determinations
required to be made under this Section 9, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determination, shall be made by Deloitte and
Touche LLP or such other certified public accounting firm as may be designated
by the Executive (the "Accounting Firm"), which shall provide detailed
supporting calculations both to the Company and the Executive within 15 business
days of the receipt of notice from the Executive that there has been a Payment,
or such earlier time as is requested by the Company. In the event that the
Accounting Firm is serving as accountant or auditor for the individual, entity
or group effecting the Change of Control, the Executive shall appoint another
nationally recognized accounting firm to make the determinations required
hereunder (which accounting firm shall
<PAGE>
then be referred to as the Accounting Firm hereunder). All fees and expenses of
the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment,
as determined pursuant to this Section 9, shall be paid by the Company to the
Executive within five days of the receipt of the Accounting Firm's
determination. Any determination by the Accounting Firm shall be binding upon
the Company and the Executive. As a result of the uncertainty in the application
of Section 4999 of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that Gross-Up Payments which will not
have been made by the Company should have been made ("Underpayment"), consistent
with the calculations required to be made hereunder. In the event that the
Company exhausts its remedies pursuant to Section 9(c) and the Executive
thereafter is required to make a payment of any Excise Tax, the Accounting Firm
shall determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the benefit of the
Executive.
(c) The Executive shall notify the Company in writing of any claim
by the Internal Revenue Service that, if successful, would require the payment
by the Company of the Gross-Up Payment. Such notification shall be given as soon
as practicable but no
<PAGE>
later than ten business days after the Executive is informed in writing of such
claim and shall apprise the Company of the nature of such claim and the date on
which such claim is requested to be paid. The Executive shall not pay such claim
prior to the expiration of the 30-day period following the date on which the
Executive gives such notice to the Company (or such shorter period ending on the
date that any payment of taxes with respect to such claim is due). If the
Company notifies the Executive in writing prior to the expiration of such period
that it desires to contest such claim, the Executive shall:
(i) give the Company any information reasonably requested by
the Company relating to such claim,
(ii) take such action in connection with contesting such claim
as the Company shall reasonably request in writing from time to
time, including, without limitation, accepting legal representation
with respect to such claim by an attorney reasonably selected by the
Company,
(iii) cooperate with the Company in good faith in order
effectively to contest such claim, and
(iv) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties)
<PAGE>
incurred in connection with such contest and shall indemnify and hold the
Executive harmless, on an after-tax basis, for any Excise Tax or income tax
(including interest and penalties with respect thereto) imposed as a result of
such representation and payment of costs and expenses. Without limitation on the
foregoing provisions of this Section 9(c), the Company shall control all
proceedings taken in connection with such contest and, at its sole option, may
pursue or forgo any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may, at its
sole option, either direct the Executive to pay the tax claimed and sue for a
refund or contest the claim in any permissible manner, and the Executive agrees
to prosecute such contest to a determination before any administrative tribunal,
in a court of initial jurisdiction and in one or more appellate courts, as the
Company shall determine; provided, however, that if the Company directs the
Executive to pay such claim and sue for a refund, the Company shall advance the
amount of such payment to the Executive, on an interest-free basis and shall
indemnify and hold the Executive harmless, on an after-tax basis, from any
Excise Tax or income tax (including interest or penalties with respect thereto)
imposed with respect to such advance or with respect to any imputed income with
respect to such advance; and further provided that any extension of the statute
of limitations relating
<PAGE>
to payment of taxes for the taxable year of the Executive with respect to which
such contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company's control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder and
the Executive shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other taxing
authority.
(d) If, after the receipt by the Executive of an amount advanced by
the Company pursuant to Section 9(c), the Executive becomes entitled to receive
any refund with respect to such claim, the Executive shall (subject to the
Company's complying with the requirements of Section 9(c)) promptly pay to the
Company the amount of such refund (together with any interest paid or credited
thereon after taxes applicable thereto). If, after the receipt by the Executive
of an amount advanced by the Company pursuant to Section 9(c), a determination
is made that the Executive shall not be entitled to any refund with respect to
such claim and the Company does not notify the Executive in writing of its
intent to contest such denial of refund prior to the expiration of 30 days
<PAGE>
after such determination, then such advance shall be forgiven and shall not be
required to be repaid and the amount of such advance shall offset, to the extent
thereof, the amount of Gross-Up Payment required to be paid.
10. Confidential Information. The Executive shall hold in a
fiduciary capacity for the benefit of the Company all secret or confidential
information, knowledge or data relating to the Company or any of its affiliated
companies, and their respective businesses, which shall have been obtained by
the Executive during the Executive's employment by the Company or any of its
affiliated companies and which shall not be or become public knowledge (other
than by acts by the Executive or representatives of the Executive in violation
of this Agreement). After termination of the Executive's employment with the
Company, the Executive shall not, without the prior written consent of the
Company or as may otherwise be required by law or legal process, communicate or
divulge any such information, knowledge or data to anyone other than the Company
and those designated by it. In no event shall an asserted violation of the
provisions of this Section 10 constitute a basis for deferring or withholding
any amounts otherwise payable to the Executive under this Agreement.
<PAGE>
11. Successors. (a) This Agreement is personal to the Executive and
without the prior written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
<PAGE>
12. Miscellaneous. (a) This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without
reference to principles of conflict of laws. The captions of this Agreement are
not part of the provisions hereof and shall have no force or effect. This
Agreement may not be amended or modified otherwise than by a written agreement
executed by the parties hereto or their respective successors and legal
representatives.
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive:
Frederick C. Braun
402 Mountain Ridge Road
Mt. Sinai, New York 11766-1414
If to the Company:
State Bancorp, Inc.
Two Jericho Plaza
Jericho, New York 11753
Attention: General Counsel
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and
<PAGE>
communications shall be effective when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state, local or foreign taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision hereof or any other provision of this Agreement or
the failure to assert any right the Executive or the Company may have hereunder,
including, without limitation, the right of the Executive to terminate
employment for Good Reason pursuant to Section 5(c)(i)-(v) of this Agreement,
shall not be deemed to be a waiver of such provision or right or any other
provision or right of this Agreement.
(f) The Executive and the Company acknowledge that, except as may
otherwise be provided under any other written
<PAGE>
agreement between the Executive and the Company, the employment of the Executive
by the Company is "at will" and, prior to the Effective Date, the Executive's
employment may be terminated by either the Executive or the Company at any time
prior to the Effective Date, in which case the Executive shall have no further
rights under this Agreement. From and after the Effective Date this Agreement
shall supersede any other agreement between the parties with respect to the
subject matter hereof.
<PAGE>
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's
hand and, pursuant to the authorization from its Board of Directors, the Company
has caused this Agreement to be executed in its name on its behalf, all as of
the day and year first above written.
--------------------------------------
Frederick C. Braun
STATE BANCORP, INC.
By
-----------------------------------
STATE
BANCORP,
INC.
[PHOTO OMITTED]
1997 Annual Report [PHOTO OMITTED]
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...We Are Long Island
<PAGE>
[LOGO] STATE BANCORP, INC.
State Bank of Long Island was founded in 1966 by an energetic group of
civic minded businessmen seeking to enhance the quality of banking services on
Long Island. They succeeded perhaps beyond their fondest expectations--and for
many years now State Bank has ranked among the highest performing banks in New
York State.
Over the years, the Bank has shown measured, orderly growth. By adhering
to that philosophy, the Bank has grown to be the largest independent commercial
bank headquartered in Nassau County. We have built a reputation for providing
high-quality personal service and have specialized in meeting the needs of the
commercial, small business, municipal and consumer markets throughout Long
Island.
Table of Contents
1 Financial Highlights
2 Letter to Our Stockholders, Customers and Friends
4 Building Partnerships
9 Financial Statements
13 Notes to Consolidated Financial Statements
28 Independent Auditor's Report
29 Management's Discussion and Analysis of
Financial Condition and Results of Operations
42 Statistical Information
50 Market Data
51 Five Year Summary of Operations
52 Board of Directors and Executive Officers
53 State Bank of Long Island--Officers
55 State Bancorp, Inc. and Subsidiary Advisory Board
56 Corporate Information
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<PAGE>
WEB SITE
[GRAPHIC OMITTED]
Visit the Bank's World Wide Web site at www.statebankofli.com to review
the latest information on earnings reports, dividend declarations, press
releases and current stock prices.
In addition, you will find a complete listing of our branch locations,
loan and deposit products with current rates, two user-friendly calculators that
you may find helpful and loan application materials.
There are numerous opportunities throughout the site for you to talk to us
directly regarding stockholder issues or to simply request information on our
products and services. We encourage you to take full advantage of these
opportunities to tell us what you think.
Designed by Curran & Connors, Inc.
<PAGE>
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1
STATE BANCORP, INC. AND SUBSIDIARY
FINANCIAL HIGHLIGHTS
(in thousands)
-----------------------------
1997 % Change 1996
=============================
Total Assets ................................ $738,089 19.9% $615,418
Stockholders' Equity ........................ $ 54,930 13.1% $ 48,569
Net Income .................................. $ 7,105 24.6% $ 5,702
Return on Average Assets .................... 1.05% 0.97%
Return on Average Stockholders' Equity ...... 13.76% 12.98%
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<PAGE>
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2
[PHOTO OMITTED]
Office of the Chairman
Daniel T. Rowe, President; Richard W. Merzbacher, Vice Chairman; Thomas F.
Goldrick, Jr., Chairman and Chief Executive Officer
TO OUR STOCKHOLDERS, CUSTOMERS AND FRIENDS
As we begin the year 1998, it is with a considerable measure of pride and
satisfaction that we are able to look back upon the year just ended, 1997, and
to report again to our many friends the completion of yet another year of record
earnings, asset growth, and a significant expansion of our equity capital base.
This marks our twenty-seventh consecutive year of earnings improvement, a record
we continue to feel is unparalleled among commercial banks in the State of New
York. It is with much enthusiasm that all of us in the State Bank family look
forward to a continuation of these past successes as we move ever closer to the
new millennium.
The year 1997 brought with it a continuing strengthening of the Long
Island economy. Many of the sector components so critical to creating solid,
sustainable growth in our economy demonstrated ongoing vitality in the past
year, most notably in the areas of employment growth, commercial real estate and
the service and technology sectors. We will continue to monitor closely these
important signs of economic vibrancy in the Long Island region, and the overall
condition of our area's economy, of which we are so much a part.
Turning to our financial results for 1997, we are once again delighted to
be able to report a significant increase in net income - 24.6% - to a record
level of $7.1 million or $1.17 per share for the year 1997. As noted above, this
is our 27th consecutive year of earnings growth and we truly believe this is an
achievement unique among our peers. In addition, the Company's return on assets
improved to 1.05 % and return on equity also improved markedly to a level of
13.76%. We are quite proud of the continued enhancement of both of these
profitability indices. Similarly, we are pleased to report the ongoing growth in
several critical components of the Company's balance sheet. Loans and deposits,
the core of our business, both increased on average by 15% during the course of
1997 as compared with the prior year, truly an encouraging trend, and one which
will again be diligently pursued during the course of 1998. Finally, the
Company's capital ratios continue at levels well in excess of Federal regulatory
criteria for well-capitalized institutions. Total stockholders' equity
approximated $55 million at December 31, 1997, and on average during the year
reflected an increase in excess of 17% as compared with the prior year's
average. The continuing growth in the financial strength of our Company has
built a sound foundation as we move towards the new millennium.
For a more detailed analysis of the consolidated financial statements,
please refer to Management's Discussion and Analysis of Financial Condition and
Results of Operations found on Page 29 of this report.
Several significant product developments affected our Company during the
course of 1997, including the introduction of both our Small Business Line of
Credit product, as well as Business Direct Access, our PC-based commercial cash
management system. Both of these financial product offerings met with a great
deal of success immediately upon introduction, and the utilization of both of
these state-of-the-art services continues to grow dramatically on a monthly
basis.
We are equally pleased to report the successful opening in late 1997 of
our two newest locations--our Farmingdale office on Smith Street in Farmingdale
and our MacArthur office, located directly across from the entrance to Long
Island MacArthur Airport on Veterans Highway. This now brings our total number
of full service branches to nine, extending from western Nassau County to
central Suffolk County.
During 1998, we look forward to many exciting developments within our
Company. During the second quarter of this year, we anticipate the
capitalization of our two newest subsidiaries, SB Portfolio Management Corp.,
and SB Financial Services Corp. These subsidiaries will be chartered in
Delaware, and will engage in the management of the Bank's investment portfolio
as well as the performance of various rate risk analyses and asset/liability
management functions. These subsidiaries will be managed by an executive,
formerly
<PAGE>
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3
Board of Directors
Standing (Left to Right), Carl R. Bruno, Joseph F. Munson, J. Robert Blumenthal,
Suzanne H. Rueck, Raymond M. Piacentini, Arthur Dulik, Jr., Gerald P. Rosenberg
(Secretary to the Board), John F. Picciano. Seated (left to right), Gary Holman,
Richard W. Merzbacher, Thomas F. Goldrick, Jr., Daniel T. Rowe, Robert J. Grady.
associated with the Company for many years in the capacity of Vice President and
Comptroller. We are delighted to welcome him back to the State Bank family in
this new capacity. Also during 1998, we look forward to the expansion of our
Municipal Finance group, with the addition of Ken Messina as First Vice
President, joining Senior Vice President Robert Valli in serving the varied
financial needs of our Long Island towns, school districts and villages. Lastly,
we are pleased to announce the recent signing of an agreement with U.S. Trust
Company, designed to bring a full range of investment management and trust
services together with considerable expertise to our growing customer base. U.S.
Trust has been a leading provider of these services for over 145 years in the
New York market, and we are truly delighted to now be able to offer the highest
level of investment-related products and services to our valued customers.
As reported over the past several years, our Dividend Reinvestment Plan
continues to afford our stockholders the opportunity to reinvest their cash
dividends into Company stock. Since its inception just a few years ago, this
Plan has been exceptionally well received and has served to contribute nearly $3
million in capital toward the continuing growth of our Company. We have attached
a perforated card on the back cover of this report should you wish to become a
participant of this highly regarded plan.
Certainly the year 1997 was again one of significant accomplishment for
all of us here at State Bancorp, Inc. and State Bank of Long Island. Our 27th
year of record earnings and the continued strong growth of deposits, loans and
stockholder equity are but a few of the notable goals achieved during the year
just ended. 1998 promises to be equally as rewarding, and will take us yet a
step closer to the realization of our Mission 2000 strategic plan, and the
ambitious goals set forth therein.
Once again, the untiring efforts of both our Board of Directors and our
Advisory Board have contributed greatly to the successes enjoyed by our Company
over these many years. We look forward to the year ahead and the continuing
opportunity to offer the people, businesses and governments across Long Island
the very finest in financial products and services.
/s/ Thomas F. Goldrick, Jr.
Thomas F. Goldrick, Jr.
Chairman and Chief Executive Officer
/s/ Richard W. Merzbacher
Richard W. Merzbacher
Vice-Chairman
/s/ Daniel T. Rowe
Daniel T. Rowe
President
<PAGE>
- ----
4
BUILDING PARTNERSHIPS
The Long Island area is recognized across the nation and around the world
for the innovative talent that it has fostered and for its ability to cultivate
an entrepreneurial spirit. Long Island was home to Walt Whitman--one of
America's greatest poets; Barbara McClintock--the Nobel Prize winning discoverer
of the "jumping gene theory" of genetic mutation which was the beginning for all
genetic cancer research; Charles Lindbergh--whose historic transatlantic flight
from Roosevelt Field to Paris kick-started the aviation industry; and Guglielmo
Marconi--the inventor of the wireless telegraph who set up the first commercial
broadcast station in the United States on Long Island.
Many of the trends or events that are so much a part of our daily lives
were started by Long Island businesses that recognized the intrinsic value of a
new idea and were able to develop its potential well ahead of the marketplace.
It was Grumman that built all six spacecraft that landed men on the moon and
returned the Apollo 13 astronauts back home safely; it was King Kullen that
introduced us to supermarket shopping; and Fonar Corporation that developed the
magnetic resonance imaging system that so greatly enhanced your physician's
diagnostic capabilities.
There are approximately 85,000 businesses on Long Island that employ 1.1
million workers and generate over $40 billion of goods and services each year.
Their collective productivity and successes are greater than many states and
foreign countries can claim.(1)
As an independent community bank, State Bank of Long Island has a vested
interest in seeing the businesses and people of our communities prosper. We are
constantly striving to forge long-term banking relationships with customers that
not only provide for their financial needs, but also acknowledge their
dedication to their respective industries and their overall contribution to
their communities.
It gives us great pleasure to highlight in this year's annual report some
of our customers that, in our opinion, exemplify that Long Island
entrepreneurial spirit and the ability to lead in their field.
(1) 1997 Long Island Almanac, LIBN.
1996 Advantage Long Island, LIA.
[PHOTO OMITTED]
Aaron Liebowitz, Executive Director, ACLD; Michael O'Leary, Vice President,
SBLI; Robert Nicols, Senior Vice President, SBLI.
Adults and Children with Learning and
Developmental Disabilities, Inc.
Bethpage, New York
Adults and Children with Learning and Developmental Disabilities, Inc.
(ACLD) provides services to more than 1,500 infants, children and adults with
disabilities and their families. Programs are available in the areas of early
intervention, recreation, residential, vocational, day treatment and family
support services. ACLD operates 54 program sites and employs over 600 staff
members.
State Bank of Long Island is the lead bank for ACLD providing a line of
credit, a term loan to refinance land for future expansion, along with checking
and cash management services.
"Recently we strengthened our relationship with State Bank of Long Island by
making them our primary bank. The reason we did this was simple--State Bank has
demonstrated a commitment to providing innovative banking programs to the
not-for-profit community. They have recognized the economic vitality of this
sector of Long Island's economy and the Bank Officers have taken the time to
learn our industry, its revenue streams and the regulatory environment in which
we operate. We are looking forward to a long-term and very positive relationship
with State Bank."
Aaron Liebowitz,
Executive Director, ACLD
<PAGE>
----
5
[PHOTO OMITTED]
Ken Scheriff, Senior Vice President, SBLI; Scott Swain, Vice President, SBLI;
Robert Antonucci, Stonington Field Supervisor; Nicholas Cassis, Principal,
Dockside Associates, LTD.
Dockside Associates, LTD.
Stonington
Port Jefferson Station, New York
Stonington is a 170-unit residential, single-family condominium
development on 25 acres of professionally landscaped gardens, including two
ponds and walkways. The model units are dramatic and clean and are designed to
reflect the essential elements of active lifestyles.
State Bank is the primary bank for Stonington providing a comprehensive
construction package, checking and other related financial services.
"One of the wisest decisions we ever made was to work with State Bank of Long
Island as our primary lender. Their expert knowledge of the business, and their
professional approach made many of our tasks so much easier to deal with. For
us, they brought new meaning to the terms personal service and commitment."
Peter Vander Schuyt,
Marketing Director
Montana Agency, Inc.
Hicksville, New York
Montana Agency, Inc. was established in 1946 by Charles I. Montana Sr. and
was originally a real estate agency. Since then, it has grown into a financial
services company offering personal and business insurance, life and health
insurance, pension management and mutual funds. Now, it is operated by Charles
Sr.'s sons, Charles I. Montana Jr. and George D. Montana.
Montana Agency maintains several business checking, money fund savings,
CD's and assorted personal checking accounts for clients at State Bank of Long
Island. In addition, they have opened two small business credit lines and are
setting up a cash management service.
"As a financial services agency, we recognize the importance of having a
personal relationship that is responsive to our needs. State Bank has
established such a relationship with us and we value the level of personal
service provided by our account officer and by the branch staff."
Charles I. Montana Jr.,
President, Montana Agency
[PHOTO OMITTED]
Blanche Stanford, Jericho Branch Manager, SBLI; George D. Montana, Vice
President, Montana Agency; Charles I. Montana Jr., President, Montana Agency;
Rocco Reda, Vice President, SBLI.
<PAGE>
- ----
6
[PHOTO OMITTED]
Jack Schwartz, Principal, Jacobson & Schwartz; Ann Goulding, Rockville Centre
Branch Manager, SBLI.
Jacobson & Schwartz
Rockville Centre, New York
Jacobson & Schwartz have been in existence since 1962. Their primary field
of law is that of litigation in the defense of property and casualty claims for
the insurance industry. They represent clients in all of the counties of New
York City as well as both counties of Long Island.
Jacobson & Schwartz has a term loan with State Bank and also maintains
operating accounts, escrow accounts, IOLA accounts, and savings accounts. In
addition, there are numerous personal accounts for the principals.
"The relationship between our firm and State Bank of Long Island has been one of
mutual trust and confidence. All of the people associated with State Bank have
shown a deep sense of caring for our needs, whether they be trivial or of a
significant nature. It is evident that the people of State Bank are the ones who
make the difference and who enrich this relationship that has grown from the
very first deposit on the very first day. It appears that this quality sets
State Bank apart from their competitors and makes doing business with the Bank
very pleasant."
Jack Schwartz,
Principal, Jacobson & Schwartz
East Williston U.F.S.D.
Old Westbury, New York
East Williston is a comprehensive K-12 school district with approximately
1500 students enrolled in three schools: North Side School, grades K-4; Willets
Road School, grades 5-7; and the Wheatley School, grades 8-12. The District
prides itself on an individualized and personalized approach to educating its
students. Classes of instruction are relatively small; student support services
are strong; and curricular and co-curricular programs are diverse. Many East
Williston students are actively involved in exchange programs with students
worldwide, and the high school has recently sponsored student exchanges with
Spain, France and Russia.
The District has its business accounts at State Bank. The Bank actively
bids on the District's short-term notes and certificates of deposit.
"State Bank of Long Island is a community-oriented bank that actively promotes
competitive interest rates on notes and is most supportive in providing our
District with financial guidance and assistance."
Ronald Izzo,
Assistant Superintendent for Business
[PHOTO OMITTED]
Ronald Izzo, Assistant Superintendent for Business, East Williston, U.F.S.D.;
Robert J. Valli, Senior Vice President, Director of Municipal Finance/Community
Relations, SBLI.
<PAGE>
----
7
[PHOTO OMITTED]
Sean M. Umhafer, Assistant Manager, SBLI; Barbara Hanratty, Treasurer, Firematic
Supply; Michael Hanratty, President, Firematic Supply; Jean-Ann Yngstrom, Senior
Vice President, SBLI; Frederick C. Braun III, Executive Vice President, SBLI.
Firematic Supply Co., Inc.
Shirley, New York
Incorporated in 1961, Firematic has the exclusive distribution rights for
Pierce Manufacturing, Inc., one of the leading builders of customized fire
trucks in the United States, covering Long Island, Connecticut and the New York
City area. The fire equipment division sells a wide variety of fire fighting
tools, turnout gear, SCBA and lights. They also have the exclusive distribution
rights for Hale Firepump, Co. (maker of the Hurst Tool--"Jaws of Life") for Long
Island, New York City, Connecticut and Rhode Island. Firematic is also engaged
in the sale and service of fire extinguishers to commercial, industrial and
municipal enterprises.
Firematic maintains several corporate operating and lending account
relationships with State Bank.
"State Bank of Long Island has always responded to the needs of our growing
Company. Their customer service exceeds all others."
Michael Hanratty,
President, Firematic Supply
B.H. Aircraft Company, Inc.
Farmingdale, New York
B.H. Aircraft is a manufacturer of precision engine components and
structural assemblies for the aviation industry. From Lindbergh's monoplane to
the SR-71 Blackbird, their products and skills have furthered technological
leaps towards space. The Company is one of the industry's leading providers of
exotic metal weldments to the gas turbine engine and aerospace markets.
Moreover, their decades of experience in processing high-temperature alloys has
enabled them to undertake the most challenging of assembly designs.
B.H. Aircraft has a full service corporate banking relationship with State
Bank of Long Island that includes deposits, a line of credit, equipment term
loans, and a commercial mortgage.
"The B.H. relationship with State Bank exists because their account
officers have taken the time and effort to develop a thorough understanding of
our industry. Proud as we are of the Cradle of Aviation designation, Long Island
has witnessed too many ventures that have failed as a result of the inherent
cyclical nature of the aerospace industry. Thanks to State Bank, we are entering
our 65th year of operation in a truly state-of-the-art manufacturing facility,
poised to accept the challenging technologies of the 21st century."
Daniel Shannon,
Treasurer, B.H. Aircraft Company,Inc.
[PHOTO OMITTED]
Richard J. O'Brien, Vice President, SBLI; Richard W. Merzbacher, President,
SBLI; Daniel Shannon, Treasurer, B.H. Aircraft
Company, Inc.
<PAGE>
- ----
8
[PHOTO OMITTED]
Diane M. Jones, President, Midbury Industries, Inc.; Paul R. Cronen, Garden City
South Branch Manager, SBLI.
Midbury Industries, Inc.
Freeport, New York
Midbury Industries is a manufacturer of customized plastic injection
molded products. These precision components are designed and assembled for
various industries where tolerances are a critical factor. Applications include,
electronic enclosures for electrocardiograph machines, display packing for the
music industry, toys, housewares and other electronic devices.
In addition to Midbury's operating accounts, State Bank's Garden City
South branch also services their money fund savings and passbook accounts. Based
on their corporate account experiences, the owners of Midbury moved all their
personal accounts to that office--including one for the local Cub Scout Pack.
"State Bank services the small company the way a large corporation expects to be
serviced. Because of their friendly and courteous service, I brought my
personal, business and Cub Scout accounts to their Garden City branch."
Diane M. Jones,
President, Midbury Industries, Inc.
FINANCIAL TABLE OF CONTENTS
Consolidated Financial Statements.......................................... 9
Notes to Consolidated Financial Statements................................. 13
Independent Auditor's Report............................................... 28
Management's Discussion and Analysis of
Financial Condition and Results of Operations............................ 29
Statistical Information.................................................... 42
Market Data................................................................ 50
Five Year Summary of Operations............................................ 51
<PAGE>
----
9
STATE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1996
<TABLE>
<CAPTION>
----------------------------------------
Notes 1997 1996
========================================
<S> <C> <C> <C>
ASSETS:
Cash and due from banks ............................................. 10 $ 26,932,820 $ 34,676,593
Securities purchased under agreements to resell ..................... 1 34,000,000 30,000,000
----------------------------------------
Cash and cash equivalents ........................................... 60,932,820 64,676,593
Securities held to maturity (estimated fair value
of $10,644,882 in 1997 and $30,486,626 in 1996) .................... 1,2 10,637,143 30,469,524
Securities available for sale--at estimated fair value .............. 1,2 277,577,567 156,931,674
Loans (net of allowance for possible loan losses of
$5,123,651 in 1997 and $5,008,965 in 1996) ......................... 1,3,12 372,509,616 348,293,930
Bank premises and equipment--net .................................... 1,4 3,501,031 2,996,124
Other assets ........................................................ 1,5,7 12,930,760 12,049,810
----------------------------------------
TOTAL ASSETS ......................................................... $ 738,088,937 $ 615,417,655
========================================
LIABILITIES:
Deposits: ........................................................... 1
Demand ............................................................. $ 107,639,101 $ 96,600,418
Savings ............................................................ 179,958,856 200,744,964
Time ............................................................... 323,629,963 177,105,107
----------------------------------------
Total deposits ...................................................... 611,227,920 474,450,489
Federal funds purchased ............................................. 6 6,000,000 3,600,000
Securities sold under agreements to repurchase ...................... 14,818,000 74,079,000
Other short-term borrowings ......................................... 6 47,000,000 12,000,000
Accrued expenses, taxes and other liabilities ....................... 7 4,112,754 2,718,695
----------------------------------------
Total liabilities ................................................... 683,158,674 566,848,184
----------------------------------------
COMMITMENTS AND CONTINGENT LIABILITIES ............................... 9,10,12
STOCKHOLDERS' EQUITY: ................................................ 8,15
Preferred stock, $0.01 par value, authorized 250,000 shares ......... -- --
Common stock, $5.00 par value, authorized 20,000,000 shares;
issued 6,194,126 shares in 1997 and 6,121,258 shares in 1996;
outstanding--6,109,083 shares in 1997 and 6,016,660 shares in 1996 . 30,970,630 25,505,240
Surplus ............................................................. 18,457,388 22,915,331
Retained earnings ................................................... 6,567,744 2,130,980
Unrealized net loss on securities available for sale (net of deferred
income tax benefit of $149,144 in 1997 and $649,167 in 1996) ....... (215,067) (936,100)
Unearned compensation ............................................... 9 (850,432) (1,045,980)
----------------------------------------
Total stockholders' equity .......................................... 54,930,263 48,569,471
----------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ........................... $ 738,088,937 $ 615,417,655
========================================
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
- ----
10
STATE BANCORP, INC. AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED EARNINGS
For The Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
-------------------------------------------------
Notes 1997 1996 1995
=================================================
<S> <C> <C> <C> <C>
INTEREST INCOME: 1
Loans ........................................................ 3 $ 34,345,284 $ 29,063,647 $ 25,022,021
Federal funds sold and securities purchased
under agreements to resell .................................. 1,989,006 1,734,542 1,466,075
Securities held to maturity and securities available for sale:
United States Treasury securities ........................... -- 648,878 1,616,262
States and political subdivisions ........................... 2,108,431 1,607,059 2,132,573
Mortgage-backed securities .................................. 4,781,902 7,658,115 7,521,153
Government Agency securities ................................ 7,305,284 2,343,098 1,584,265
Other ....................................................... 134,275 123,386 84,007
-------------------------------------------------
Total interest income ......................................... 50,664,182 43,178,725 39,426,356
-------------------------------------------------
INTEREST EXPENSE:
Time certificates of deposit of $100,000 or more ............. 10,150,061 7,390,698 6,167,786
Other deposits and temporary borrowings ...................... 12,540,136 11,739,929 12,501,783
-------------------------------------------------
Total interest expense ....................................... 22,690,197 19,130,627 18,669,569
-------------------------------------------------
Net interest income .......................................... 27,973,985 24,048,098 20,756,787
PROVISION FOR POSSIBLE LOAN LOSSES ............................ 1,3 1,950,000 1,500,000 1,200,000
-------------------------------------------------
Net interest income after provision for possible
loan losses ................................................. 26,023,985 22,548,098 19,556,787
-------------------------------------------------
OTHER INCOME:
Service charges on deposit accounts .......................... 1,236,964 1,305,089 1,113,625
Net security (losses) gains .................................. (53,180) 135,130 (55,162)
Other operating income ....................................... 450,515 417,912 365,684
-------------------------------------------------
Total other income ........................................... 1,634,299 1,858,131 1,424,147
-------------------------------------------------
Income before operating expenses ............................. 27,658,284 24,406,229 20,980,934
-------------------------------------------------
OPERATING EXPENSES:
Salaries and other employee benefits ......................... 9 9,827,811 8,857,594 7,765,544
Occupancy .................................................... 10 1,557,255 1,341,643 1,314,268
Equipment .................................................... 613,620 514,630 506,673
Deposit assessment fees ...................................... 123,015 729,386 542,034
Amortization of intangibles .................................. 605,147 605,147 634,007
Other operating expenses ..................................... 3,995,588 3,488,113 2,720,530
-------------------------------------------------
Total operating expenses ..................................... 16,722,436 15,536,513 13,483,056
-------------------------------------------------
INCOME BEFORE INCOME TAXES .................................... 10,935,848 8,869,716 7,497,878
PROVISION FOR INCOME TAXES .................................... 1,7 3,830,358 3,167,704 2,459,213
-------------------------------------------------
NET INCOME .................................................... $ 7,105,490 $ 5,702,012 $ 5,038,665
=================================================
BASIC EARNINGS PER COMMON SHARE ............................... 1 $ 1.17 $ 1.00 $ 0.93
=================================================
DILUTED EARNINGS PER COMMON SHARE ............................. 1 $ 1.15 $ 0.98 $ 0.92
=================================================
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING ................... 6,069,284 5,716,786 5,406,295
=================================================
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
----
11
STATE BANCORP, INC. AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED CASH FLOWS
For The Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
-----------------------------------------------
1997 1996 1995
===============================================
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income .............................................. $ 7,105,490 $ 5,702,012 $ 5,038,665
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for possible loan losses .................... 1,950,000 1,500,000 1,200,000
Depreciation and amortization of bank premises
and equipment ........................................ 553,591 536,390 532,136
Amortization of intangibles ........................... 605,147 605,147 634,007
Deferred income tax benefit ........................... (365,200) (203,029) (280,277)
Amortization of net premium on securities ............. 1,520,924 1,336,874 1,234,306
Net security losses (gains) ........................... 53,180 (135,130) 55,162
Gain on sale of other real estate owned ("OREO") ...... (56,680) (89,084) (7,330)
Amortization of unearned compensation ................. 316,125 155,254 --
(Increase) decrease in other assets, net .............. (2,458,249) 149,082 (80,725)
Increase in accrued expenses, taxes
and other liabilities ................................ 1,263,659 134,572 1,034,645
-----------------------------------------------
Net cash provided by operating activities .............. 10,487,987 9,692,088 9,360,589
-----------------------------------------------
INVESTING ACTIVITIES:
Proceeds from maturities of securities held to maturity . 32,606,246 28,255,808 60,852,844
Purchases of securities held to maturity ................ (12,817,751) (30,562,652) (41,797,155)
Proceeds from sales of securities available for sale .... 203,914,634 149,572,257 46,892,356
Proceeds from maturities of securities available for sale 144,113,718 82,595,593
Purchases of securities available for sale .............. (468,983,407) (187,378,118) (120,245,893)
Increase in loans--net .................................. (26,355,020) (68,946,068) (33,558,101)
Proceeds from sale of OREO .............................. 1,083,343 789,084 461,099
Purchases of bank premises and equipment--net ........... (1,058,498) (573,114) (771,721)
-----------------------------------------------
Net cash used in investing activities ................... (127,496,735) (26,247,210) (51,113,188)
-----------------------------------------------
FINANCING ACTIVITIES:
(Decrease) increase in demand and savings deposits ...... (9,747,425) (21,446,672) 77,520,526
Increase (decrease) in time deposits .................... 146,524,856 (1,842,793) 42,894,826
Increase (decrease) in Federal funds purchased .......... 2,400,000 (13,400,000) 1,000,000
(Decrease) increase in securities sold under agreements
to repurchase .......................................... (59,261,000) (9,138,774) 8,301,479
Increase in other short-term borrowings ................. 35,000,000 2,000,000 10,000,000
Cash dividends paid ..................................... (2,538,326) (1,952,039) (1,932,701)
Proceeds from shares issued under the dividend
reinvestment plan ...................................... 809,862 703,183 679,813
Proceeds from stock options exercised ................... 77,008 191,825 175,378
Proceeds from rights exercised .......................... -- 4,263,307 --
-----------------------------------------------
Net cash provided by (used in) financing activities ..... 113,264,975 (40,621,963) 138,639,321
-----------------------------------------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS ..... (3,743,773) (57,177,085) 96,886,722
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ........... 64,676,593 121,853,678 24,966,956
-----------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR ................. $ 60,932,820 $ 64,676,593 $ 121,853,678
===============================================
SUPPLEMENTAL DATA:
Interest paid ........................................... $ 22,027,177 $ 19,121,173 $ 18,355,250
===============================================
Income taxes paid ....................................... $ 4,328,779 $ 3,557,075 $ 2,472,750
===============================================
Transfer from loans to OREO ............................. $ 189,334 $ 1,726,663 $ --
===============================================
Adjustment to unrealized net loss on securities
available for sale ..................................... $ 1,221,056 $ 1,528,398 $ (1,500,759)
===============================================
Dividends declared but not paid as of year end .......... $ 730,526 $ 600,126 $ 421,191
===============================================
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
- ----
12
STATE BANCORP, INC. AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY
For The Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
Unrealized
Net Loss on
Securities
Common Retained Available Unearned
Notes Stock Surplus Earnings for Sale Compensation Total
=================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1995 ..... $ 18,764,095 $ 13,114,916 $ 5,201,989 $ (910,530) $ 36,170,470
Net income ................... 5,038,665 5,038,665
Cash dividend
($.43 per share) ............ 1 (2,353,892) (2,353,892)
10% stock dividend (378,221
shares at market value) ..... 1 1,891,105 2,836,657 (4,727,762)
Shares issued under the
dividend reinvestment
plan (58,824 shares
at 95% of market value) ..... 294,120 385,693 679,813
Stock options exercised ...... 8 110,240 65,138 175,378
Change in unrealized
net loss on securities
available for sale .......... 2 877,118 877,118
-------------------------------------------------------------------------------------------------
Balance, December 31, 1995 ... 21,059,560 16,402,404 3,159,000 (33,412) 40,587,552
Net income ................... 5,702,012 5,702,012
Cash dividend
($.37 per share) ............ 1 (2,130,974) (2,130,974)
8% stock dividend (340,671
shares at market value) ..... 1 1,703,355 2,895,703 (4,599,058)
Shares issued under the
dividend reinvestment
plan (57,752 shares
at 95% of market value) ..... 288,760 414,423 703,183
Stock options exercised ...... 8 125,000 66,825 191,825
Rights exercised ............. 9 2,328,565 3,134,742 $(1,200,000) 4,263,307
Amortization of unearned
compensation ................ 9 1,234 154,020 155,254
Change in unrealized
net loss on securities
available for sale .......... 2 (902,688) (902,688)
-------------------------------------------------------------------------------------------------
Balance, December 31, 1996 ... 25,505,240 22,915,331 2,130,980 (936,100) (1,045,980) 48,569,471
Net income ................... 7,105,490 7,105,490
Cash dividend
($.44 per share) ............ 1 (2,668,726) (2,668,726)
6 for 5 stock split (1,026,672
shares at $5.00 par value) .. 1 5,133,360 (5,133,360)
Shares issued under the
dividend reinvestment
plan (54,581 shares
at 95% of market value) ..... 272,905 536,957 809,862
Stock options exercised ...... 8 59,125 17,883 77,008
Amortization of unearned
compensation ................ 9 120,577 195,548 316,125
Change in unrealized
net loss on securities
available for sale .......... 2 721,033 721,033
-------------------------------------------------------------------------------------------------
Balance, December 31, 1997 ... $ 30,970,630 $ 18,457,388 $ 6,567,744 $ (215,067) $ (850,432) $ 54,930,263
-------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
----
13
STATE BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING
AND REPORTING POLICIES
Organization and Nature of Operations--The consolidated financial
statements include the accounts of State Bancorp, Inc. and its wholly-owned
subsidiary, State Bank of Long Island (the "Bank"). The Bank's consolidated
financial statements include the accounts of its wholly-owned subsidiaries, New
Hyde Park Leasing Corporation and SB ORE Corp. State Bancorp, Inc. and
subsidiary are collectively referred to hereafter as the "Company." All
intercompany accounts and transactions have been eliminated.
The Company was incorporated as a bank holding company under the laws of
the state of New York in 1985 to provide consumer, commercial and municipal
banking services to clients located primarily in the Queens, Nassau and Suffolk
County areas. It offers a full range of deposit and loan products through nine
full service branches. In addition, the Company offers merchant credit card
services, access to annuity products and offers a consumer debit card with
membership in a national ATM network. The Company currently has ATMs at five of
its nine branch locations.
Basis of Presentation--The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of income and expenses during
the reporting period. Actual results could differ from those estimates.
The accounting and reporting policies of the Company conform with
generally accepted accounting principles and with general practice within the
banking industry. The following is a summary of the more significant accounting
and reporting policies:
Securities Held to Maturity and Securities Available For Sale--At the time
of purchase of a security, the Bank designates the security as either available
for sale or held to maturity, depending upon investment objectives, liquidity
needs and intent. Securities held to maturity are stated at cost, adjusted for
premium amortized or discount accreted, if any. The Bank has the positive intent
and ability to hold such securities to maturity. Securities available for sale
are stated at estimated fair value. Unrealized gains and losses are excluded
from earnings and reported net of tax as a separate component of stockholders'
equity until realized. Trading securities are purchased and held principally for
the purpose of selling them in the near term. Trading generally reflects active
and frequent buying and selling, and trading securities are generally used with
the objective of generating profits on short-term differences in price. As of
December 31, 1997 and 1996, the Bank did not hold any trading securities.
Interest earned on investment securities is included in interest income.
Realized gains and losses on the sale of securities are reported in the
statement of consolidated earnings and determined using the adjusted cost of the
specific security sold.
Income Recognition--The Bank discontinues the accrual of interest on loans
whenever there is reasonable doubt that interest and/or principal will be
collected, or when either principal or interest is 90 days or more past due and
the loan is not well collateralized nor in the process of collection. Income is
not accrued for installment loans which are 90 days past due unless the Bank
holds cash collateral therefor. Interest received on nonaccrual loans is either
applied against principal or reported as income, according to management's
judgement as to the collectibility of the principal.
Allowance for Possible Loan Losses--The allowance for possible loan losses
is established through a provision for loan losses charged to expenses. Loans
are charged against the allowance when management believes that the
collectibility of the principal is unlikely, while recoveries of previously
charged-off loans are credited to the reserve. The balance in the allowance for
possible loan losses is maintained at a level that, in the opinion of
management, is sufficient to absorb future losses. To determine that level,
management identifies problem loans based on the financial condition of the
borrower, the value of any collateral and/or guarantor support. Based upon the
resultant risk categories assigned to each loan and the procedures regarding
impairment described below, an appropriate reserve level is determined.
Management also evaluates the quality of, and changes in, the portfolio, while
also taking into consideration the Bank's historical loss experience, the
existing economic climate of the service area in which the Bank operates,
examinations by regulatory authorities, internal reviews and other evaluations
in determining the appropriate allowance balance. While management utilizes all
available information to estimate the adequacy of the allowance for possible
loan losses, the ultimate collectibility of a substantial portion of the loan
portfolio and the need for future additions to the allowance will be based upon
changes in economic conditions and other relevant factors.
The Company accounts for impaired loans in accordance with Statements of
Financial Accounting Standards
<PAGE>
- ----
14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
("SFAS") No. 114, "Accounting by Creditors for Impairment of a Loan," and SFAS
No. 118, "Accounting by Creditors for Impairment of a Loan-Income Recognition
and Disclosures." Commercial and commercial real estate loans are considered
impaired when, based on current information and events, it is probable that the
Company will not be able to collect all of the principal and interest due under
the contractual terms of the loan. Management considers all nonaccrual loans for
impairment. Large groups of smaller-balance homogeneous loans, such as consumer
and residential mortgages, are collectively evaluated for impairment.
The allowance for possible loan losses related to loans that are impaired
includes reserves which are based upon the expected future cash flows,
discounted at the loan's effective interest rate, or the fair value of the
underlying collateral for collateral-dependent loans, or the observable market
price. This evaluation is inherently subjective as it requires material
estimates, including the amount and timing of future cash flows expected to be
received on impaired loans, that may be susceptible to significant change.
Bank Premises and Equipment-Net--Bank premises and equipment are stated at
cost, less accumulated depreciation and amortization. Depreciation expense is
computed on the straight-line method over the estimated useful lives of the
related assets which range from 3 to 40 years. Leasehold improvements are
amortized over the shorter of their estimated useful lives or the remaining
terms of the leases.
Loan Origination Fees and Costs--Loan origination fees and certain direct
origination costs are capitalized and recognized as an adjustment of the yield
on the related loan.
Income Taxes--The Company recognizes deferred tax assets and liabilities
for the expected future tax consequences of events that have been included in
the Company's consolidated financial statements or tax returns. Under this
method, deferred tax assets and liabilities are determined based on the
differences between the financial accounting and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. As changes in tax laws are enacted,
deferred tax assets and liabilities are adjusted through the provision for
income taxes.
Cash Dividends--Cash dividends per common share have been restated to give
retroactive effect to stock splits and dividends.
Stock Dividends--Stock dividends issued are recorded by transferring the
aggregate market value of the shares issued from retained earnings to common
stock and surplus. All per share information included in the consolidated
financial statements and the notes thereto has been restated to give retroactive
effect to stock dividends.
Earnings Per Common Share--The Company adopted SFAS No. 128, "Earnings Per
Share" effective December 31, 1997. Basic earnings per common share is computed
based on the weighted average number of shares outstanding. Diluted earnings per
share is computed based on the weighted average number of shares outstanding,
increased by the number of common shares that are assumed to have been purchased
with the proceeds from the exercise of stock options (treasury stock method).
These purchases were assumed to have been made at the average market price of
the common stock. The average market price is based on the average closing bid
price for the common stock. retroactive recognition has been given for stock
dividends and splits, as well as for the adoption of SFAS No. 128.
----------------------------------------
For the years ended December 31, 1997 1996 1995
========================================
Net Income ........................ $7,105,490 $5,702,012 $5,038,665
Average dilutive stock
options outstanding .............. 247,407 177,740 217,860
Average exercise
price per share .................. $ 8.18 $ 6.70 $ 6.57
Average market price--
diluted basis .................... $ 17.83 $ 12.90 $ 12.11
Average common shares
outstanding ...................... 6,069,284 5,716,786 5,406,295
Increase in shares due
to exercise of options--
diluted basis .................... 133,952 85,364 99,662
----------------------------------------
Adjusted shares
outstanding--diluted ............. 6,203,236 5,802,150 5,505,957
========================================
Net income per share--
basic ............................ $ 1.17 $ 1.00 $ 0.93
========================================
Net income per share--
diluted .......................... $ 1.15 $ 0.98 $ 0.92
========================================
Statements of Cash Flows--For the purpose of presenting the statements of
cash flows, the Company considers Federal funds sold and securities purchased
under agreements to resell to be cash equivalents because such assets are
convertible into fixed amounts of cash within several days of initial purchase.
<PAGE>
----
15
STATE BANCORP, INC. AND SUBSIDIARY
Loans Foreclosed--Property acquired through foreclosure (other real estate
owned or "OREO") is stated at the lower of cost or fair value less estimated
selling costs. Losses arising at the time of foreclosure are charged against the
allowance for possible loan losses. Revenues and expenses from operations or
changes in the carrying value of these assets are included in other income and
operating expenses.
Intangibles--Intangibles consist of core deposit intangibles and the
excess market value of leases acquired. Intangibles are carried at cost less
accumulated amortization. Amortization is provided over the period of
anticipated benefit (3 to 19 years).
Accounting for Stock Options--The Company accounts for stock-based
compensation using the intrinsic value method, which recognizes as expense the
difference between the market value of the stock and the exercise price at grant
date. In the year ended December 31, 1996, the Company adopted SFAS No. 123,
"Accounting for Stock-Based Compensation," which permits the use of the
intrinsic value method of accounting for stock-based compensation but also
requires the Company to disclose the pro forma effects of accounting for
stock-based compensation using the fair value method as described in the
optional accounting requirements of SFAS No. 123.
Accounting Principles Issued But Not Adopted--The Financial Accounting
Standards Board issued the following three accounting principles, which have not
yet been adopted. SFAS No. 130, "Reporting Comprehensive Income" requires an
entity to present, as a component of comprehensive income, the amounts from
transactions and other events which currently are excluded from the statement of
consolidated earnings and are recorded directly to stockholders' equity. SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
requires an entity to disclose financial information in a manner consistent with
internally used information and requires more detailed disclosures of operating
and reporting segments than are currently in practice. SFAS No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits" revises employers'
disclosures about pension an other postretirement benefit plans, but it does not
change the measurement or recognition of those plans. The statements are
applicable for years beginning after December 15, 1997. Management does not
believe that the adoption of SFASNo. 130, No. 131 or No. 132 will have a
material effect on the consolidated financial statements.
Reclassifications--Certain reclassifications have been made to prior
years' amounts to conform them to the current year's presentation.
<PAGE>
- ----
16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
2. SECURITIES HELD TO MATURITY AND SECURITIES AVAILABLE FOR SALE
The amortized cost, gross unrealized gains and losses, and estimated fair
value of securities held to maturity and securities available for sale at
December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
----------------------------------------------------------
December 31, 1997
==========================================================
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
----------------------------------------------------------
<S> <C> <C> <C> <C>
Securities Held to Maturity:
Obligations of states and
political subdivisions ............ $ 10,637,143 $ 9,837 $ (2,098) $ 10,644,882
----------------------------------------------------------
Total Securities Held to Maturity ... 10,637,143 9,837 (2,098) 10,644,882
----------------------------------------------------------
Securities Available for Sale:
Obligations of states and
political subdivisions ............ 59,879,966 5,432 (72,275) 59,813,123
Government Agency securities ....... 153,177,184 154,020 (43,477) 153,287,727
Corporate securities ............... 2,368,150 -- -- 2,368,150
Mortgage-backed securities and
collateralized mortgage obligations 62,516,478 35,291 (443,202) 62,108,567
----------------------------------------------------------
Total Securities Available for Sale . 277,941,778 194,743 (558,954) 277,577,567
----------------------------------------------------------
Total Securities .................... $288,578,921 $ 204,580 $ (561,052) $288,222,449
==========================================================
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------------------------
December 31, 1996
==========================================================
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
----------------------------------------------------------
<S> <C> <C> <C> <C>
Securities Held to Maturity:
Obligations of states and
political subdivisions ............ $ 30,469,524 $ 17,102 $ -- $ 30,486,626
----------------------------------------------------------
Total Securities Held to Maturity ... 30,469,524 17,102 -- 30,486,626
----------------------------------------------------------
Securities Available for Sale:
Obligations of states and
political subdivisions ............ 18,162,605 9,738 (4,343) 18,168,000
Government Agency securities ....... 44,785,256 5,282 (408,808) 44,381,730
Corporate securities ............... 1,971,050 -- -- 1,971,050
Mortgage-backed securities and
collateralized mortgage obligations 93,598,030 48,814 (1,235,950) 92,410,894
----------------------------------------------------------
Total Securities Available for Sale . 158,516,941 63,834 (1,649,101) 156,931,674
----------------------------------------------------------
Total Securities .................... $188,986,465 $ 80,936 $ (1,649,101) $187,418,300
==========================================================
</TABLE>
<PAGE>
----
17
STATE BANCORP, INC. AND SUBSIDIARY
The amortized cost and estimated fair value of securities held to maturity
and securities available for sale at December 31, 1997, by contractual maturity,
are shown below. 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>
---------------------------
Amortized Estimated
Cost Fair Value
===========================
<S> <C> <C>
Securities Held to Maturity:
Due in one year or less .......................................... $ 10,539,143 $ 10,537,817
Due after five years through ten years ........................... 98,000 107,065
---------------------------
Total Securities Held to Maturity ................................. $ 10,637,143 $ 10,644,882
---------------------------
Securities Available for Sale:
Due in one year or less .......................................... $ 59,784,966 $ 59,714,274
Due after five years through ten years ........................... 148,253,360 148,369,075
Due after ten years .............................................. 7,386,974 7,385,651
---------------------------
Subtotal ........................................................ 215,425,300 215,469,000
Mortgage-backed securities and collateralized mortgage obligations 62,516,478 62,108,567
---------------------------
Total Securities Available for Sale .............................. $277,941,778 $277,577,567
===========================
</TABLE>
In 1997, 1996 and 1995, gross gains of $192,958, $325,979 and $7,758 and
gross losses of $246,138, $190,849 and $62,920, respectively, were realized on
the sale of securities available for sale.
At December 31, 1997, the Bank owned securities held to maturity and
securities available for sale in excess of ten percent of stockholder's equity
for the following issuers:
-------------------------------
Amortized Estimated
Cost Fair Value
===============================
Town of Oyster Bay ............................ $ 20,198,653 $ 20,142,190
Village of Mineola ............................ $ 7,558,134 $ 7,557,270
East Williston Union Free School District ..... $ 5,510,356 $ 5,507,700
Securities held to maturity and securities available for sale with an
amortized cost of $262,904,988 and $175,123,931 and an estimated fair value of
$262,606,489 and $173,565,163 at December 31, 1997 and 1996, respectively, were
pledged for public deposits, securities sold under agreements to repurchase and
fiduciary purposes.
3. LOANS--NET
At December 31, 1997 and 1996, net loans consisted of the following:
--------------------------------
1997 1996
================================
Commercial and industrial .............. $172,524,092 $163,780,246
Real estate--mortgage .................. 174,479,673 160,104,423
Real estate--construction .............. 14,712,909 13,131,899
Loans to individuals ................... 7,077,091 7,525,603
Tax exempt and other ................... 8,919,977 8,841,199
--------------------------------
Gross loans ............................ 377,713,742 353,383,370
Less:
Unearned income ....................... 80,475 80,475
Allowance for possible
loan losses .......................... 5,123,651 5,008,965
--------------------------------
Loans--net ............................. $372,509,616 $348,293,930
================================
The Bank's real estate loans and loan commitments are primarily for
properties located throughout Long Island, New York. It is the Bank's policy to
spread risk among a broad range of industries and to monitor concentration and
associated levels of risk on an ongoing basis. As of December 31, 1997 and 1996,
the only concentration of loans
<PAGE>
- ----
18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
exceeding 10% of total loans was the Bank's loans totaling $64,030,000 and
$67,400,000, respectively, from real estate operators, lessors and developers.
Repayment of these loans is dependent in part upon the overall economic health
of the Company's market area and current real estate values. Credit losses
arising from lending transactions in this industry compare favorably with the
Bank's credit loss experience on its portfolio as a whole. The Bank considers
the credit circumstances, the nature of the project, and loan to value ratios
for all real estate loans. The Bank's loan to value policies are generally more
conservative than regulatory guidelines.
The Bank makes loans to its directors and executive officers, and other
related parties, in the ordinary course of its business. These loans are made on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with unrelated persons and,
in the opinion of management, do not bear more than normal credit risk. Loans
made to directors and executive officers, either directly or indirectly, totaled
$1,428,618 and $2,171,487 at December 31, 1997 and 1996, respectively. New loans
totaling $3,394,719 and $2,083,206 were extended and payments of $4,137,588 and
$2,351,224 were received during 1997 and 1996, respectively, on these loans.
Activity in the allowance for possible loan losses for the three years
ended December 31, 1997 is as follows:
<TABLE>
<CAPTION>
-----------------------------------------
1997 1996 1995
=========================================
<S> <C> <C> <C>
Balance, January 1 ......................... $ 5,008,965 $ 5,004,216 $ 4,928,521
Provision charged to income ............... 1,950,000 1,500,000 1,200,000
Charge-offs, net of recoveries of $222,429,
$99,796 and $69,744 ....................... (1,835,314) (1,495,251) (1,124,305)
-----------------------------------------
Balance, December 31 ....................... $ 5,123,651 $ 5,008,965 $ 5,004,216
=========================================
</TABLE>
As of December 31, 1997 and 1996, the recorded investment in loans that
are considered to be impaired is summarized below.
-------------------------
1997 1996
=========================
Amount measured using the present value of
expected future cash flows, discounted
at each loan's effective interest rate .......... $6,329,049 $6,254,441
Impaired collateral-dependent loans .............. 2,756,308 3,024,091
-------------------------
Total amount evaluated as impaired ............... $9,085,357 $9,278,532
=========================
Average impaired loan balance .................... $9,575,104 $7,428,255
=========================
Interest income recognized on impaired loans ..... $ 420,421 $ 113,108
=========================
As a result of the Bank's measurement of impaired loans, an allowance for
possible loan losses of approximately $953,000 and $1,244,000 was established
for $9,085,357 and $8,602,044 of the total impaired loans at December 31, 1997
and 1996, respectively. No specific allowance was required for the remaining
balance of impaired loans in 1997 and 1996.
At December 31, 1997 and 1996, loans with unpaid principal balances on
which the Bank is no longer accruing interest income were $4,257,674 and
$5,869,349, respectively. Interest income would have been approximately $367,000
and $575,000 greater in 1997 and 1996, respectively, had these loans been
current. Interest income on total nonaccrual loans, which is recorded only when
received, amounted to approximately $70,000, $35,000 and $61,000 for 1997, 1996
and 1995, respectively.
At December 31, 1997 and 1996, loans restructured, and still accruing
interest in accordance with the modified terms, were $7,288,860 and $6,524,403,
respectively. Interest income would have been approximately $349,000 and
$427,000 greater in 1997 and 1996, respectively, had the restructured loans
performed according to their original terms.
<PAGE>
----
19
STATE BANCORP, INC. AND SUBSIDIARY
4. BANK PREMISES AND EQUIPMENT--NET
At December 31, 1997 and 1996, Bank premises and equipment consisted of
the following:
------------------------------------------
Accumulated
Depreciation/ Net Book
Cost Amortization Value
==========================================
December 31, 1997:
Building ...................... $1,711,391 $ 661,102 $1,050,289
Leasehold improvements ........ 1,139,326 404,762 734,564
Furniture and fixtures ........ 4,560,370 2,844,192 1,716,178
------------------------------------------
Total .......................... $7,411,087 $3,910,056 $3,501,031
==========================================
December 31, 1996:
Building ...................... $1,699,259 $ 603,032 $1,096,227
Leasehold improvements ........ 1,283,642 536,657 746,985
Furniture and fixtures ........ 4,174,451 3,021,539 1,152,912
------------------------------------------
Total .......................... $7,157,352 $4,161,228 $2,996,124
==========================================
5. OTHER ASSETS
At December 31, 1997 and 1996, other assets consisted of the following:
-----------------------------
1997 1996
=============================
Core deposit intangibles (net
of accumulated amortization
of $3,248,904 and $2,679,895) ............. $ 47,418 $ 616,427
Interest receivable--investments ........... 4,634,195 2,540,648
Interest receivable--loans ................. 2,342,674 2,190,192
Net deferred income taxes .................. 2,972,770 3,123,074
Prepaid expenses ........................... 770,998 673,454
Excess market value of leases
acquired (net of accumulated
amortization of $186,417
and $150,560) ............................. 435,769 471,906
Cash surrender value of life
insurance policies ........................ 1,157,367 1,000,731
Principal receivable--
mortgage-backed securities ................ 28,667 169,777
Other real estate owned .................... 189,334 1,026,663
Other ...................................... 351,568 236,938
-----------------------------
Total ...................................... $12,930,760 $12,049,810
=============================
6. LINES OF CREDIT
At December 31, 1997 and 1996, correspondent banks extended informal
unsecured lines of credit aggregating $16,500,000 to the Bank for the purchase
of Federal funds and for foreign exchange transactions. The average amount
outstanding under these credit facilities was $2,620,000 in 1997 and $3,578,000
in 1996. At December 31, 1997 and 1996, $6,000,000 and $3,600,000, respectively,
were outstanding under these facilities.
In addition to the above, the Bank may use a line of credit with the
Federal Home Loan Bank of New York ("FHLB") for overnight funding or on a term
basis to match fund asset purchases. Based upon a multiple of the FHLB stock
that the Bank owns, approximately $47,000,000 of this line may be drawn on a
term or overnight basis. The FHLB line is renewed on an annual basis. In October
1997, the Bank entered into a five year, callable term borrowing with FHLB under
this line. At December 31, 1997, $25,000,000 was outstanding under the term line
at an interest rate of 5.49% through October 1998. The average amount
outstanding for 1997 was $4,521,000. On an overnight basis, $22,000,000 and
$12,000,000 was outstanding as of December 31, 1997 and 1996, respectively. The
average amount outstanding under this facility was $6,865,000 in 1997 and
$1,425,000 in 1996.
<PAGE>
- ----
20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
7. INCOME TAXES
The components of income tax expense for the years ended December 31,
1997, 1996 and 1995 are as follows:
--------------------------------------------------
1997 1996 1995
==================================================
Federal:
Current .............. $ 3,059,510 $ 2,465,747 $ 1,915,595
Deferred ............. (320,722) (202,633) (204,411)
--------------------------------------------------
Subtotal .............. 2,738,788 2,263,114 1,711,184
==================================================
State:
Current .............. 1,136,048 904,986 823,895
Deferred ............. (44,478) (396) (75,866)
--------------------------------------------------
Subtotal .............. 1,091,570 904,590 748,029
--------------------------------------------------
Total ................. $ 3,830,358 $ 3,167,704 $ 2,459,213
==================================================
Total income tax expense was different from the amounts computed by
applying the statutory Federal income tax rate to income before income taxes due
to the following:
<TABLE>
<CAPTION>
1997 1996 1995
====================================================================
% of % of % of
Pretax Pretax Pretax
Amount Income Amount Income Amount Income
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income tax expense at statutory rate ........ $ 3,718,188 34.0% $ 3,015,703 34.0% $ 2,549,279 34.0%
Increase (reduction) in taxes resulting from:
Tax exempt interest on investments,
net of interest expense disallowed of
$330,121, $190,349 and $269,939 ........... (575,904) (5.3) (520,137) (5.9) (601,743) (8.0)
State income tax, net of Federal
tax benefit ............................... 720,436 6.6 597,029 6.7 493,699 6.6
Other ...................................... (32,362) (0.3) 75,109 0.9 17,978 0.2
--------------------------------------------------------------------
Income tax expense .......................... $ 3,830,358 35.0% $ 3,167,704 35.7% $ 2,459,213 32.8%
====================================================================
</TABLE>
At December 31, 1997 and 1996, the deferred tax assets and liability are
comprised of the following:
------------------------------
1997 1996
==============================
Deferred tax assets:
Allowance for possible loan losses ........ $ 1,942,645 $ 2,058,599
Unrealized holding loss on
securities available for sale ............ 149,144 649,167
Intangible assets ......................... 866,453 733,823
Property and equipment .................... 149,533 105,660
Other ..................................... 63,777 73,039
------------------------------
Subtotal ................................. 3,171,552 3,620,288
Deferred tax liability--
Recapture of allowance for
possible loan losses ....................... (198,782) (497,214)
------------------------------
Net deferred tax asset ..................... $ 2,972,770 $ 3,123,074
==============================
The deferred tax assets and liability are netted and presented in a single
amount, which is included in other assets in the accompanying consolidated
balance sheets. The income tax (benefit) expense associated with net security
(losses) or gains amounted to ($21,777), $55,376 and ($22,891) in 1997, 1996 and
1995, respectively.
<PAGE>
----
21
STATE BANCORP, INC. AND SUBSIDIARY
8. INCENTIVE STOCK OPTION PLANS
Under the terms of the Company's incentive stock option plans adopted in
January 1987 and April 1994, options have been granted to certain key personnel
which entitle each holder to purchase shares of the Company's common stock. The
option price is the higher of the fair market value or the book value of the
shares at the date of grant. Such options are exercisable commencing one year
from the date of grant, at the rate of 25 percent per year, and expire eight
years from the date of the grant.
At December 31, 1997, 85,389 options for the purchase of 155,229 shares
were exercisable, and 152,008 shares were reserved for possible issuance. A
summary of stock option activity follows after giving retroactive effect to all
stock dividends:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
Option Price Weighted Average
Number Number (Approximate Fair Exercise Price
of Options of Shares Value at Date of Grant) Total Per Share
====================================================================================
<S> <C> <C> <C> <C> <C>
Outstanding--
January 1, 1995 ..................... 88,700 214,292 $ 10.60-$ 31.00 $ 1,279,544 $ 5.97
Granted ............................. 29,300 41,770 $12.625 369,913 $ 8.86
Exercised ........................... (5,659) (31,418) $ 30.00-$ 31.00 (175,378) $ 5.58
Cancelled or forfeited .............. (2,694) (6,784) $ 10.60-$ 31.00 (41,716) $ 6.15
------------------------- -----------
Outstanding--
December 31, 1995 ................... 109,647 217,860 $ 10.60-$ 30.00 1,432,363 $ 6.57
Granted ............................. 30,900 40,046 $ 14.25 440,325 $11.00
Exercised ........................... (7,453) (32,279) $ 10.60-$ 30.00 (191,825) $ 5.94
Cancelled or forfeited .............. (4,199) (8,359) $ 10.60-$ 30.00 (54,339) $ 6.50
------------------------- -----------
Outstanding--
December 31, 1996 ................... 128,895 217,268 $ 10.60-$ 14.25 1,626,524 $ 7.49
Granted ............................. 36,600 43,920 $13.375 489,525 $11.15
Exercised ........................... (6,525) (12,267) $ 10.60-$ 14.25 (77,008) $ 6.28
Cancelled or forfeited .............. (1,200) (1,514) $12.625-$ 14.25 (16,163) $10.68
------------------------- -----------
Outstanding--
December 31, 1997 ................... 157,770 247,407 $ 10.60-$ 14.25 $2,022,878 $ 8.18
====================================================================================
</TABLE>
The following summarizes shares subject to purchase from options
outstanding and exercisable as of December 31, 1997:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------
Weighted Average
Shares Remaining Weighted Average Shares Weighted Average
Range of Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise price
=================================================================================
<S> <C> <C> <C> <C> <C>
$5.80-$6.59 ........................... 125,555 1.9 years $ 6.07 125,555 $6.07
$8.86-$11.15 .......................... 121,852 6.2 years $10.35 29,674 $9.56
----------- -----------
247,407 4.0 years $ 8.18 155,229 $6.74
=================================================================================
</TABLE>
<PAGE>
- ----
22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The estimated fair value of options granted during 1997 and 1996 was $2.48
and $2.84 per share, respectively. The Company applies APB Opinion No. 25 and
related interpretations in accounting for its plans. Accordingly, no
compensation cost has been recognized for its incentive stock option plans. Had
compensation cost for the Company's two plans been determined at the fair value
on the grant dates for awards under those plans, consistent with the method in
SFAS No. 123, "Accounting for Stock-based Compensation," the Company's net
income and earnings per share would have been reduced to the pro forma amounts
indicated below.
-------------------------------------------------
1997 1996 1995
=================================================
Net income
As reported ............. $ 7,105,490 $ 5,702,012 $ 5,038,665
Pro Forma ............... $ 7,020,040 $ 5,639,263 $ 4,997,865
-------------------------------------------------
Basic earnings per
common share
As reported ............. $ 1.17 $ 1.00 $ 0.93
Pro Forma ............... $ 1.16 $ 0.99 $ 0.92
=================================================
The fair value of options granted under the Company's incentive stock
option plans during 1997, 1996 and 1995 were estimated on the date of grant
using the Binomial option-pricing model with the following weighted-average
assumptions used:
-------------------------------------
1997 1996 1995
=====================================
Dividend yield ....................... 3.8% 3.4% 2.9%
Expected volatility .................. 13.3% 13.8% 43.11%
Risk-free interest rate .............. 6.63% 6.25% 6.25%
Expected life of options ............. 7.5 years 7.8 years 7.8 years
9. EMPLOYEE BENEFIT PLANS
The Bank has an Employee Stock Ownership Plan (the "ESOP") which is a
defined contribution plan covering substantially all full-time employees. Bank
contributions to the ESOP represent a minimum of three percent of an employee's
annual gross compensation. Employees become 20 percent vested after two years of
employment, with an additional 20 percent vesting each year. Full vesting takes
place upon the completion of six years of employment. Employee contributions are
not permitted. At December 31, 1997, the ESOP had all of its assets invested in
the Company's common stock. The Bank funds all amounts when due.
In conjunction with the Rights Offering, in July 1996, the ESOP borrowed
$1,200,000 from the Company to purchase 100,000 of the Company's shares. As
such, the Company recorded a deduction from stockholders' equity to reflect the
unearned compensation for the shares. As the unearned shares are released from
collateral and allocated among participants, the Company recognizes compensation
expense equal to the current market price of the shares released and the shares
become outstanding for earnings per share computations. Contributions under the
ESOP charged to operations amounted to $541,722, $433,294 and $346,284 in 1997,
1996 and 1995, respectively. Compensation expense of $316,125 and $155,254 is
applicable to the 19,555 shares and the 12,835 shares allocated in 1997 and
1996, respectively. As of December 31, 1997 and 1996, the value of the 85,043
and the 87,165 unallocated shares was $2,189,857 and $1,100,458, respectively.
The Bank has a 401(k) Retirement Plan and Trust (the "401(k) Plan"), which
covers substantially all full-time employees. Employees may elect to contribute
up to sixteen percent of their annual gross compensation to the 401(k) Plan, and
the Bank will match one half of the employee's contribution up to a maximum of
three percent of the employee's annual gross compensation. Employees are fully
vested in both their own and Bank contributions. Bank contributions under the
401(k) Plan amounted to $168,902, $151,731 and $129,730 in 1997, 1996 and 1995,
respectively. The Bank funds all amounts when due. At December 31, 1997,
contributions to the 401(k) Plan were invested in either a bond, equity, money
market, capital appreciation, international equity, emerging markets equity, or
diversified fund as directed by each employee.
During 1995, the Bank adopted non-qualified deferred compensation plans
(the "Plans") for each officer for whom contributions under the ESOP are limited
by the applicable provisions of the Internal Revenue Code. Bank contributions
under the Plans totaled $35,755, $25,297 and $24,923 in 1997, 1996 and 1995,
respectively.
10. COMMITMENTS AND CONTINGENT LIABILITIES
Leases--The Bank is obligated under various leases covering branches,
office space and the land on which its head office is built. The minimum
payments under these leases, certain of which contain escalation clauses, are:
1998 ........................................................ $ 968,606
1999 ........................................................ 994,559
2000 ........................................................ 972,439
2001 ........................................................ 988,471
2002 ........................................................ 990,417
Remainder to 2011 ........................................... 4,518,006
----------
Total ....................................................... $9,432,498
==========
<PAGE>
----
23
STATE BANCORP, INC. AND SUBSIDIARY
Rent expense was approximately $858,000, $657,000 and $643,000 for 1997,
1996 and 1995, respectively.
Directors' Incentive Retirement Plan--The Company has a Directors'
Incentive Retirement Plan for former directors of the Company who elected to
retire after having completed certain minimum service requirements. Under the
retirement plan, directors who elected to retire are entitled to receive, for a
period of five years after such retirement, certain compensation, as defined in
the retirement plan, as long as such director continues to consult with the
Company in an advisory capacity (or, if the director expires prior to the
completion of the consulting period, the beneficiary or estate designated by the
director is entitled to receive such remaining compensation).
In 1992, the Company adopted a new retirement plan, whereby five
individuals (four directors and the secretary to the Board of Directors), who
had been eligible to receive benefits under the old retirement plan, agreed to
cancel and surrender their rights in the old retirement plan in exchange for the
terms of the new retirement plan. The new retirement plan provides for the
payment of certain compensation annually to these five individuals through March
1, 2007. These individuals must be available to consult with the Company in an
advisory capacity during this period (or, if the director or secretary expires
prior to the completion of the consulting period, the beneficiary or estate
designated by the director or secretary is entitled to receive such remaining
compensation).
During 1997, 1996 and 1995, the Bank charged approximately $133,000,
$263,000 and $160,000, respectively, to operations relating to the retirement
plans.
Severance Commitments--The Company has three Change of Control Employment
Agreements (the "Plans") for certain key executives who are full-time employees
of the title of Senior Vice President and above and who are designated as Plan
participants by the Board of Directors. The Plans provide for certain rights
accruing to participants in the event of a termination of the participant's
employment within one year after a change in control of the Company. These
rights include a cash payment and the continuation of certain employee benefits.
In addition, all stock options held by a participant will become immediately
exercisable. In the event that the participant enters into an employment
contract, as defined in the Plans, all rights to the severance payment and other
benefits set forth above will terminate. No amounts have been paid or accrued
under the Plans.
Pending Claims and Contingent Liabilities--There are various pending
claims and contingent liabilities arising in the normal course of business which
are not reflected in the accompanying consolidated financial statements.
Management considers that the aggregate liability, if any, resulting from
pending claims and contingent liabilities will not be material.
Other--The Bank is required to maintain balances with the Federal Reserve
Bank of New York to satisfy reserve requirements. These balances averaged
approximately $5,812,000 and $4,408,000 in 1997 and 1996 respectively.
<PAGE>
- ----
24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
11. STATE BANCORP, INC. (PARENT COMPANY ONLY)
Certain condensed financial information follows (in thousands):
December 31,
--------------------
1997 1996
--------------------
BALANCE SHEETS
ASSETS:
Cash .................................................. $ 176 $ 4,418
Dividends receivable and other assets ................. 744 600
Investment in the Bank ................................ 54,741 44,151
--------------------
Total Assets .......................................... $ 55,661 $ 49,169
====================
Liability--Dividends Payable ........................... $ 731 $ 600
--------------------
Stockholders' Equity:
Preferred stock ....................................... -- --
Common stock .......................................... 30,970 25,505
Surplus ............................................... 18,457 22,915
Retained earnings ..................................... 6,568 2,131
Unrealized net loss on securities available for sale .. (215) (936)
Unearned compensation ................................. (850) (1,046)
--------------------
Total Stockholders' Equity ............................ 54,930 48,569
--------------------
Total Liability and Stockholders' Equity .............. $ 55,661 $ 49,169
====================
<TABLE>
<CAPTION>
For the Years Ended December 31,
--------------------------------
1997 1996 1995
================================
<S> <C> <C> <C>
INCOME STATEMENTS
Dividends from the Bank ............................. $ 2,668 $ 2,131 $ 2,354
Equity in the undistributed
earnings of the Bank ............................... 4,437 3,571 2,685
--------------------------------
Net Income .......................................... $ 7,105 $ 5,702 $ 5,039
================================
CASH FLOWS
Operating Activities:
Net income ......................................... $ 7,105 $ 5,702 $ 5,039
Increase in other assets ........................... (144) (179) (421)
Increase in other liabilities ...................... 131 179 421
Equity in the undistributed earnings of the Bank ... (4,437) (3,571) (2,685)
--------------------------------
Net cash provided by operating activities .......... 2,655 2,131 2,354
--------------------------------
Financing Activities:
Cash dividends ..................................... (2,668) (2,131) (2,354)
Proceeds from issuance of common stock ............. 887 5,313 855
Capital contribution to the Bank ................... (5,116) (895) (855)
--------------------------------
Net cash (used in) provided by financing activities (6,897) 2,287 (2,354)
--------------------------------
Net Change in Cash ................................. $ (4,242) $ 4,418 $ --
================================
</TABLE>
<PAGE>
----
25
STATE BANCORP, INC. AND SUBSIDIARY
12. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Bank is a party to financial instruments with off-balance sheet risk
in the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and standby and
documentary letters of credit. Those instruments involve, to varying degrees,
elements of credit risk in excess of the amount recognized in the consolidated
financial statements. The Company has not engaged in derivatives activities for
any of the reported periods.
The Bank's exposure to credit loss in the event of nonperformance by third
parties for commitments to extend credit and letters of credit is represented by
the contractual notional amount of those instruments. The Bank uses the same
credit policies in making commitments and conditional obligations as it does for
on-balance sheet instruments.
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Bank upon extension of credit, is based on management's
credit evaluation of the customer. Collateral required varies, but may include
accounts receivable, inventory, equipment, real estate, and income-producing
commercial properties. At December 31, 1997 and 1996, commitments to originate
loans and commitments under unused lines of credit for which the Bank is
obligated amounted to approximately $83,214,000 and $84,263,000, respectively.
Letters of credit are conditional commitments issued by the Bank
guaranteeing payments of drafts in accordance with the terms of the letter of
credit agreements. Commercial letters of credit are used primarily to facilitate
trade or commerce and are also issued to support public and private borrowing
arrangements, including commercial paper, bond financing, and similar
transactions. Collateral may be required to support letters of credit based upon
management's evaluation of the creditworthiness of each customer. The credit
risk involved in issuing letters of credit is essentially the same as that
involved in extending loan facilities to customers. Most letters of credit
expire within one year. Management does not anticipate any material losses as a
result of these transactions.
At December 31, 1997 and 1996, the Bank had letters of credit outstanding
of approximately $3,461,000 and $4,180,000, respectively.
13. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value estimates are made as of a specific point in time based on the
characteristics of financial instruments and market information. Where
available, quoted market prices are used. However, markets do not exist for a
portion of the Bank's financial instruments and, as a result, fair value
estimates require judgements regarding future cash flows. These judgements are
subjective in nature, involve uncertainties and therefore may change
significantly at future measurement dates. The fair value information that
follows is intended to supplement, but not replace, the basic consolidated
financial statements and other traditional financial data presented throughout
this report. The calculation of estimated fair values is based on market
conditions at December 31, 1997 and 1996 and is not reflective of current or
future fair values. Furthermore, the value of long-term relationships with
depositors is not reflected. The value of those relationships is significant.
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value.
Cash and Short-Term Investments--For cash and short-term investments (due
from banks, Federal funds sold, securities purchased under agreements to resell,
accrued interest receivable and certain other short-term assets), the carrying
amount is a reasonable estimate of fair value.
Securities Held to Maturity and Securities Available for Sale--For
securities held to maturity and securities available for sale, fair value equals
quoted market price, if available. If a quoted market price is not available,
fair value is estimated using a quoted market price for similar securities.
Loans--The fair value of loans is estimated by discounting the expected
future cash flows using the current rates at which similar loans would be made
to borrowers with similar credit ratings and for the same remaining maturities.
<PAGE>
- ----
26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Deposits--The fair value of demand deposits, savings accounts and time
deposits is the amount payable on demand at the reporting date. The fair value
of fixed-maturity certificates of deposit is estimated using the rates currently
offered for deposits of similar remaining maturities.
Other Short-Term Liabilities--Other short-term liabilities (Federal funds
purchased, securities sold under agreements to repurchase, accrued interest
payable and certain other short-term liabilities) are considered to have fair
values equal to their carrying amounts due to their short-term nature. These
instruments are presented in the table below as other short-term liabilities.
Commitments to Extend Credit, Standby Letters of Credit and Commercial
Letters of Credit--The fair value of commitments is estimated using the fees
currently charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the present creditworthiness of the
counter parties. For fixed-rate loan commitments, fair value also considers the
difference between current levels of interest rates and the committed rates. The
fair value of standby letters of credit and commercial letters of credit is
based on fees currently charged for similar agreements.
The estimated fair values of the Bank's financial instruments, in
thousands, are as follows:
<TABLE>
<CAPTION>
----------------------------------------------------------
December 31,
1997 1996
==========================================================
Carrying Estimated Fair Carrying Estimated Fair
Amount Value Amount Value
----------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and short-term investments $ 68,681 $ 68,681 $ 70,081 $ 70,081
Securities held to maturity and
securities available for sale 288,215 288,222 187,401 187,418
Loans--net of the allowance
for possible loan losses ..... 372,509 378,245 348,294 352,445
----------------------------------------------------------
Total .......................... $729,405 $735,148 $605,776 $609,944
==========================================================
Financial liabilities:
Deposits ...................... $611,228 $612,167 $474,450 $479,234
Other short-term liabilities .. 69,349 69,349 90,547 90,547
----------------------------------------------------------
Total .......................... $680,577 $681,516 $564,997 $569,781
==========================================================
</TABLE>
<PAGE>
----
27
STATE BANCORP, INC. AND SUBSIDIARY
14. REGULATORY MATTERS
Dividends paid by the Company are subject to restrictions by certain
regulatory agencies. Under these restrictions, approximately $8,062,000 was
available for payment of dividends at December 31, 1997, without prior approval
of those regulatory agencies.
The Company and the 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 consolidated financial statements. Under
the capital adequacy guidelines, the Company 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. The Company's and the Bank's capital amounts, and the
Bank's classification under the regulatory framework for prompt corrective
action, are also subject to qualitative judgements by the regulators about
components, risk weighting and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Bank to maintain minimum amounts and ratios of total
capital and Tier I capital, as defined in the regulations, to risk weighted
assets and of Tier I capital to adjusted average assets. Management believes, as
of December 31, 1997, that the Company and the Bank meet all capital adequacy
requirements to which they are subject.
As of December 31, 1997, the most recent notification from the Federal
Deposit Insurance Corporation categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. There are no conditions or
events since that notification that management believes have changed the Bank's
category. The Company's and the Bank's capital amounts and ratios are as follows
(in thousands):
<TABLE>
<CAPTION>
===============================================================================
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
-------------------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
===============================================================================
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1997:
Tier I Capital to Total Adjusted
Average Assets (Leverage):
The Company ........................... $54,662 7.50% $29,155 4.00% N/A N/A
The Bank .............................. 54,191 7.43% 29,174 4.00% $36,444 5.00%
Tier I Capital to Risk Weighted Assets:
The Company ........................... 54,662 12.55% 17,416 4.00% N/A N/A
The Bank .............................. 54,191 12.40% 17,476 4.00% 26,214 6.00%
Total Capital to Risk Weighted Assets:
The Company ........................... 59,786 13.73% 34,833 8.00% N/A N/A
The Bank .............................. 59,315 13.58% 34,951 8.00% 43,689 10.00%
As of December 31, 1996:
Tier I Capital to Total Adjusted
Average Assets (Leverage):
The Company ........................... $48,417 7.71% $25,119 4.00% N/A N/A
The Bank .............................. 43,999 7.01% 25,106 4.00% $31,400 5.00%
Tier I Capital to Risk Weighted Assets:
The Company ........................... 48,417 12.48% 15,515 4.00% N/A N/A
The Bank .............................. 43,999 11.11% 15,841 4.00% 23,762 6.00%
Total Capital to Risk Weighted Assets:
The Company ........................... 53,267 13.73% 31,029 8.00% N/A N/A
The Bank .............................. 48,950 12.36% 31,682 8.00% 39,603 10.00%
</TABLE>
<PAGE>
- ----
28
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
State Bancorp, Inc.
We have audited the accompanying consolidated balance sheets of State
Bancorp, Inc. and subsidiary (the "Company") as of December 31, 1997 and 1996
and the related statements of consolidated earnings, stockholders' equity and
cash flows for each of the three years in the period ended December 31, 1997.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the aforementioned consolidated financial statements
present fairly, in all material respects, the financial position of State
Bancorp, Inc. and subsidiary at December 31, 1997 and 1996 and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1997 in conformity with generally accepted accounting
principles.
/s/ Deloitte & Touche LLP
Philadelphia, Pennsylvania
January 23, 1998
<PAGE>
----
29
STATE BANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
State Bancorp, Inc. (the "Company") is a one-bank holding company which
was formed on June 24, 1986. The Company operates as the parent for its
wholly-owned subsidiary, State Bank of Long Island and subsidiaries (the
"Bank"), a New York State chartered commercial bank founded in 1966. The income
of the Company is derived through the operation of the Bank and its
subsidiaries, the New Hyde Park Leasing Corporation and SB ORE Corp.
For the year ended December 31, 1997, the Company again achieved record
levels of earnings, assets, deposits and stockholders' equity. The following
discussion is intended to provide the reader with further insight into the
principal factors contributing to the Company's 1997 financial results.
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
SUMMARY OF FINANCIAL PERFORMANCE
The Company achieved its twenty-seventh consecutive year of record
earnings during 1997. Net income increased by 24.6% to $7.1 million or $1.17 per
common share in 1997 versus $5.7 million or $1.00 per share in 1996 (per share
earnings have been adjusted to reflect the impact of the six-for-five stock
split declared by the Company during 1997). Growth in net interest income (up
16.3%), resulting from an expanded interest-earning asset base and a wider net
interest rate spread, was the principal reason for the growth in earnings during
1997. To a lesser degree, a lower effective tax rate also positively impacted
net income in 1997. Somewhat offsetting the foregoing factors were increases in
operating expenses, principally salaries and benefits, and the provision for
possible loan losses along with a lower level of other income.
The Company's capital position, by industry-standard measures, remains
strong. The ratio of average total stockholders' equity to average total assets
was 7.61% and 7.47% in 1997 and 1996, respectively. At December 31, 1997, this
ratio was 7.89%. Based upon banking industry regulatory guidelines, a "well
capitalized" institution must maintain a Tier I leverage ratio of at least 5.00%
and Tier I and total capital to risk-weighted assets ratios of at least 6.00%
and 10.00%, respectively. At December 31, 1997, the Company's Tier I leverage
ratio was 7.50% while its risk-weighted ratios were 12.55% for Tier I capital
and 13.73% for total capital. These ratios are substantially in excess of the
foregoing regulatory guidelines and also compare favorably to the Company's
peers.
The increase in net income during 1997 resulted in improvements in each of
the Company's primary measures of financial performance. During 1997, return on
average assets increased by 8 basis points versus 1996 to 1.05%, while the
return on average equity improved to 13.76%, an increase of 78 basis points from
12.98% in 1996. The improved financial performance ratios achieved during 1997
result from an efficient leveraging of the Company's capital base. The proceeds
of the Company's 1996 common stock rights offering were utilized during 1997 to
grow the loan and investment portfolios while also maintaining the Company's
strong capital foundation. Long Island, the Company's primary trade area,
enjoyed another year of economic growth and expansion during 1997. Job creation
improved again and small businesses continued to expand and grow throughout the
year. Long Island has become a fertile growth area for small business creation,
particularly in the high-tech sector. The Company is an active participant in
lending to small businesses in a variety of Long Island industries. During 1997,
loan demand was good, though not as strong as the Company experienced during
1996. Although all signs point to a thriving economy in 1998, the Long Island
marketplace is among the most competitive in the country. Competition from
commercial and savings banks, financial services conglomerates and insurance
companies has created pricing concerns for the Company relative to the credit
risk of the Company's small business borrower base. This competition, coupled
with ongoing consolidation among a portion of the Company's customer base,
resulted in a slower rate of loan growth during the latter part of 1997.
Management of the Company expects that this trend will continue during much of
1998. This scenario would result in some net interest margin compression during
1998 as asset growth would likely come from the fixed income investment
portfolio at narrower spreads than the loan portfolio produces. However,
anticipated expense reductions and operating efficiencies will offset a portion
of the shortfall in net interest income. The outlook for interest rates is also
uncertain at this point, however, it appears that rates will remain within the
narrow band that they have recently occupied. This scenario, while also
contributing to net interest rate spread compression, may serve to improve the
outlook for loan growth in 1998. Management expects that, although the upcoming
year will be one of many challenges for the Company, a growing local economy, a
stable interest rate environment, well-situated branch locations and a
competitive
<PAGE>
- ----
30
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
product line will produce yet another year of growth in earnings during 1998.
INFORMATION SERVICES
Customer Service and Product Development
State Bancorp, Inc.'s great success over the past thirty-one years is
based upon many factors, but one looms larger than the rest: Relationships. As a
community bank, the Company is, and always has been, relationship driven.
Management of the Company is committed to creating stockholder value by offering
a competitive array of products that meet the needs of our stockholders,
customers and vendors in every way. The Company's Mission Statement indicates
that "high-quality customer service is the first mission of this organization."
A logical extension of these objectives is to offer these products and provide
quality service through the most efficient and convenient delivery channels
available. Highlights of the Company's efforts during 1997 to utilize technology
to enhance service quality and to provide alternative product delivery channels
are as follows.
State Bancorp, Inc.'s mandate has always been to provide the very best in
customer service. Thirty-one years ago, that service was provided from one
location in New Hyde Park. By the close of 1997, the Company had expanded to
nine branch locations throughout Nassau and Suffolk Counties and a centralized
Lending Facility in Jericho, centrally located to provide convenient support for
the Company's small business loan base. During the last week of December 1997,
the Company opened new branches in Farmingdale and Holbrook (MacArthur Airport)
in Suffolk County. These new branches are located near commercial and industrial
centers that will provide substantial opportunity to call on small businesses
that the Company has previously been unable to attract from their existing
financial services provider due to more convenient branch outlets. In addition,
these branches provide the Company's municipal calling officers with two new
locations in Suffolk County providing opportunity for further expansion of our
municipal finance group.
The Company's ability to continue to grow rests on its willingness and
ability to invest in state-of-the-art information systems technology. During
1997, the Company completed its teller automation project. The new system
utilized by the Company's tellers at each of its branch locations provides
faster response time and creates customer histories that will enable branch
personnel to better serve our customer base upon each return visit to our branch
locations. In addition to the foregoing, the Company's corporate cash management
product, Business Direct Access (BDA), was substantially expanded during the
year. Introduced during the fourth quarter of 1996, BDA installations more than
doubled during 1997. Business and municipal customers now have access to their
account balances on a "real-time" basis and they can also make transfers between
accounts, initiate wire transfers, ACH payments and stop payment orders as well
as send electronic messages to their account representative through a personal
computer. This product has proven to be an excellent source of new business and
additional deposit balances. For those commercial customers that do not need the
sophistication of a cash management product, the Company's automated voice
response system, Touch24, is available to customers 24 hours per day, seven days
a week. All of the benefits of 24 hour per day account information are now
available to even the smallest of the Company's commercial clients. During 1997,
call volume on Touch24 tripled, a clear signal of customer acceptance of this
automated voice response technology. The Company's most obvious use of
information technology is its Internet website. Up and running since December
1997, the Company's website (www.statebankofli.com) has been a success from its
first day live. Customers, stockholders and web surfers alike are able to obtain
the Company's latest press releases, loan and deposit rates, branch locations
and hours or apply for a loan on-line. Daily usage of the site, measured by the
number of "hits," has grown exponentially since December. This alternative
delivery channel is but another way that the Company is able to serve its
customer base twenty-four hours per day.
A process that was begun in 1996 and will be completed in early 1998
involves putting a personal computer on the desk of every employee in the
Company. The advent of client/server technology has made the PC an indispensable
tool for branch personnel, financial group staff members, loan officers and
operations support staff alike. Customer service has improved by leaps and
bounds through the utilization of PC technology. Information that once took days
to locate is now available to customer service representatives at the touch of a
button. The Company always strives to stay ahead of the rapidly changing
technology that is available in the financial services industry and the expanded
use of PCs as a productivity tool is but one way to achieve that.
<PAGE>
----
31
STATE BANCORP, INC. AND SUBSIDIARY
The pace of technological change will only accelerate in 1998. Home
banking, bill payment via telephone or PC and the replacement of the Company's
mainframe computer system are but the most high-profile projects planned thus
far. Although service is what truly differentiates banks and financial services
providers from one another, a full range of competitive products and a variety
of delivery systems must be provided to allow customers the freedom of choice
that they desire and deserve. State Bancorp intends to be the financial company
of choice in the markets that it serves and an ever expanding array of automated
banking products is the cornerstone of that strategy.
Year 2000 Compliance
State Bancorp has had a Year 2000 (Y2K) Action Team in place since late 1996
to address this important problem. The head of the Action Team is responsible
for all Y2K initiatives, including hardware and software compliance testing, and
quarterly reporting to the Company's Board of Directors. The Y2K Action Team has
already completed the first two phases of the Company's Y2K project: the
Awareness and Assessment phases. During these two phases, staff members from
tellers on up to the Board of Directors were educated about the Y2K problem and
they were also asked to identify daily tasks that were date sensitive and,
therefore, at risk for noncompliance. All of the Company's hardware and software
applications have been identified, reviewed and classified according to their
level of compliance with Y2K objectives as set forth by the Y2K Action Team.
The Y2K Action Team is currently in the Renovation phase of the Y2K
project which includes upgrading all noncompliant hardware and software. Upon
completion of this phase, the Action Team will embark on the most important
phase in the project: the Validation phase. It is the Company's intent to have
all critical applications tested prior to the end of 1998. Written confirmation
of all validation tests and their results will be reported to the Board of
Directors as they are finalized. The Company also intends to send a
questionnaire to its commercial customer base to assess their level of
compliance with Y2K issues. The Company, in certain instances, relies on outside
vendors and other third party service providers to perform various services.
Before proceeding with any new contracts or extensions of existing contracts,
the Company will require each of these service providers to provide written
proof of their Y2K compliance.
Management of the Company anticipates that all of the Company's
date-sensitive hardware, software and other systems will be tested and found to
be Y2K compliant prior to year-end 1998. The Company has not developed any of
its own computer programs internally nor does it employ a programming staff. All
of the programs utilized by the Company have been purchased from third party
vendors. The cost to identify and ensure compliance with all Y2K issues has not
as yet been estimated, however, it is not expected to be material to the
Company's consolidated financial statements in 1998 or 1999.
NET INTEREST INCOME
1997 Versus 1996
Net interest income, the difference between interest earned on loans and
investments and interest paid on deposits and borrowed funds, is the Company's
primary source of earnings. Net interest income is affected by the level and
composition of assets, liabilities and stockholders' equity, as well as changes
in market interest rates. Net interest income increased by $3.9 million or 16.3%
to $28.0 million in 1997 as the result of growth in average interest-earning
assets of $84 million (15.1%) coupled with a widening of the Company's net
interest rate spread. The asset expansion was due largely to growth in taxable
Government Agency securities and loans. Commercial loans and commercial
mortgages were each up sharply as the average loan portfolio expanded by $47
million or 15.0% in 1997 versus 1996. Average investment securities increased by
$32 million or 15.3% due to a $73 million increase in Government Agency paper,
primarily callable issues with five- to ten-year final maturities. This growth
was funded in part by cash flows from the Company's mortgage-backed portfolio
and maturities of Treasury securities. Short-term money market instruments
increased by $4 million, on average, primarily as collateral for the Company's
municipal deposit gathering function. Earning asset growth during 1997 followed
increases of 9.0% and 10.3% in 1996 and 1995, respectively. Funding the asset
expansion were increases in core deposits, principally demand balances, large
denomination certificates of deposit, securities sold under agreements to
repurchase (repos) and other borrowed funds, principally Federal Home Loan Bank
of New York (FHLB) advances.
<PAGE>
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32
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Average core deposit balances increased by $31 million or 11.3% in 1997.
Management of the Company has made the retention and growth of these low-cost
deposits (demand, money market and savings deposits) a key element in the
Company's expansion strategy. These low-cost deposits also are critical to the
Company's efforts to widen its net interest rate spread. Increased calling
efforts by both branch managers and lending officers coupled with an expanded
municipal calling program were responsible for the growth in all core deposit
balances. Average demand deposit balances grew by 13.9% in 1997 and have
increased by approximately 54%, on average, since 1994. During 1997, the
Company's net interest rate spread improved by four basis points to 4.52%, its
widest margin since 1989. The improved spread resulted from an increase in the
yield on interest-earning assets as growth in the loan portfolio improved the
Company's asset mix. Despite the increase in core deposit funding previously
described, the average rate paid on the Company's supporting funds increased due
to the utilization of large-denomination certificates of deposit and short-term
borrowed funds. Although these funds were utilized to support asset growth that
adds incrementally to net interest income, their marginal spread is narrower
than the Company's overall net interest spread and, therefore, causes some
spread compression. Management anticipates further expansion of the net interest
rate spread in 1998 as demand deposit balances and loan volumes are each
projected to increase. The Company's new branches are expected to provide access
to low-cost sources of funds as well as provide ample opportunity to expand the
Company's loan portfolio in previously underserved areas of Suffolk county.
The 15.0% rate of growth in average loans during 1997 follows increases of
19.9% in 1996 and 4.5% in 1995. The growth in loans during the 1996-97 period
has been the Company's strongest two year growth period since 1990-91. A
combination of an expanded lending group within the Company, a strong local
economy, an enhanced awareness of the Company in the local marketplace and new
product offerings have all combined to generate the recent expansion of the loan
portfolio. The combination of low interest rates and low inflation have fueled
both the local and national economies during the past three years. The Company's
customer base has responded to these conditions by increasing their lines of
credit, drawing down existing lines and making additional investments in
property, plant and equipment. The Company, offering superior service and
response time coupled with competitive product offerings and pricing, has been
an active lender during the past two years. Average commercial loans, commercial
and residential mortgages and tax-exempt lending grew at rates of 13.3%, 17.1%
and 11.7%, respectively, in 1997. At December 31, 1997, total loans outstanding
amounted to $378 million, up 6.9% when compared to year-end 1996.
Based upon recent local and national economic forecasts, management of the
Company is confident that loan growth will be good in 1998, though it is
unlikely that the rate of growth will approach the levels recorded during 1996
and 1997. A continuation of the banking industry's recent consolidation and an
expanded effort to penetrate the Suffolk and Queens county marketplaces are
expected to provide substantial opportunity to increase the loan portfolio over
the next 12 to 18 months.
1996 versus 1995
Net interest income grew by 15.9% during 1996 as the result of a $46
million increase in average interest-earning assets, principally commercial
loans and commercial mortgages. Growth in short-term money market instruments
also contributed to the asset expansion. The investment portfolio, on average,
declined by 6.1% during 1996 as the Company redeployed maturing U.S. Treasury
and municipal securities into higher-yielding loans. Funding the higher level of
interest-earning assets were increases in core deposits, principally business
demand balances, large denomination certificates of deposit and repos. These
increases were used to offset the continued disintermediation of low-cost
savings balances to mutual funds and equity investments.
The result of the foregoing shift in the Company's mix of supporting funds
was a twenty-two basis point improvement in the net interest rate spread to
4.48% in 1996 versus 1995. The improved spread was largely the result of a lower
cost of funds due to growth in core deposit balances, primarily demand deposits,
coupled with a lower interest rate environment during 1996. Substantial rate
reductions on time deposits, repos and other borrowed funds resulted in a
twenty-two basis point reduction in the Company's overall cost of funds in 1996.
SECURITIES HELD TO MATURITY AND
SECURITIES AVAILABLE FOR SALE
SFAS No. 115 requires the Company, at the time of purchase, to designate
each investment security as
<PAGE>
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33
STATE BANCORP, INC. AND SUBSIDIARY
either "available for sale"("AFS"), "held to maturity" or "trading," depending
upon investment objectives, liquidity needs and ultimate intent. Securities
available for sale are stated at the lower of aggregate cost or market value,
with unrealized gains or losses reported as a separate component of
stockholders' equity until realized. Securities held to maturity are stated at
cost, adjusted for amortization of premium or accretion of discount, if any.
Trading securities are generally purchased with the intent of capitalizing on
short-term price differences by selling them in the near term. The Company did
not hold any trading securities at December 31, 1997 and 1996.
At December 31, 1997, the Company held $278 million in AFS securities
(approximately 96% of the investment portfolio) at a pre-tax unrealized net loss
of $364 thousand, down from $1.6 million at year-end 1996. At year-end, the AFS
portfolio was divided into the following categories: 55% callable U.S.
Government agency securities; 22% MBS securities (mainly FNMA and FHLMC
obligations); and 23% local municipal and other securities. The balance of the
investment portfolio was comprised of short-term local municipal notes
classified as held to maturity. The vast majority of the growth in the Company's
investment portfolio took place in the U.S. Government agency category. Agency
holdings increased by $109 million at year-end 1997 versus the same period a
year ago. These securities are all callable within one-year and most have final
maturities of less than ten years. The relatively flat yield curve that
prevailed for most of 1997 provided little spread opportunity in any instrument
other than an agency issue. The Company's investment policy is conservative and
has liquidity and safety paramount among its objectives. Agency securities
satisfy these objectives while also providing a spread above the Company's
incremental funding rate. Growth in tax-exempt local municipal notes also
occurred during 1997. The Company continues to expand its municipal
relationships and, as a natural outgrowth of that business, has increased its
holdings of short-term (one year or less) municipal paper. During 1997, the
Company's holdings of mortgage-backed securities declined by $30 million as the
result of normal principal paydowns and sales of selected issues during the
year. Management expects that this trend will continue in 1998 and the
mortgage-backed portfolio will decline throughout the year.
The Company's investment portfolio is low-risk in nature due to its
concentration of U.S. Government agency, local municipal notes and AAA-rated MBS
balloon and pass-through securities. As of December 31, 1997, the MBS portfolio
had an average life of 2.0 years after adjusting for historical prepayment
patterns. Approximately 30% of the MBS portfolio, including collateralized
mortgage obligations ("CMOs"), had final maturities in excess of five years. In
general, principal prepayments on these securities will increase as interest
rates fall and, conversely, prepayments will slow down as interest rates rise.
CMOs accounted for approximately 5% of the total investment portfolio as of
year-end 1997. None of the CMOs held by the Company met the regulatory
definition of a high-risk security nor did the Company own any structured notes
as of December 31, 1997.
SUMMARY OF LOAN LOSS EXPERIENCE AND ALLOWANCE FOR POSSIBLE LOAN LOSSES
The Company's senior lending personnel work in conjunction with line
lenders to determine the level of risk in the Company's loan-related assets and
to establish an adequate level for the allowance for possible loan losses. An
outside loan review consultant is also utilized to independently verify the loan
classifications and the adequacy of the allowance for possible loan losses.
Management actively seeks to reduce the level of nonperforming assets through
aggressive collection efforts and, where necessary, litigation and charge-off.
As illustrated in Table I, the Company's nonperforming assets, defined as
nonaccrual loans and other real estate owned, declined by $2.4 million at
year-end 1997 versus 1996 following a $1.4 million decline in 1996 versus 1995.
At December 31, 1997, total nonperforming assets, defined by the Company
as nonaccrual loans and other real estate owned, as a percentage of loans and
other real estate owned declined to 1.18% as compared to 1.95% and 2.87% at
year-end 1996 and 1995, respectively. Nonaccrual loans as a percentage of total
loans also declined significantly to 1.13% at year-end 1997 versus 1.66% at the
comparable 1996 date. Nonperforming assets, as defined by the Company, declined
by $2.4 million in 1997 as the result of a $1.6 million reduction in nonaccrual
loans, primarily commercial and industrial loans and loans secured by real
estate, and an $838 thousand decrease in other real estate owned, due to the
sale of two properties during 1997. The reduction in nonaccrual loans during
1997 resulted from a combination of loan repayments and charge-offs. The
year-end 1997 other real estate owned balance is comprised of one residential
property formerly on nonaccrual status. This property is actively being marketed
for sale and
<PAGE>
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34
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
management expects it will be sold during 1998 with no material income statement
impact.
Management of the Company actively reviews the level and composition of
nonperforming assets. During 1997, this meant a continuation of recent years'
strategy of collection through litigation combined with enhanced collateral
positions on virtually all nonperforming assets. The result, as previously
outlined, was a substantial reduction in nonperforming assets during 1997 and
improved coverage ratios at year-end. Nonaccrual loans and nonperforming assets
to total loans, the allowance for loan losses as a percentage of nonaccrual
loans and the allowance for loan losses as a percentage of nonaccrual loans,
restructured accruing loans and loans 90 days or more past due and still
accruing have all improved during 1997 and most have improved for the past two
or three years. As outlined in the Company's 1996 and 1997 Form 10-Q filings,
one commercial mortgage credit totaling $5.0 million was restructured during
1996 to a rate of interest below its contractual rate . The project is now
complete and management expects that cash flows will again be sufficient to
support a market rate of interest on this credit during 1998. At December 31,
1997, the Company's portfolio of restructured, accruing loans is comprised
mainly of loans which have demonstrated performance in accordance with the terms
of their restructure agreements, however, they did not yield a market rate of
interest subsequent to their restructuring.
Based upon current economic conditions, management has determined that the
current level of the allowance for loan losses is adequate in relation to the
risks present in the portfolio. Management considers, among other things,
delinquency trends, concentrations within segments of the loan portfolio as well
as recent charge-off experience when assessing the degree of credit risk in the
portfolio. Collateral appraisals and estimates of current value influence the
estimation of the required allowance balance at any point in time. The Company's
loan portfolio is concentrated in commercial and industrial loans and commercial
mortgages, the majority of which are fully secured by collateral with a market
value in excess of the carrying value of the individual loans. In recognition of
the growth in the loan portfolio recorded during both 1997 and 1996 and the
higher level of net charge-offs experienced ($1.8 million in 1997 versus $1.5
million in 1996), the provision for loan losses was increased by $450 thousand
to a level of $1.95 million during 1997. The resulting allowance for loan losses
balance of $5.1 million at December 31, 1997 amounted to 1.36% of loans
outstanding versus 1.42% in 1996 and 1.74% in 1995. Although the local economy
continued to grow and expand during the past year, existing weaknesses in
certain sectors may cause future problems. The potential consequences of an
increase in interest rates or a prolonged slowdown in either the housing or
retail sectors, both of which impact the Company's borrower base, make it
difficult to forecast the impact on asset quality that will result during 1998
or any additional charge-offs that will be required during the year.
It is the present intent of management to further increase the level of
the allowance for possible loan losses to reflect any exposure represented by
fluctuations in the Long Island real estate market, and the underlying value
that the market provides as collateral to certain segments of the loan
portfolio. In recognition of the economic uncertainties previously discussed,
the normal risks inherent in any credit portfolio and expected growth in the
loan portfolio, management anticipates that the 1998 provision for loan losses
will moderately exceed 1997's level. The provision is continually evaluated
relative to portfolio risk and regulatory guidelines and will continue to be
closely reviewed throughout 1998. In addition, various regulatory agencies, as
an integral part of their examination process, closely review the allowance for
loan losses. Such agencies may require the Company to recognize additions to the
allowance based on their assessment of information available to them at the time
of their examinations.
The Company has no foreign loans outstanding. The only concentration of
loans exceeding 10% of total loans is the Bank's loans totaling $64 million from
real estate operators, lessors, and developers. Repayment of these loans is
dependent in part upon the overall economic health of the Company's market area
and current real estate values. Management of the Company is not aware of any
trends, events or uncertainties that will have, or that are reasonably likely to
have, a material effect on the company's liquidity, capital resources or future
operating results. For loans not separately disclosed herein, management is not
aware of information relating to any material credit that would impact the
ability of those borrowers to comply with loan repayment terms.
<PAGE>
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35
STATE BANCORP, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
Table I Analysis of Nonperforming Assets At December 31,
------------------------------------------------------------
(Dollars in thousands) 1997 1996 1995 1994 1993
============================================================
<S> <C> <C> <C> <C> <C>
Nonaccrual Loans ......................................... $ 4,258 $ 5,869 $ 8,247 $ 6,707 $ 7,142
Other Real Estate ........................................ 189 1,027 == 1,555 1,053
------------------------------------------------------------
Total Nonperforming Assets .............................. $ 4,447 $ 6,896 $ 8,247 $ 8,262 $ 8,195
============================================================
Restructured, Accruing Loans ............................. $ 7,289(1) $ 6,524(1) $ 3,344 $ 3,608 $ 1,084
============================================================
Loans 90 Days or More Past Due and Still Accruing Interest $ 1,590 $ 1,228 $ 337 $ 1,162 $ 3,289
============================================================
Total Loans Outstanding .................................. $377,633 $353,303 $287,643 $255,230 $231,116
Total Stockholders' Equity ............................... $ 54,930 $ 48,569 $ 40,588 $ 36,170 $ 34,715
Allowance for Loan Losses ................................ $ 5,124 $ 5,009 $ 5,004 $ 4,929 $ 4,725
Key Ratios at December 31:
Allowance for Loan Losses as a % of Total Loans ......... 1.36% 1.42% 1.74% 1.93% 2.04%
Nonaccrual Loans as a % of Total Loans .................. 1.13% 1.66% 2.87% 2.63% 3.09%
Nonperforming Assets (2) as a % of Total Loans and
Other Real Estate ...................................... 1.18% 1.95% 2.87% 3.22% 3.53%
Allowance for Loan Losses as a % of Nonaccrual Loans .... 120.34% 85.35% 60.68% 73.49% 66.16%
Allowance for Loan Losses as a % of Nonaccrual Loans,
Restructured, Accruing Loans and Loans 90 Days or
more Past Due and Still Accruing Interest .............. 39.00% 36.77% 41.95% 42.95% 41.03%
</TABLE>
(1) Includes one credit totaling $5.0 million at December 31, 1997 and $4.7
million at December 31, 1996 which is collateralized by commercial real
estate with a current appraised value in excess of the carrying value of
the credit. The restructured rate on this credit will remain below the
contractual rate until cash flows are again sufficient to support a market
rate of interest.
(2) Excludes restructured, accruing loans and loans 90 days or more past due
and still accruing interest.
OTHER INCOME
1997 Versus 1996 Comparison
Other income declined by 12.0% to $1.6 million in 1997 when compared to
1996. This decline resulted from a lower level of securities transaction income
coupled with a decline in return item charges. The 1997 decline follows
improvements of 30.5% and 12.6% in 1996 and 1995, respectively. If securities
transactions are excluded from other income, the Company would have recorded a
2.0% reduction in other income during 1997 and growth rates of 16.5% and 14.2%
in 1996 and 1995, respectively.
Service charges on deposit accounts, the Company's largest source of other
income, declined by 5.2% in 1997 versus 1996. The reduction in deposit service
charges resulted from the loss of several large commercial customers, largely
through their acquisition, coupled with substantially lower levels of
insufficient funds fees on both personal and business accounts.
During 1997, the Company recorded $53 thousand in net security losses as
the result of selected sales of investment securities, principally local
short-term municipal notes, to achieve certain portfolio restructuring goals.
This loss compares to a net gain of $135 thousand in 1996.
Other operating income improved by 7.8% during 1997 as the result of
growth in cash management and wire transfer fees and merchant processing
charges. The Company's cash management product, Business Direct Access, has been
very well received and is expected to add significantly to other income in 1998
and 1999. In addition to the foregoing, fees from ATM services and the sale of
annuities also grew during 1997 versus 1996. Products such as telephone bill
payment and home banking are expected to be introduced during 1998 and generate
additional revenue. In addition, continued growth of the Company's commercial
customer base, due largely to the Company's new branch locations in Suffolk
county, is also expected to yield increases in deposit service charges and
related fees next year.
1996 versus 1995
Other income advanced by 16.5% during 1996, adjusted to exclude securities
transaction losses, due primarily to a 17.2% increase in deposit service
charges. This growth resulted from increased account service charges related to
continued growth in the Company's commercial demand deposit balances.
Additionally, higher levels of insufficient funds fees, ATM service charges,
wire transfer and letter of credit fees also added to the improvement in other
income during 1996.
<PAGE>
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36
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
OPERATING EXPENSES
1997 versus 1996
Operating expenses grew by 7.6% to $16.7 million in 1997 when compared to
1996. The largest component of the increase was in salaries and other employee
benefits, up $1.0 million or 11.0%, resulting from growth in staff count, higher
supplementary compensation accruals, and related increases in 401(k) and
employee stock ownership plan (ESOP) contributions. Also contributing to the
higher level of expenses in 1997 were increases in occupancy costs (up 16.1%),
equipment expenses (up 19.2%) and other operating expenses (up 14.5%).
Growth in operating expenses during 1997 was reduced to approximately half
the rate recorded during 1996 (7.6% versus 15.2%). Despite this improvement, the
Company is still focused on its targets of improving the rate of growth in
annual operating expenses to a level below the prevailing rate of inflation in
addition to reducing the operating efficiency ratio (total operating expenses
divided by the sum of fully taxable equivalent net interest income and other
income) to a level below 50%. The Company's primary expense control rates of
measurement, relative to its peer group, are still strong. Expense control is
measured many different ways, however, the Company continues to utilize the
operating efficiency ratio and the ratio of operating expenses to average assets
as its primary yardsticks. The Company's operating efficiency ratio improved to
54.8% in 1997 versus 58.1% in 1996 and 1995. Excluding a one-time savings
association insurance fund (SAIF) recapitalization fee of $498 thousand paid by
the Company during 1996, the operating efficiency ratio would have improved to
56.2% in that year. The second measure of expense control utilized by the
Company is total operating expenses to average assets. The Company recorded
ratios of 2.47%, 2.64% and 2.51% in 1997, 1996 and 1995, respectively, in this
category. Excluding the SAIF assessment, the 1996 ratio would have been 2.56%.
These ratios all compare very favorably to the Company's peers and place it in
the top 15%-20% of its industry group. Management of the Company has always
placed great emphasis on control of operating expenses. Management is also
aware, however, that the resources necessary to grow the Company's revenue base
must also be made available in order to improve earnings. Along these lines,
management also monitors the ratio of average assets per employee and, at
approximately $4 million per employee, the Company ranks in the top 12% of its
peer group in this category. This efficient utilization of staff is another
reason behind the Company's excellent record of growth in earnings and assets.
Growth in loans and other income are again expected to outpace increases in
operating expenses during 1998, thereby resulting in anticipated improvements in
each of the foregoing expense control ratios next year. The Company's long-term
goal continues to be to reduce its operating efficiency ratio to a level of 50%
or less and to lower the operating expenses to average assets ratio to 2.25% by
the year 2000. An analysis of the components of 1997 operating expenses, by
category, follows.
Occupancy expenses amounted to $1.6 million in 1997, an increase of 16.1%
versus 1996. This increase resulted from the relocation of the Company's lending
group to larger offices in the Jericho Plaza office complex. In addition, higher
utility costs, primarily due to the additional space occupied, and higher real
estate taxes, due to a certiorari proceeding at a former location, also
contributed to 1997's increase in occupancy costs. Occupancy costs are expected
to rise again in 1998 as the result of the full year impact of the relocation to
Jericho Plaza (nine months of rent expense was included in 1997 totals) and the
new branch locations in Farmingdale and Holbrook.
Equipment expenses rose by 19.2% in 1997 due to higher costs for
depreciation, equipment purchases, rentals, maintenance and repairs.
Depreciation expense, due to purchases of various office equipment, principally
computers and network hardware during the latter half of 1996 and early 1997,
increased by 11.0%. It is expected that this category will again increase during
1998 due to various planned technology initiatives, including the imminent
replacement of the Company's mainframe computer system during the upcoming year,
along with depreciation related to furniture and equipment purchased for the two
new branches.
Deposit assessment fees declined by $606 thousand or 83.1% during 1997 due
primarily to 1996's one-time $498 payment to the FDIC related to the much
publicized 1996 SAIF recapitalization. This one-time fee was paid by the Company
as the result of deposits acquired in 1992 under the OAKAR provision. Excluding
this non-recurring item, deposit assessment fees still would have declined
during 1997 due to recent changes made to the FDIC assessment rate structure.
The majority of the Company's deposits are insured by the Bank Insurance Fund
(BIF); the balance is insured by SAIF. Currently, the BIF assessment rate is $0
per $100 of deposits while SAIF deposits are assessed at a rate of $0.23 per
$100 of deposits. Based upon year-end 1997 deposit levels and preliminary
projections for 1998 deposit growth, management anticipates an increase of
approximately 10% in the Company's 1998 deposit assessment fees.
<PAGE>
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37
STATE BANCORP, INC. AND SUBSIDIARY
Amortization of intangibles was flat in 1997 versus 1996. Excluding
further acquisition activity, intangibles amortization will decline by
approximately $500 thousand or 90% in 1998 due to the run-off of core deposit
amortization expenses in early 1998. These expenses related to the acquisition
of two branches during 1992.
Other operating expenses increased by 14.5% to $4.0 million in 1997 when
compared to 1996. This increase resulted from growth in several categories, most
notably credit and collection fees, computer software maintenance, audit and
examination fees, directors meeting fees and meetings and seminars expenses. The
increase in credit and collection expenses was due to an expanded role for
outside counsel in pursuing legal remedies with respect to past due and
nonperforming loans. Computer software maintenance cost increases result
directly from expanded product offerings and licensing of software related to
expanded usage of PCs by all Company staff. Management of the Company expects
that operating expenses will continue to grow as the Company expands its
operations, the markets it serves and the products it offers. Management
anticipates an estimated overall 1998 expense growth rate of 3% to 7%.
The Company's effective tax rate declined to 35% in 1997 from 36% a year
earlier. This decrease was largely due to a higher level of tax-exempt income
resulting from an increase in the average volume of tax-exempt loans and
municipal securities. In addition, a larger deduction in 1997 for dividends paid
on shares owned by the Company's ESOP and the phase-out of the New York State
business surtax in July 1996 also served to reduce the Company's effective tax
rate. Management of the Company anticipates that the 1998 effective tax rate
will approximate the 35% recorded during 1997.
1996 versus 1995
Operating expenses increased by 15.2% in 1996 to $15.5 million. Growth in
salaries and other employee benefits of 14.1% was the principal reason for this
increase. An increase in staff count, in several areas of the Company, coupled
with related increases in supplementary compensation, 401(k) and ESOP
contributions and health insurance costs accounted for the growth in this
expense category.
Occupancy costs rose by a nominal 2.1% in 1996 versus 1995 due to higher
maintenance fees at various locations coupled with rental escalations on several
leased properties.
Equipment expenses were up by a modest 1.6% when compared to 1995 due to
higher costs for equipment rental, maintenance and repairs. Depreciation expense
was flat on a year to year basis.
Deposit assessment fees were up substantially in 1996 as the result of a
$498 thousand payment to the FDIC, related to the highly publicized SAIF
recapitalization during that year. This one-time fee was paid by the Company as
the result of deposits acquired in 1992 under the OAKAR provision.
Intangibles amortization expense declined by 4.6% in 1996 as the result of
the run-off of certain intangible assets acquired in 1992 branch purchase
transactions.
Other operating expenses increased by 28.2% to $3.5 million in 1996 as the
result of growth in several categories, most notably credit and collection fees,
marketing and advertising expenses, computer software maintenance costs, audit
and examination expenses and directors' retirement costs.
The Company's effective tax rate increased to 36% in 1996 from 33% in
1995. The higher tax rate in 1996 resulted from a lower level of tax-exempt
income, due to a decline in the average volume of municipal securities owned.
Somewhat offsetting these factors was the sunset provision in July 1996 of the
New York State business surtax from its high of 15% in 1993.
CAPITAL RESOURCES
The Company's capacity to grow its assets and earnings stems, in part,
from the significance of its capital strength. The Company strives to maintain
an optimal level of capital, commensurate with its risk profile, on which an
attractive rate of return to stockholders will be realized over both the short
and long term, while serving depositors', creditors' and regulatory needs. In
determining an optimal capital level, the Company also considers the capital
levels of its peers and the evaluations of its primary regulators. At December
31, 1997, stockholders' equity totaled $54.9 million, an increase of $6.4
million or 13.1% over year-end 1996. Total equity at December 31, 1996 and 1995
was $48.6 million and $40.6 million, respectively. The application of SFAS No.
115 resulted in a $215 thousand reduction in stockholders' equity at December
31, 1997 and a $936 thousand reduction in equity at December 31, 1996. Excluding
the impact of SFAS No. 115 in 1997, 1996 and 1995, stockholders' equity has
grown at rates of 11.4%, 21.9% and 9.5%, respectively. The increase in
stockholders' equity during 1996 was bolstered by the Company's common stock
rights offering which added $4.3 million in net proceeds to the equity base upon
its completion. Excluding capital raised under the rights offering,
stockholders' equity grew at a rate of 9.2% in 1996 versus 1995.
Internal capital generation, defined as earnings less cash dividends paid
on common stock, is the primary catalyst supporting the Company's future growth
of
<PAGE>
- ----
38
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
assets and, most importantly, stockholder value. Management constantly evaluates
the Company's capital position in light of current and future growth objectives.
Although the Company did not access either the equity or debt markets in 1997,
management continues to monitor these markets closely. Strength in the Company's
stock price also makes raising additional equity a viable alternative in the
capital planning process. During 1997, the Company's common stock was the eighth
best performing bank stock in the country, based upon total return criteria, as
reported in the January 1998 issue of Bank Investor magazine. This performance
gives management additional flexibility when reviewing capital requirements.
During 1996, stockholders approved a resolution amending the Company's
certificate of incorporation to increase the number of authorized shares to
include up to 250 thousand shares of preferred stock. The Company has no present
plans to issue or utilize the preferred shares. These shares do, however, also
afford management additional flexibility with respect to future equity
financings to support business expansion.
Management strives to provide stockholders with a competitive return on
their investment in the Company. During 1997, the Board of Directors increased
the quarterly cash dividend on the Company's common stock from $0.10 per share
to $0.12 (adjusted for the 6 for 5 stock split) in addition to declaring a 6 for
5 stock split. This action effectively increased the common stock dividend by
20%.
Since 1993, the Company has also made a common stock dividend reinvestment
plan available to its stockholders. This plan allows existing stockholders to
reinvest cash dividends in Company stock and/or to purchase additional shares
through optional cash investments on a quarterly basis. Shares are purchased at
a 5% discount from the current market price under either plan option. During
1997 and 1996, $810 thousand and $703 thousand, respectively, were added to
stockholders' equity through plan participation. Approximately 30% of the
Company's cash dividends were reinvested in 1997 under this plan, and since
inception, approximately $2.8 million in additional equity has been added
through plan participation. Management anticipates continued future growth in
equity through the program.
State Bancorp, Inc. and its subsidiary are subject to various regulatory
capital requirements administered by the Federal Reserve Board and the Federal
Deposit Insurance Corporation. These regulatory authorities measure capital
adequacy on a risk-weighted assets basis. Their guidelines provide a method of
monitoring capital adequacy that is sensitive to the risk factors inherent in a
bank's asset base, including off-balance sheet exposures. The guidelines assign
various weights to different asset types depending upon their risk profile.
Generally speaking, assets with greater risk require more capital support than
do less risky assets. In addition, a leverage standard has been established to
supplement the risk-based ratios in assessing an institution's overall capital
adequacy. Failure to maintain the Bank's capital ratios in excess of minimum
regulatory guidelines requires bank regulatory authorities to take prompt
corrective action in accordance with the provisions of the Federal Deposit
Insurance Corporation Improvement Act of 1991 ("FDICIA"). The regulations
arising from FDICIA established five categories of capitalization for depository
institutions: (1) well capitalized, (2) adequately capitalized, (3)
undercapitalized, (4) significantly undercapitalized and (5) critically
undercapitalized. Based upon its December 31, 1997 capital position as outlined
in Table II, the Bank's capital ratios far exceed the minimums established for a
well-capitalized institution. Failure to meet minimum capital requirements can
initiate certain actions by regulators that could have a direct effect on the
Company's and the Bank's operations and consolidated financial statements. The
Company has no plans or commitments for capital utilization or expenditures that
would affect its current capital position or would impact its future financial
performance.
LIQUIDITY
Liquidity management is a fundamental component of the Company's business
strategy. The objective of liquidity management is to assure the ability of the
Company and its subsidiary to meet their financial obligations. These
obligations include the withdrawal of deposits on demand or at their contractual
maturity, the repayment of borrowings as they mature, the ability to fund new
and existing loan commitments and to take advantage of business opportunities as
they arise. Liquidity is composed of the maintenance of a strong base of core
customer funds, maturing short-term assets, the ability to sell marketable
securities and access to lines of credit and the capital markets. Liquidity at
the Company is measured and monitored daily, thereby allowing management to
better understand and react to emerging balance sheet trends. After assessing
actual and projected cash flow needs, management seeks to obtain funding at the
most economical cost to the Company. These funds can be obtained by converting
liquid assets to cash or by attracting new deposits or other sources of funding.
Many factors affect the Company's ability to meet its liquidity needs, including
variations in the markets served, loan demand, its asset/liability mix, its
reputation and credit standing in its markets, and general economic conditions.
<PAGE>
----
39
STATE BANCORP, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
------------------------------------------------------------
Table II Ratios as of December 31,
------------------------------------------------------------
Regulatory
Criteria for
Regulatory Well Capitalized
Minimum 1997 1996 1995 Institution
============================================================
<S> <C> <C> <C> <C> <C>
Leverage Ratio-Tier I Capital to
Total Adjusted Assets ................... 4.00%-5.00% 7.43% 7.01% 6.56% 5.00%
Tier I Capital/Risk Weighted Assets ...... 4.00% 12.40% 11.11% 11.35% 6.00%
Total Capital/Risk Weighted Assets ....... 8.00% 13.58% 12.36% 12.81% 10.00%
============================================================
</TABLE>
The Funds Management Committee is responsible for oversight of the
Company's liquidity position and management of its asset/liability structure.
This Committee monitors the loan and investment portfolios while also examining
the maturity structure and volatility characteristics of the Company's
liabilities to develop an optimum asset/liability mix. Funding sources available
to the Company include retail, commercial and municipal deposits, purchased
liabilities and stockholders' equity. If needed for short-term liquidity
purposes, the Company has access to $16.5 million in informal unsecured lines of
credit extended by correspondent banks. In addition, the Company can utilize its
line of credit with the FHLBto access up to $47 million in market rate funds
with maturities of up to thirty years. The Company does not utilize brokered
deposits as a source of funds nor has it engaged in any derivatives activities
during 1996 or 1997 to manage its liquidity or interest rate risk.
Asset liquidity is provided by short-term investments and the
marketability of securities available for sale. At December 31, 1997, the
Company had $312 million in such liquid assets. The Company's loan portfolio and
investment securities held to maturity also provide an excellent source of
internal liquidity through maturities and periodic repayments of principal. Cash
flows provided by the loan and investment portfolios are typically utilized to
reduce the Company's borrowed funds position and/or to fund loan growth.
ASSET/LIABILITY AND INTEREST RATE RISK MANAGEMENT
The goal of the Company's asset/liability and interest rate risk
management is to ensure that liquidity, capital, interest rate and market risk
are prudently managed. Asset/liability and interest rate risk management are
governed by policies reviewed and approved annually by the Company's Board of
Directors. The Board has delegated responsibility for asset/liability and
interest rate risk management to the Funds Management Committee. The Funds
Management Committee sets strategic directives that guide the day to day asset/
liability management activities of the Company as well as reviewing and
approving all major funding, capital and market risk management programs.
Interest rate sensitivity and the repricing characteristics of assets and
liabilities are also managed by the Company's Funds Management Committee. The
Committee's mandate is to maximize net interest income within acceptable levels
of risk established by policy. Interest rate risk is the risk to earnings or
capital arising from movements in interest rates. It is the assumption of
interest rate risk along with credit risk that drives the Company's net interest
margin. Management must determine the appropriate level of risk which enables
the Company to achieve its performance objectives within the confines imposed by
its business objectives and the external environment within which it operates.
Interest rate risk arises from repricing risk, basis risk, yield curve risk or
options risk and is measured using financial modeling techniques, including
stress tests, to measure the impact of changes in interest rates on future
earnings.
Net interest income, the Company's primary source of earnings, is affected
by interest rate movements. To mitigate the impact of changes in interest rates,
the balance sheet must be structured so that repricing opportunities exist for
both assets and liabilities in approximately equivalent amounts at basically the
same time intervals. Imbalances in these repricing opportunities at any point in
time constitute an interest-sensitivity gap, which is the difference between
interest-sensitive assets and interest-sensitive liabilities. These static
measurements do not reflect the results of any projected activity and are best
utilized as early indicators of potential interest rate exposures. The primary
objectives of the Company's asset/liability management are to continually
evaluate the interest rate risk inherent in the Company's balance sheet; to
determine the level and direction of risk appropriate given the Bank's strategic
focus, operating environment, liquidity requirements and performance objectives;
and to manage this risk in a prudent manner consistent with approved policy.
<PAGE>
- ----
40
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Table III sets forth the amounts of assets and liabilities outstanding as
of December 31, 1997 which, based upon certain assumptions, are expected to
reprice or mature in each of the time frames shown. Except as stated, the amount
of assets and liabilities shown to reprice or mature within a particular time
frame was determined in accordance with the earlier of the term to repricing or
the contractual terms of the asset or liability. The Company bases its deposit
decay rates on assumptions established by management which reflect historical
experience over the three years ended December 31, 1997. Thus, the decay rates
for deposit accounts, with the exception of CDs, for which contractual
maturities are readily available, were as follows: 20% per year for savings
deposits; 33% per year for money fund and NOW accounts of individuals,
partnerships and corporations; all money fund and NOW accounts of municipalities
are included in the 0-6 months time frame due to their seasonality and
volatility. Management feels that these decay assumptions reflect the historical
stability of the Company's core deposit base, which may or may not be indicative
of the industry average of its peers.
An asset-sensitive gap indicates an excess of interest-sensitive assets
over interest-sensitive liabilities, whereas a liability-sensitive gap indicates
the opposite. At December 31, 1997, the Company had a one-year cumulative
asset-sensitivity gap of $96 million. In a rising rate environment, an
asset-sensitive gap position generally indicates that increases in income from
interest-earning assets will outpace increases in expenses associated with
funding those assets. In addition, the Company's net interest spread and net
income would also improve under this scenario. Conversely, in a declining
interest rate environment, the Company's cost of funds would decline more slowly
than the yield on its rate-sensitive assets and would likely result in a
contraction of net interest income. This risk can be reduced by various
strategies, including the administration of liability costs and the investment
of asset maturities and cash flows in such a way as to insulate net interest
income from the effects of changes in interest rates. As previously mentioned, a
static gap position is best utilized as a tool for early detection of potential
interest rate exposure. Management's goal is to manage the Company's cumulative
one-year gap such that rate-sensitive assets and liabilities are approximately
equal in that time frame. Due to the nature of the Company's business, primarily
the seasonality of its municipal funding function, an exactly matched one-year
gap is unlikely to occur. Rather, management relies on simulation analysis to
manage the Company's asset/liability position on a dynamic repricing basis.
Simulation modeling applies alternative interest rate scenarios and periodic
forecasts of future business activity to estimate the related impact on net
interest income. The use of simulation modeling assists management in its
continuing efforts to achieve earnings growth in a variety of interest rate
environments. Asset and liability management efforts also may involve the use of
off-balance sheet instruments such as interest rate swaps to minimize risk. The
Company does not utilize swaps or other derivative instruments to manage its
asset/liability position.
<PAGE>
----
41
STATE BANCORP, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
TABLE III Sensitivity Time Horizon
============================================================================
0-6 6-12 1-5 Over 5 Noninterest-
INTEREST-SENSITIVE ASSETS (1) Months Months Years Years Sensitive Total
----------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Loans (net of unearned income) (2) ...... $ 249,886 $ 21,548 $ 59,600 $ 42,341 $ 4,258 $ 377,633
Securities Purchased Under
Agreements to Resell ................... 34,000 -- -- -- -- 34,000
Securities Held to Maturity ............. 5,171 5,368 -- 98 -- 10,637
Securities Available for Sale (3) ....... 125,085 82,680 42,179 25,630 2,368 277,942
----------------------------------------------------------------------------
Total Interest-Earning Assets ........ 414,142 109,596 101,779 68,069 6,626 700,212
----------------------------------------------------------------------------
Unrealized Net Loss on Securities
Available for Sale ..................... (364) (364)
Cash and Due from Banks ................. 26,933 -- -- -- -- 26,933
All Other Assets (7) .................... 5,985 2,572 -- -- 2,751 11,308
----------------------------------------------------------------------------
Total Assets ......................... $ 446,696 $ 112,168 $ 101,779 $ 68,069 $ 9,377 $ 738,089
============================================================================
INTEREST-SENSITIVE LIABILITIES (1)
Savings Accounts (4) .................... $ 10,668 $ 10,668 $ 85,348 $ -- $ -- $ 106,684
Money Fund and Now Accounts (5) ......... 39,716 6,632 26,927 -- -- 73,275
Time Deposits (6) ....................... 261,655 30,425 31,279 271 -- 323,630
----------------------------------------------------------------------------
Total Interest-Bearing Deposits ...... 312,039 47,725 143,554 271 -- 503,589
Federal Funds Purchased, Securities
Sold Under Agreements to Repurchase
and Other Short-term Borrowings ........ 42,818 25,000 -- -- -- 67,818
----------------------------------------------------------------------------
Total Interest-Bearing Liabilities ... 354,857 72,725 143,554 271 -- 571,407
All Other Liabilities, Equity and
Demand Deposits (7) .................... 3,597 422 95 162,568 166,682
----------------------------------------------------------------------------
Total Liabilities and Equity ......... $ 358,454 $ 73,147 $ 143,649 $ 271 $ 162,568 $ 738,089
============================================================================
Cumulative Interest-Sensitivity Gap (8) . $ 59,285 $ 96,156 $ 54,381 $ 122,179 $ 128,805
============================================================================
Cumulative Interest-Sensitivity Ratio (9) 116.7% 122.5% 109.5% 121.4% 122.5%
Cumulative Interest-Sensitivity Gap
as a % of Total Assets ................. 8.0% 13.0% 7.4% 16.6% 17.4%
============================================================================
</TABLE>
(1) Allocations to specific interest-sensitivity periods are based on the
earlier of the repricing or maturity date.
(2) Nonaccrual loans are shown in the non-interest sensitive category.
(3) Estimated principal reductions have been assumed for mortgage-backed
securities based upon their current constant prepayment rates.
(4) Savings deposits are assumed to decline at a rate of 20% per year over a
five-year period based upon the nature of their historically stable core
deposit relationships.
(5) Money Fund and Now accounts of individuals, partnerships and corporations
are assumed to decline at a rate of 33% per year over a three-year period
based upon the nature of their historically stable core deposit
relationships. Money Fund and NOW accounts of municipalities are included
in the 0-6 months category.
(6) Reflected as maturing in each instrument's period of contractual maturity.
(7) Other Assets and Liabilities are shown according to their contractual
payment schedule or a reasonable estimate thereof.
(8) Total interest-earning assets minus total interest-bearing liabilities.
(9) Total interest-earning assets as a percentage of total interest-bearing
liabilities.
<PAGE>
- ----
42
STATISTICAL INFORMATION
DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDER'S EQUITY:
Net Interest Income and Rates
The following table presents the average daily balances of the Bank's
assets, liabilities and stockholder's equity, together with an analysis of net
interest earnings and average rates, for each major category of interest-earning
assets and interest-bearing liabilities. Interest and average rates are computed
on a fully taxable-equivalent basis, adjusted for certain disallowed interest
expense deductions, using a tax rate of 34% in 1997, 1996, and 1995. Nonaccruing
loans are included in the average balances (in thousands):
<TABLE>
<CAPTION>
For the Years Ended December 31,
-------------------------------------------------------------------------------------------
1997 1996 1995
===========================================================================================
Average Average Average Average Average Average
ASSETS: Balance Interest Rate Balance Interest Rate Balance Interest Rate
===========================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Securities held to maturity and
securities available for sale:
Taxable ........................... $ 185,763 $ 12,222 6.58% $ 168,826 $ 10,793 6.39% $ 171,924 $ 10,813 6.29%
Tax-exempt ........................ 56,569 2,746 4.85 41,316 2,172 5.26 51,834 2,872 5.54
-------------------------------------------------------------------------------------------
Total Securities .................... 242,332 14,968 6.18 210,142 12,965 6.17 223,758 13,685 6.12
Federal funds sold and
securities purchased under
agreements to resell ............... 36,366 1,995 5.49 32,004 1,735 5.42 24,776 1,467 5.92
-------------------------------------------------------------------------------------------
Loans (net of unearned income):
Taxable ............................ 353,244 33,782 9.56 306,646 28,560 9.31 255,993 24,582 9.60
Tax-exempt ......................... 7,929 842 10.62 7,116 752 10.57 5,683 659 11.60
-------------------------------------------------------------------------------------------
Total loans--net .................... 361,173 34,624 9.59 313,762 29,312 9.34 261,676 25,241 9.65
-------------------------------------------------------------------------------------------
Total interest-earning assets ....... 639,871 $ 51,587 8.06% 555,908 $ 44,012 7.92% 510,210 $ 40,393 7.92%
Allowance for loan losses ........... (5,235) (5,114) (5,050)
-------------------------------------------------------------------------------------------
634,636 550,794 505,160
Cash and due from banks ............. 29,667 24,434 18,453
Bank premises and
equipment--net ..................... 3,188 3,028 2,935
Other assets ........................ 10,859 10,154 10,664
-------------------------------------------------------------------------------------------
Total Assets ........................ $ 678,350 $ 588,410 $ 537,212
===========================================================================================
LIABILITIES AND STOCKHOLDER'S EQUITY:
Savings and time deposits:
Savings ............................ $ 210,808 $ 5,257 2.49% $ 191,828 $ 4,825 2.52% $ 190,518 $ 5,179 2.72%
Time ............................... 273,402 15,187 5.55 230,559 12,490 5.42 210,244 11,926 5.67
-------------------------------------------------------------------------------------------
Total savings and time deposits ..... 484,210 20,444 4.22 422,387 17,315 4.10 400,762 17,105 4.27
Federal funds purchased ............. 2,620 154 5.88 3,578 207 5.79 2,578 160 6.21
Securities sold under
agreements to repurchase ........... 25,680 1,448 5.64 27,667 1,529 5.53 23,273 1,387 5.96
Other borrowed funds ................ 11,385 644 5.66 1,425 80 5.61 263 17 6.46
-------------------------------------------------------------------------------------------
Total interest-bearing liabilities .. 523,895 22,690 4.33 455,057 19,131 4.20 426,876 18,669 4.37
Demand deposits ..................... 99,251 87,136 69,177
Other liabilities ................... 3,578 2,285 2,735
-------------------------------------------------------------------------------------------
Total liabilities ................... 626,724 544,478 498,788
Stockholder's equity ................ 51,626 43,932 38,424
-------------------------------------------------------------------------------------------
Total Liabilities and
Stockholder's Equity ............... $ 678,350 $ 588,410 $ 537,212
===========================================================================================
Net interest income/rate--
tax-equivalent basis .............. 28,897 4.52% 24,881 4.48% 21,724 4.26%
Less--tax equivalent basis
adjustment ......................... 923 833 967
-------------------------------------------------------------------------------------------
Net Interest Income ................. $ 27,974 $ 24,048 $ 20,757
===========================================================================================
</TABLE>
<PAGE>
----
43
STATE BANCORP, INC. AND SUBSIDIARY
ANALYSIS OF CHANGES IN NET INTEREST INCOME
The following table presents a comparative analysis of the changes in the
Bank's interest income and interest expense due to the changes in the average
volume and the average rates earned on interest-earning assets and due to the
changes in the average volume and the average rates paid on interest-bearing
liabilities. Interest and average rates are computed on a fully
taxable-equivalent basis, adjusted for certain disallowed interest expense
deductions, using a tax rate of 34% in 1997, 1996 and 1995. Variances in
rate/volume relationships have been allocated proportionately to average volume
and average rate as they compare to each other (in thousands):
<TABLE>
<CAPTION>
Year 1997 over 1996 Year 1996 over 1995
------------------------------------------------------------------------
Due to Change in: Due to Change in:
Net Net
Average Average Increase Average Average Increase
Volume Rate (Decrease) Volume Rate (Decrease)
========================================================================
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME:
Securities held to maturity and
securities available for sale:
Taxable ......................... $1,107 $ 322 $1,429 $ (197) $ 177 $ (20)
Tax-exempt ...................... 751 (177) 574 (559) (141) (700)
------------------------------------------------------------------------
Total securities .................. 1,858 145 2,003 (756) 36 (720)
Federal funds sold and
securities purchased under
agreements to resell ............. 239 21 260 400 (132) 268
------------------------------------------------------------------------
Loans (net of unearned income):
Taxable .......................... 4,439 783 5,222 4,737 (759) 3,978
Tax-exempt ....................... 86 3 89 155 (62) 93
------------------------------------------------------------------------
Total loans--net .................. 4,525 786 5,311 4,892 (821) 4,071
------------------------------------------------------------------------
Total Interest Income ............. 6,622 952 7,574 4,536 (917) 3,619
------------------------------------------------------------------------
INTEREST EXPENSE:
Savings and time deposits:
Savings .......................... 474 (42) 432 35 (389) (354)
Time ............................. 2,373 324 2,697 1,117 (553) 564
------------------------------------------------------------------------
Total savings and time deposits ... 2,847 282 3,129 1,152 (942) 210
Federal funds purchased ........... (56) 3 (53) 58 (11) 47
Securities sold under agreements
to repurchase .................... (112) 30 (82) 248 (106) 142
Other borrowed funds .............. 563 1 564 66 (3) 63
------------------------------------------------------------------------
Total Interest Expense ............ 3,242 316 3,558 1,524 (1,062) 462
------------------------------------------------------------------------
Change in Net Interest Income
(Tax-Equivalent Basis) ........... $3,380 $ 636 $4,016 $3,012 $ 145 $3,157
========================================================================
</TABLE>
<PAGE>
- ----
44
STATISTICAL INFORMATION
(Continued)
INVESTMENT PORTFOLIO
The following table presents the amortized cost of held to maturity and
available for sale securities held by the Company for each reported period (in
thousands):
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------------
1997 1996 1995
=================================================================
Amortized Market Amortized Market Amortized Market
Cost Value Cost Value Cost Value
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Type
U.S. Treasury securities ............. $ -- $ -- $ -- $ -- $ 25,482 $ 25,732
Obligations of states and political
subdivisions ........................ 70,517 70,458 48,632 48,654 42,955 42,970
Mortgage-backed securities and
collateralized mortgage obligations . 62,517 62,108 93,598 92,411 137,815 137,416
Government Agency securities ......... 153,177 153,288 44,785 44,382 24,989 25,068
Corporate securities ................. 2,368 2,368 1,971 1,971 1,430 1,430
-----------------------------------------------------------------
Total ................................ $288,579 $288,222 $188,986 $187,418 $ 232,671 $232,616
=================================================================
</TABLE>
The following table presents the maturity distribution and the weighted
average yield of the Company's investment portfolio at December 31, 1997 (in
thousands). The yield information does not give effect to changes in estimated
fair value of investments available for sale that are reflected as a component
of stockholders' equity.
<TABLE>
<CAPTION>
Maturing
------------------------------------------------------------------------------
Within After One But After Five But After
One Year Within Five Years Within Ten Years Ten Years
------------------------------------------------------------------------------
Amount Yield* Amount Yield* Amount Yield* Amount Yield*
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Type
Obligations of states
and political subdivisions .......... $70,253 4.84% $ -- --% $ 197 8.48% $ -- --%
Mortgage-backed securities and
collateralized mortgage obligations** 7,491 5.47 54,617 6.29 -- -- -- --
Government Agency securities*** ...... 153,288 6.84 -- -- -- -- -- --
Corporate securities ................. -- -- -- -- -- -- 2,368 6.51
------------------------------------------------------------------------------
Total ................................ $231,032 6.19% $54,617 6.29% $ 197 8.48% $ 2,368 6.51%
==============================================================================
</TABLE>
* Fully tax-equivalent basis using a tax rate of 34%.
** Assumes maturity dates pursuant to average life as determined by constant
prepayment rates.
*** Assumes coupon yields for securities passed their call dates and not
bought at a discount; yields to call for securities not passed their call
dates and not bought at a discount; and yields to maturity for securities
purchased at a discount.
<PAGE>
----
45
STATE BANCORP, INC. AND SUBSIDIARY
LOAN PORTFOLIO
The following table categorizes the Company's loan portfolio for each
reported period (in thousands):
December 31,
------------------------------------------------
1997 1996 1995 1994 1993
================================================
Commercial and industrial .... $172,524 $163,780 $130,617 $112,286 $ 95,644
Real estate-mortgage ......... 174,480 160,104 137,067 126,107 117,275
Real estate-construction ..... 14,713 13,132 7,798 3,349 3,203
Loans to individuals ......... 7,077 7,526 6,323 6,746 8,193
Tax-exempt and other ......... 8,920 8,841 5,838 6,742 6,801
------------------------------------------------
Gross loans .................. 377,714 353,383 287,643 255,230 231,116
Less: unearned income ........ 80 80 64 85 --
------------------------------------------------
Loans--net of unearned income $377,634 $353,303 $287,579 $255,145 $231,116
================================================
The following table presents the maturities of selected loans and the
sensitivities of those loans to changes in interest rates at December 31, 1997
(in thousands):
-------------------------------------------
One Year One Through Over
or Less Five Years Five Years Total
===========================================
Commercial and industrial ........ $122,280 $42,826 $ 7,418 $172,524
Real estate-construction ......... 12,964 1,749 -- 14,713
-------------------------------------------
Total ............................ $135,244 $44,575 $ 7,418 $187,237
===========================================
Loans maturing after
one year with:
Fixed interest rate ............ $ 9,848 $ 1,306 $ 11,154
Variable interest rate ......... $34,727 $ 6,112 $ 40,839
The following table presents the Company's nonaccrual, past due and
restructured loans for each reported period (in thousands):
<TABLE>
<CAPTION>
December 31,
-------------------------------------------
1997 1996 1995 1994 1993
===========================================
<S> <C> <C> <C> <C> <C>
Nonaccrual loans ............................. $4,258 $5,869 $8,247 $6,707 $7,142
Loans 90 days or more past due and still
accruing interest ........................... $1,590 $1,228 $ 337 $1,162 $3,289
Restructured, accruing loans ................. $7,289(1) $6,524(1) $3,344 $3,608 $1,084
Interest income on nonaccrual and restructured
loans which would have been recorded under
original loan terms ......................... $1,192 $1,265 $ 837 $ 571 $ 686
Interest income on nonaccrual and restructured
loans recorded during the period ............ $ 476 $ 263 $ 260 $ 124 $ 48
</TABLE>
(1) Includes one credit totaling $5.0 million and $4.7 million in 1997 and
1996, respectively, which is collateralized by commercial real estate with
a current appraised value in excess of the carrying value of the credit.
<PAGE>
- ----
46
STATISTICAL INFORMATION
(Continued)
SUMMARY OF LOAN LOSS EXPERIENCE
The determination of the balance of the allowance for possible loan losses
is based upon a review and analysis of the Company's loan portfolio and reflects
an amount which, in management's judgement, is adequate to provide for losses.
Management's review includes monthly analysis of past due and nonaccrual loans
and detailed, periodic loan by loan analyses. The adoption of SFAS No. 114 and
SFAS No. 118 did not have a material effect on the consolidated financial
statements and the allowance for possible loan losses.
The principal factors considered by management in determining the adequacy
of the allowance are the growth and composition of the loan portfolio,
historical loss experience, the level of nonperforming loans, economic
conditions, the value and adequacy of collateral and the current level of the
allowance. While management utilizes all available information to estimate the
adequacy of the allowance for loan losses, the ultimate collectibility of a
substantial portion of the loan portfolio and the need for future additions to
the allowance will be based upon changes in economic conditions and other
relevant factors.
The following table presents an analysis of the Company's allowance for
possible loan losses for each reported period (in thousands):
------------------------------------------
1997 1996 1995 1994 1993
==========================================
Balance, January 1 ................ $5,009 $5,004 $4,929 $4,725 $5,068
------------------------------------------
Charge-offs:
Commercial and industrial ........ 1,509 1,018 777 1,175 1,645
Real estate-mortgage ............. 379 445 239 694 1,663
Loans to individuals ............. 169 132 133 45 103
Loans to others .................. -- -- 45 -- --
------------------------------------------
Total charge-offs ................. 2,057 1,595 1,194 1,914 3,411
------------------------------------------
Recoveries:
Commercial and industrial ........ 189 79 52 119 59
Real estate-mortgage ............. 23 14 6 47 5
Loans to individuals ............. 10 7 11 2 4
------------------------------------------
Total recoveries .................. 222 100 69 168 68
------------------------------------------
Net charge-offs ................... 1,835 1,495 1,125 1,746 3,343
Additions charged to operations ... 1,950 1,500 1,200 1,950 3,000
------------------------------------------
Balance at end of period .......... $5,124 $5,009 $5,004 $4,929 $4,725
==========================================
Ratio of net charge-offs
during the period to average loans
outstanding during the period .... 0.51% 0.48% 0.43% 0.74% 1.49%
==========================================
<PAGE>
----
47
STATE BANCORP, INC. AND SUBSIDIARY
The following table presents the allocation of the Company's allowance for
possible loan losses for each reported period (in thousands):
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
Percent of Percent of Percent of Percent of Percent of
Loans to Loans to Loans to Loans to Loans to
Total Total Total Total Total
1997 Loans 1996 Loans 1995 Loans 1994 Loans 1993 Loans
============================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial and industrial ... $2,210 45.7% $2,452 46.4% $1,972 45.4% $2,004 44.0% $2,527 41.4%
Real estate-mortgage ........ 1,790 46.2 1,658 45.3 1,746 47.7 1,503 49.4 1,726 50.7
Real estate-construction .... 499 3.9 423 3.7 43 2.7 19 1.3 167 1.4
Loans to individuals ........ 82 1.9 143 2.1 158 2.2 54 2.7 149 3.6
Tax exempt and other ........ 50 2.3 51 2.5 70 2.0 39 2.6 48 2.9
Unallocated ................. 493 -- 282 -- 1,015 -- 1,310 -- 108 --
--------------------------------------------------------------------------------------------
Total ....................... $5,124 100.0% $5,009 100.0% $5,004 100.0% $4,929 100.0% $4,725 100.0%
============================================================================================
</TABLE>
DEPOSITS
The following table presents the average balance and the average rate paid
on the Company's deposits for each reported period (in thousands):
<TABLE>
<CAPTION>
-----------------------------------------------------------
1997 1996 1995
===========================================================
Average Average Average Average Average Average
Balance Rate Balance Rate Balance Rate
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Demand deposits ....................... $ 99,251 $ 87,136 $ 69,177
Interest-bearing transaction accounts . 38,033 2.00% 26,545 1.81% 22,286 1.79%
Money market deposit accounts ......... 64,746 2.15% 56,636 2.18% 60,307 2.40%
Savings deposits ...................... 108,029 2.88% 108,647 2.86% 107,925 3.09%
Time certificates of deposit of
$100,000 or more ..................... 181,856 5.58% 134,837 5.35% 106,510 5.79%
Other time deposits ................... 91,546 5.50% 95,722 5.51% 103,734 5.56%
-----------------------------------------------------------
Total ................................. $ 583,461 3.50% $ 509,523 3.40% $469,939 3.64%
===========================================================
</TABLE>
The following table sets forth, by time remaining to maturity, the
Company's certificates of deposit of $100,000 or more, at December 31, 1997 (in
thousands):
3 months or less ............................................... $222,080
Over 3 months through 6 months ................................. 6,630
Over 6 months through 12 months ................................ 4,939
Over 12 months ................................................. 3,309
--------
Total .......................................................... $236,958
========
<PAGE>
- ----
48
STATISTICAL INFORMATION
(Continued)
RETURN ON EQUITY AND ASSETS
The following table presents the Company's return on average stockholders'
equity and assets, the dividend payout ratio and the average equity to average
assets ratio for each reported period. The calculations are based on recorded
assets and give effect to the changes in fair value of securities available for
sale.
------------------------------
1997 1996 1995
==============================
Return on average assets ................... 1.05% 0.97% 0.94%
Return on average stockholders' equity ..... 13.76% 12.98% 13.11%
Dividend payout ratio ...................... 37.56% 37.37% 46.72%
Average equity to average assets ........... 7.61% 7.47% 7.15%
SHORT-TERM BORROWINGS
The following information is provided on the Bank's short-term borrowings
for each reported period (in thousands):
<TABLE>
<CAPTION>
---------------------------
1997 1996 1995
===========================
<S> <C> <C> <C>
Balance, December 31--
Securities sold under agreements to repurchase .................... $14,818 $74,079 $83,218
Federal funds purchased ........................................... $ 6,000 $ 3,600 $17,000
Federal Home Loan Bank advances ................................... $47,000 $12,000 $10,000
Weighted average interest rate on Balance, December 31, 1997--
Securities sold under agreements to repurchase .................... 6.29% 5.62% 5.85%
Federal funds purchased ........................................... 7.00% 9.00% 6.00%
Federal Home Loan Bank advances ................................... 6.08% 6.88% 6.05%
Maximum outstanding at any month end--
Securities sold under agreements to repurchase .................... $79,680 $74,079 $89,358
Federal funds purchased ........................................... $15,500 $14,500 $17,000
Federal Home Loan Bank advances ................................... $47,000 $12,000 $10,000
Average daily amount outstanding--
Securities sold under agreements to repurchase .................... $25,680 $27,667 $23,273
Federal funds purchased ........................................... $ 2,620 $ 3,578 $ 2,578
Federal Home Loan Bank advances ................................... $11,385 $ 1,425 $ 263
Weighted average interest rate on average daily amount outstanding--
Securities sold under agreements to repurchase .................... 5.56% 5.53% 5.96%
Federal funds purchased ........................................... 5.81% 5.79% 6.21%
Federal Home Loan Bank advances ................................... 5.58% 5.61% 6.46%
</TABLE>
<PAGE>
----
49
STATE BANCORP, INC. AND SUBSIDIARY
SELECTED QUARTERLY FINANCIAL DATA (in thousands)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
1997 1996
========================================================================================
1st 2nd 3rd 4th 1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income ................... $11,524 $13,232 $12,344 $13,564 $10,733 $10,656 $10,411 $11,379
Interest expense .................. 4,932 5,939 5,506 6,313 4,898 4,727 4,522 4,984
----------------------------------------------------------------------------------------
Net interest income ............... 6,592 7,293 6,838 7,251 5,835 5,929 5,889 6,395
Provision for possible
loan losses ...................... 450 600 450 450 375 375 375 375
----------------------------------------------------------------------------------------
Net interest income after provision
for possible loan losses ......... 6,142 6,693 6,388 6,801 5,460 5,554 5,514 6,020
Other income ...................... 415 374 365 480 445 438 386 589
Operating expenses ................ 3,906 4,146 4,236 4,435 3,667 3,754 4,297 3,818
----------------------------------------------------------------------------------------
Income before income taxes ........ 2,651 2,921 2,517 2,846 2,238 2,238 1,603 2,791
Provision for income taxes ........ 937 1,022 895 976 810 825 545 988
----------------------------------------------------------------------------------------
Net income ........................ $ 1,714 $1,899 $ 1,622 $ 1,870 $ 1,428 $ 1,413 $ 1,058 $1,803
========================================================================================
Basic earnings per
common share ..................... $ .28 $ .31 $ .27 $ .31 $ .25 $ .25 $ .19 $ .31
========================================================================================
</TABLE>
<PAGE>
- ----
50
MARKET DATA STATE BANCORP, INC. AND SUBSIDIARY
MARKET DATA
The following is a three-year comparison of dividends and stock prices:
-----------------------------
1997 1996 1995
=============================
Annual cash dividends ......................... $0.44 $0.37 $ 0.43
Annual stock split/stock dividends issued ..... 20% 8% 10%
The Company's common stock trades on the NASDAQ Small-Cap market under the
symbol STBC. As quoted by the National Association of Securities Dealers, Inc.,
the approximate high and low bid prices for the years ended December 31, 1997,
1996, and 1995 were as follows:
------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
==========================================
1997
High Bid ..................... 16 1/2 18 1/2 20 5/8 26 7/8
Low Bid ...................... 12 1/2 14 15 20 1/8
1996
High Bid ..................... 14 1/2 14 1/8 12 1/4 12 5/8
Low Bid ...................... 14 1/8 12 11 1/2 11 7/8
1995
High Bid ..................... 12 12 1/2 12 1/4 14 1/4
Low Bid ...................... 10 1/4 11 3/8 12 12 1/4
<PAGE>
----
51
FIVE YEAR SUMMARY OF OPERATIONS STATE BANCORP, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
------------------------------------------------------------------------
For the Years Ended December 31, ...... 1997 1996 1995 1994 1993
========================================================================
<S> <C> <C> <C> <C> <C>
Interest income ....................... $ 50,664,182 $ 43,178,725 $ 39,426,356 $ 31,267,004 $ 29,139,761
Interest expense ...................... 22,690,197 19,130,627 18,669,569 11,977,716 11,397,441
------------------------------------------------------------------------
Net interest income ................... 27,973,985 24,048,098 20,756,787 19,289,288 17,742,320
Provision for possible loan losses .... 1,950,000 1,500,000 1,200,000 1,950,000 3,000,000
------------------------------------------------------------------------
Net interest income after provision for
possible loan losses ................. 26,023,985 22,548,098 19,556,787 17,339,288 14,742,320
Other income .......................... 1,634,299 1,858,131 1,424,147 1,265,230 3,293,765
Operating expenses .................... 16,722,436 15,536,513 13,483,056 12,733,176 12,521,708
------------------------------------------------------------------------
Income before income taxes ............ 10,935,848 8,869,716 7,497,878 5,871,342 5,514,377
Provision for income taxes ............ 3,830,358 3,167,704 2,459,213 1,852,709 1,806,029
------------------------------------------------------------------------
Net income ............................ $ 7,105,490 $ 5,702,012 $ 5,038,665 $ 4,018,633 $ 3,708,348
========================================================================
Basic earnings per common share ....... $ 1.17 $ 1.00 $ 0.93 $ 0.76 $ 0.70
========================================================================
Stock split/dividends ................. 20% 8% 10% 10% 10%
Weighted average number of
shares outstanding adjusted
for stock dividends and splits ....... 6,069,284 5,716,786 5,406,295 5,321,326 5,268,094
Total assets .......................... $738,088,937 $615,417,655 $650,950,468 $505,360,719 $490,714,979
Total deposits ........................ $611,227,920 $474,450,489 $497,739,954 $377,324,602 $367,828,761
Total stockholders' equity ............ $ 54,930,263 $ 48,569,471 $ 40,587,552 $ 36,170,470 $ 34,715,248
Return on total average assets ........ 1.05% 0.97% 0.94% 0.83% 0.78%
Return on total average
stockholders' equity ................. 13.76% 12.98% 13.11% 11.45% 11.53%
Cash dividends per common share ....... $ 0.44 $ 0.37 $ 0.43 $ 0.22 $ 0.20
</TABLE>
<PAGE>
- ----
52
BOARD OF DIRECTORS AND EXECUTIVE OFFICERS STATE BANCORP, INC. AND SUBSIDIARY
STATE BANCORP, INC. AND
STATE BANK OF LONG ISLAND
Board of Directors
Thomas F. Goldrick, Jr.
Chairman and Chief Executive Officer
State Bancorp, Inc. and State Bank of
Long Island
Gary Holman
Vice Chairman of the Board
State Bancorp, Inc. and State Bank of
Long Island
Of Counsel, Cahn, Wishod & Lamb LLP
J. Robert Blumenthal
President, Harwyn Enterprises, Inc.
Carl R. Bruno
Chief Financial Officer,
DiFazio Electric, Inc.
Arthur Dulik, Jr.
Chief Financial Officer, Altana, Inc.
Robert J. Grady
Retired
Richard W. Merzbacher
President, State Bank of Long Island
Vice Chairman, State Bancorp, Inc.
Joseph F. Munson
President, TRM International, Inc.
Raymond M. Piacentini
President, Piacentini, Hadlock,
Harvey & Co., LLC
John F. Picciano, Esq.
Attorney
Daniel T. Rowe
President, State Bancorp, Inc.
Vice Chairman, State Bank of Long Island
Suzanne H. Rueck
Manager, New Hyde Park Inn
STATE BANCORP, INC.
Officers
Office of the Chairman
Thomas F. Goldrick, Jr.
Chairman and Chief Executive Officer
Daniel T. Rowe
President
Richard W. Merzbacher
Vice Chairman
Brian K. Finneran
Secretary/Treasurer
STATE BANK OF LONG ISLAND
Executive Officers
Office of the Chairman
Thomas F. Goldrick, Jr.
Chairman and Chief Executive Officer
Richard W. Merzbacher
President
Daniel T. Rowe
Vice Chairman
Frederick C. Braun, III
Executive Vice President and
Senior Lending Officer
Brian K. Finneran
Executive Vice President and
Chief Financial Officer
<PAGE>
----
53
STATE BANK OF LONG ISLAND--OFFICERS STATE BANCORP, INC. AND SUBSIDIARY
Effective February 1, 1998
Financial Group
Theresa DiVittorio
First Vice President & Comptroller
Philip J. Nardella
Vice President
Thomas C. Padden
Vice President
John P. Rom
Vice President
Carol J. Bergmann
Assistant Vice President &
Assistant Secretary
Mary Ann DiLorenzo
Assistant Vice President
Steven Karaman
Administrative Assistant
Tiffany Tzakas
Administrative Assistant
Bank Operations/Facilities
Raymond D. Wagner
First Vice President
Maureen McTiernan
Manager
Valerie Stewart
Administrative Assistant
Management Information Systems
and Data Processing
Susanne Pheffer
Senior Vice President
Diane T. Beck
Vice President
Joseph M. McNeill
Vice President
Janine M. Martini
Manager
Jon Montana
Administrative Assistant
Corporate Services
Robert J. Valli
Senior Vice President &
Director of Municipal Finance
& Community Relations
Mary E. Durkin
Vice President & Director of Human
Resources & Training
John McWhirk
Vice President & Director of
Marketing & Product Development
Branch Administration
Thomas A. Arnone
Senior Vice President
Kevin J. Carroll
Assistant Vice President
Elizabeth A. Mead
Assistant Manager
Cara Maloney
Administrative Assistant
Farmingdale Branch
Peter J. Yovine
Assistant Vice President
Catherine R. Lingstuyl
Assistant Manager
Denise Cummings
Administrative Assistant
Garden City South Branch
Paul R. Cronen
Manager
Lisa A. Pandolfo
Assistant Manager
Hauppauge Branch
John J. Kurek
Vice President
Stephen N. Pedersen
Manager
Sharon Klinkhardt
Administrative Assistant
Huntington Branch
Karen M. Williams
Assistant Vice President
Helen M. Gilfedder
Assistant Manager
Jericho Branch
Rocco Reda
Vice President
Blanche E. Stanford
Manager
Robert Insalaco
Assistant Manager
Eftihia Karachalios
Administrative Assistant
MacArthur Branch
Iris Taibbi
Manager
Clare M. O'Shaughnessy
Assistant Manager
New Hyde Park Branch
Edward L. Kelly
Vice President
Lucille N. Jessen
Manager
Rosemary A. DiMario
Assistant Manager
Rina Miletic
Assistant Manager
Oyster Bay Branch
Robert J. Connors
Vice President
Diane E. Grochocki
Assistant Manager
Regional Financial Center
Rockville Centre
Ann Goulding
Manager
Lisa Ramos-Lopez
Assistant Manager
<PAGE>
- ----
54
STATE BANK OF LONG ISLAND--OFFICERS STATE BANCORP, INC. AND SUBSIDIARY
Effective February 1, 1998 (Continued)
Commercial Lending Group
Charles A. Hoffman
Senior Vice President
Robert J. Nicols
Senior Vice President
Kenneth M. Scheriff
Senior Vice President
William H. Tucker
Senior Vice President
Jean-ann Yngstrom
Senior Vice President
George K. DeHaven
First Vice President
Jeffrey N. Barber
Vice President
James T. Burns
Vice President
Patrick M. Demery
Vice President
Kevin T. Hennessy
Vice President
Fred A. Heruth
Vice President
Kevin R. McHale
Vice President
Stephen B. Mischo
Vice President
Richard J. O'Brien
Vice President
Michael O'Leary
Vice President
Richard E. Ryan
Vice President
Michael P. Sabala
Vice President
Thomas Scott Swain
Vice President
Geraldine L. Harden
Assistant Vice President
Karyn F. Rodriguez
Assistant Vice President
Maria Billiris
Assistant Manager
Anne N. Dragovcic
Assistant Manager
Deanne L. Fitteron
Assistant Manager
Daniel Lehan
Assistant Manager
Sean Umhafer
Assistant Manager
Carol Golde
Administrative Assistant
Christopher Van Bell
Administrative Assistant
Luanne Walter
Administrative Assistant
Suzanne E. Weber
Administrative Assistant
Consumer Loan Department
Jean M. Cassese
Vice President
John J. McEniry
Assistant Vice President
Lisa M. Prete
Assistant Manager
Loan Operations Group
Siu Chan
Manager
Patricia Salvatore
Administrative Assistant
<PAGE>
----
55
STATE BANCORP, INC. AND SUBSIDIARY STATE BANCORP, INC. AND SUBSIDIARY
ADVISORY BOARD
Henry Alpert, Secretary
Spartan Petroleum Corp.
Andrew C. Andron, President
Century 21 Andron Realty
Maureen Appel, Headmistress
Connelly School of the Holy Child
Marvin Buchner, President
Council Commerce Corp.
Salvatore Catania, Secretary
Murray M. Braunstein, Inc.
Angelo Francis Corva, President
Angelo Francis Corva & Associates
Monroe Diefendorf, Jr., President
Diefendorf Capital Planning
Associates
Fred H. Fellows, President
Fibre Materials Co., Inc.
Ronald F. Friedenthal, Associate
Surre & Goldberg Associates
Frank Giorgio, Jr., Esq.
Giorgio & DePoto
George Goettelmann, Jr., President
A. E. Goettelmann & Co.
Kermit Gordon
Kermit Enterprises
Henry P. Greve, CPA
Greve, Schmidt & Trageser, P.C.
Joan Griesmeyer, Consultant
Bradley & Parker
Joseph M. Gunning, President
Gunning Business Machines
Conrad P. Homler, CPA
Homler & Dalessandro
Seymour Katchen, CPA
Katchen, Palmetto, Fellerman & Company
Robert F. Kearns,
Executive Vice President
B. H. Aircraft Company, Inc.
Owen Kilgannon, CPA
Kilgannon, Furey, Dufek &
Company
Patrick McAllister
Great Eastern Printing Co.
Gerard J. McKeon, Retired
The New York Racing Association
Robert E. Meyer
Real Estate Appraiser
Donald Monti, President
Concorde Management
Dominick Nuzzi
Nuzzi Transportation Services
John J. Nuzzi
Nuzzi Fuel Co.
Peter N. Paternostro, CPA
Paternostro, Ruckh,
Callahan & DeFreitas
Charles Peluso, CPA
Margolin, Winer & Evens
Joseph Provenzano, President
Long Island Floors, Inc.
Fred Scott, Chairman
State Bank of Long Island
Advisory Board
Ralph Somma, Vice President
Brueton Industries, Inc.
William G. Spanos
Attorney at Law
Charles I. Steinberg, CFO
Continental Global
Equipment Corp.
Jerome Stubenhaus, CLU
Nassau Radiologic Group, P.C.
<PAGE>
- ----
56
CORPORATE INFORMATION STATE BANCORP, INC. AND SUBSIDIARY
EXECUTIVE OFFICES
699 Hillside Avenue
New Hyde Park, NY 11040-2512
Tel: (516) 437-1000
Fax: (516) 437-1032
2 Jericho Plaza
Jericho, NY 11753-1683
Tel: (516) 465-2300
Fax: (516) 465-6700
ANNUAL MEETING OF STOCKHOLDERS
State Bancorp, Inc.'s Annual Stockholders' Meeting will be held on Tuesday,
April 28, 1998 at 10:00 a.m. at the New Hyde Park Inn, New Hyde Park, NY.
INVESTOR RELATIONS
Stockholders, security analysts and others seeking financial information about
State Bancorp, Inc. should contact Brian K. Finneran, Executive Vice President
and Chief Financial Officer at (516) 465-2251.
Copies of the Company's earnings releases and other financial publications,
including the Annual Report on Form 10-K filed with the Securities and Exchange
Commission, are available without charge upon written request.
STOCK LISTING
State Bancorp, Inc. is traded on the NASDAQ Small-Cap market under the symbol
STBC. Price information appears in the Wall Street Journal, New York Times and
other newspapers under StateBcp.
STOCKHOLDER ACCOUNT INQUIRIES
To expedite changes of address or registration, consolidation of accounts and
the replacement of stock certificates or dividend checks, stockholders should
contact the Company's registrar and transfer agent directly:
Chase Mellon Shareholder
Services LLC
85 Challenger Road
Ridgefield Park, NJ 07660
(800) 526-0801
www.chasemellon.com
FDIC RULES AND REGULATIONS,
Part 350.4(d)
This statement has not been reviewed, or confirmed for accuracy or relevance, by
the Federal Deposit Insurance Corporation.
INDEPENDENT AUDITORS
Deloitte & Touche LLP
1700 Market Street
Philadelphia, PA 19103-3984
COUNSEL
Cahn, Wishod & Lamb LLP
534 Broadhollow Road
Melville, NY 11747
<PAGE>
[Logo] DIVIDEND REINVESTMENT PROGRAM
If you would like more information on State Bancorp's dividend reinvestment
program, please complete and return this card.
Please Print:
Name ___________________________________________________________________________
Address ________________________________________________________________________
City ________________________ State ________________ Zip _______________________
Daytime telephone number _______________________________________________________
- --------------------------------------------------------------------------------
[Logo] FINANCIAL PRODUCTS AND SERVICES
If you would like more information on any of our products and services, please
complete and return this postage-paid reply card. Product and service
information can also be obtained by visiting our web site at
www.statebankofli.com.
Please send me information on:
|_| Checking |_| Business Checking
|_| Savings |_| Business Savings
|_| Certificates of Deposit |_| Small Business Credit Lines
|_| Personal Lines of Credit |_| Commercial Lines of Credit
|_| Auto Loans |_| Term Loans
|_| Home Mortgages |_| Commercial Mortgages
|_| Home Equity Loans |_| Electronic Cash Management
|_| IRA's |_| Merchant Card Services
Please Print:
Name ___________________________________________________________________________
Address ________________________________________________________________________
City ________________________ State ________________ Zip _______________________
Daytime telephone number _______________________________________________________
<PAGE>
[Logo] STATE BANK OF LONG ISLAND
Branch Locations
MAIN OFFICE
699 Hillside Avenue
New Hyde Park, NY 11040-2512
(516) 437-1000
(516) 465-2200
135 South Street
Oyster Bay, NY 11771-2283
(516) 922-0200
339 Nassau Boulevard
Garden City South, NY 11530-5313
(516) 481-3900
Lincoln Plaza
2 Lincoln Avenue
Rockville Centre, NY 11570-5724
(516) 678-6000
501 North Broadway
Jericho, NY 11753-2107
(516) 822-4000
580 East Jericho Turnpike
Huntington Station, NY 11746-7378
(516) 271-5900
740 Veterans Memorial Highway
Hauppauge, NY 11788-1231
(516) 979-0700
4250 Veterans Memorial Highway
Holbrook, NY 11741-4001
(516) 630-0500
27 Smith Street
Farmingdale, NY 11735-1022
(516) 847-3900
Lending Facility
Two Jericho Plaza
Jericho, NY 11753-1683
(516) 465-2300
Internet Address
www.statebankofli.com
Touch 24
(516) 421-7900
...We Are Long Island
EXHIBIT 24
DELOITTE & TOUCHE, LLP
1700 Market Street
Philadelphia, Pennsylvania 19103-3984
Telephone (215) 246-2300
Facsimile (215) 569-2441
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement
No. 33-15167 and No. 33-82172 of State Bancorp, Inc. on Forms S-8 of our report
dated January 23, 1998, appearing in this Annual Report on Form 10-K of State
Bancorp, Inc. for the year ended December 31, 1997.
/s/ DELOITTE & TOUCHE, LLP
March 27, 1998
DELOITTE TOUCHE
TOHMATSU
INTERNATIONAL
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 60,258,476
<INT-BEARING-DEPOSITS> 674,344
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 277,941,778
<INVESTMENTS-CARRYING> 10,637,143
<INVESTMENTS-MARKET> 10,644,882
<LOANS> 377,633,267
<ALLOWANCE> 5,123,651
<TOTAL-ASSETS> 738,088,937
<DEPOSITS> 611,227,920
<SHORT-TERM> 67,818,000
<LIABILITIES-OTHER> 4,112,754
<LONG-TERM> 0
0
0
<COMMON> 30,970,630
<OTHER-SE> 23,959,633
<TOTAL-LIABILITIES-AND-EQUITY> 738,088,937
<INTEREST-LOAN> 34,345,284
<INTEREST-INVEST> 14,323,598
<INTEREST-OTHER> 1,995,300
<INTEREST-TOTAL> 50,664,182
<INTEREST-DEPOSIT> 20,445,298
<INTEREST-EXPENSE> 22,690,197
<INTEREST-INCOME-NET> 27,973,985
<LOAN-LOSSES> 1,950,000
<SECURITIES-GAINS> (53,180)
<EXPENSE-OTHER> 16,722,436
<INCOME-PRETAX> 10,935,848
<INCOME-PRE-EXTRAORDINARY> 7,105,490
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,105,490
<EPS-PRIMARY> 1.17
<EPS-DILUTED> 1.15
<YIELD-ACTUAL> 8.06
<LOANS-NON> 4,258,000
<LOANS-PAST> 1,590,000
<LOANS-TROUBLED> 7,289,000
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5,008,965
<CHARGE-OFFS> 1,835,314
<RECOVERIES> 222,429
<ALLOWANCE-CLOSE> 5,123,651
<ALLOWANCE-DOMESTIC> 5,123,651
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 493,000
</TABLE>
