<PAGE>
UNITED STATES
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 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
[] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM ______ TO ______
COMMISSION FILE NUMBER: 1-13213
PREMIER NATIONAL BANCORP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
NEW YORK 14-1668718
-------- ----------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
ROUTE 55, LAGRANGEVILLE, NEW YORK 12540
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 914-471-1711
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
COMMON STOCK, PAR VALUE $.80 PER SHARE AMERICAN STOCK EXCHANGE, INC.
- -------------------------------------- -----------------------------
<S> <C>
(TITLE OF CLASS) (NAME OF EXCHANGE ON WHICH REGISTERED)
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
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 REQUIREMENTS
FOR THE PAST 90 DAYS. YES X NO ___
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405
OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K ____
AS OF MARCH 1, 1999, THE AGGREGATE MARKET VALUE OF THE 13,261,403 SHARES OF THE
REGISTRANT'S VOTING COMMON STOCK ISSUED AND OUTSTANDING HELD BY NON-AFFILIATES
ON SUCH DATE WAS APPROXIMATELY 223,786,170 BASED ON THE REPORTED CLOSING PRICE
OF THE REGISTRANT'S COMMON STOCK ON SUCH DATE. FOR PURPOSES OF THIS CALCULATION,
ONLY DIRECTORS, EXECUTIVE OFFICERS AND BENEFICIAL OWNERS OF MORE THAN 10% OF THE
REGISTRANT'S VOTING COMMON STOCK ARE CONSIDERED AFFILIATES OF THE REGISTRANT.
AS OF MARCH 1, 1999, THE REGISTRANT HAD 15,764,332 SHARES OF COMMON STOCK ISSUED
AND OUTSTANDING.
DOCUMENTS INCORPORATED BY REFERENCE:
1. PORTIONS OF THE DEFINITIVE PROXY STATEMENT FOR THE 1998 ANNUAL MEETING OF
STOCKHOLDERS FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 ARE INCORPORATED
BY REFERENCE INTO PART III OF THIS FORM 10-K. THE INCORPORATION BY
REFERENCE HEREIN, OF PORTIONS OF THE PROXY STATEMENT, SHALL NOT BE DEEMED
TO SPECIFICALLY INCORPORATE BY REFERENCE THE INFORMATION REFERRED TO IN
ITEM 402(a)(8) OF REGULATION S-K.
<PAGE>
FORM 10-K TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I
Page No.
--------
<S> <C>
ITEM 1 BUSINESS 3
ITEM 2 PROPERTIES 16
ITEM 3 LEGAL PROCEEDINGS 16
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 16
PART II
ITEM 5 MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS 17
ITEM 6 SELECTED FINANCIAL DATA 18
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 19
ITEM 7A QUANTITIVE AND QUALITATIVE DISCLOSURE ABOUT
MARKET RISK 35
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 35
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE 35
PART III
ITEMS 10 THROUGH 13. (INCORPORATED BY REFERENCE TO THE DEFINITIVE PROXY
STATEMENT FOR THE ANNUAL MEETING OF SHAREHOLDERS FOR THE FISCAL YEAR
ENDED DECEMBER 31, 1998 WHICH WILL BE FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION NOT LATER THAN 120 DAYS AFTER THE END OF THAT
FISCAL YEAR) 35
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K 36
SIGNATURES 80
</TABLE>
<PAGE>
PART I
ITEM 1 - BUSINESS
Premier National Bancorp, Inc. (the "Company") is a New York
corporation with headquarters and principal executive offices at 240 Route 55,
Lagrangeville, New York. The Company's principal subsidiary, accounting for 99%
of the consolidated assets and 84% of consolidated equity, is Premier National
Bank (the "Bank").
The Company is registered with the Board of Governors of the Federal
Reserve System (the "Reserve Board") as a bank holding company within the
meaning of the Bank Holding Company Act of 1956, as amended (the "BHCA"). As a
bank holding company, it is required to file annual reports and other
information regarding its business operations and those of its subsidiaries with
the Reserve Board. See "REGULATION AND SUPERVISION - Bank Holding Company
Regulation."
MERGER
Effective July 17, 1998, Progressive Bank, Inc. ("PBI") was merged with
and into Hudson Chartered Bancorp, Inc. ("HCB") under the name of Premier
National Bancorp, Inc. pursuant to a plan of merger dated December 16, 1997.
Each share of PBI common stock was converted into 1.82 shares of the Company's
common stock. Approximately 7,954,316 common shares were issued for the
outstanding common stock of PBI. At the same time, Pawling Savings Bank
("Pawling"), a subsidiary of PBI, was merged with and into First National Bank
of the Hudson Valley ("Hudson Valley"), a subsidiary of HCB, under the name
Premier National Bank.
The transaction was accounted for using the pooling-of-interests method
and, accordingly, all historical financial data has been restated to include
both entities for all periods presented. Direct costs of mergers accounted for
by the pooling-of-interests method are expensed as incurred. Merger related
costs expensed in 1997 aggregated $541 ($314 net of tax), and in 1998 aggregated
$7,511 ($5,316 net of tax). These merger expenses include legal, accounting,
regulatory and severance costs as well as integration costs such as conversions,
abandonments and relocations.
In connection with the merger, the Company closed seven branches in
overlapping markets and transferred the loans and deposits to the surviving
contiguous branch.
The Bank was chartered under the National Bank Act in 1863 and is a
member of the Federal Reserve System. It operates through its main office at
289-291 Main Mall, Poughkeepsie, New York, and thirty-four other branch offices
and 33 offsite automated teller machines in Dutchess, Ulster, Putnam, Sullivan,
Rockland, Westchester and Orange Counties. Its deposits are insured by the
Federal Deposit Insurance Corporation ("FDIC") to the extent permitted by law.
The Bank is subject to comprehensive regulation, supervision, and examination by
the Office of the Comptroller of the Currency ("Comptroller"), the Reserve
Board, and the FDIC.
The Bank conducts a general commercial banking and trust business. It
offers retail and wholesale banking services including demand, savings and time
deposits, commercial, mortgage and installment loans, consumer banking, and
trust services. Services offered by the Bank's Trust Department include trust
administration, investment management, and custody services. The Company's
principal business strategy is to provide its clients with "relationship
banking", based on personalized service from dedicated account managers who are
positioned to deliver the full range of the Bank's products to its target
markets.
As of December 31, 1998, the Company, on a consolidated basis, had
total assets of approximately $1.6 billion and total deposits of $1.4 billion
and stockholders' equity of $156.2 million. At December 31, 1998, the Company
and the Bank employed 555 employees on a full-time equivalent basis.
FORWARD-LOOKING STATEMENTS
The Company has made, and may continue to make, various forward-looking
statements with respect to earnings, credit quality and other financial and
business matters for 1999 and, in certain instances, subsequent periods. The
Company cautions that these forward-looking statements are subject to numerous
assumptions, risks and uncertainties, and that statements for subsequent periods
are subject to greater uncertainty because of the increased likelihood of
changes in
3
<PAGE>
underlying factors and assumptions. Actual results could differ materially from
forward-looking statements.
In addition to those factors previously disclosed by the Company and
those factors identified elsewhere herein, the following factors could cause
actual results to differ materially from such forward-looking statements;
pricing pressures on loan and deposit products; actions of competitors; changes
in local and national economic conditions; the extent and timing of actions of
the Reserve Board or the Comptroller; customer deposit disintermediation;
changes in customers' acceptance of the Company's products and services; and the
extent and timing of legislative and regulatory actions and reform, estimated
cost savings from recent or anticipated acquisitions and mergers cannot be fully
realized within the expected time frame, revenues following such transactions
are lower than expected, and costs or difficulties related to the integration of
acquired and existing businesses are greater than expected or system costs or
remediation improvements on the part of the Company's third parties related to
the year 2000 are greater than expected.
The Company's forward-looking statements speak only as of the date on
which such statements are made. By making any forward-looking statements, the
Company assumes no duty to update them to reflect new, changing or unanticipated
events or circumstances.
LENDING
The Bank engages in a variety of lending activities which are primarily
categorized as residential and commercial mortgage, consumer/installment, and
commercial lending, all of which were offered by one or both of the constituent
banks. At December 31, 1998, the Bank's gross loan portfolio totaled
approximately $973.8 million. Of this amount, real estate mortgage,
consumer/installment, and commercial loans comprised 73.9%, 14.4%, and 11.7%,
respectively, of the Bank's loan portfolio.
At December 31, 1998, the Bank's unsecured lending limit to one
borrower under applicable regulations was approximately $21.4 million.
In managing the growth of its loan portfolio, the Bank has focused on:
(i) the application of prudent underwriting criteria, (ii) establishment of
management lending authorities well below the Bank's legal lending authority,
(iii) establishment of industry concentration limits, (iv) active involvement by
senior management and the Board of Directors in the loan approval process, and
(v) active monitoring of loans to ensure that repayments are made in a timely
manner and to identify potential problem loans.
Loan officer performance is a material factor in assessing the loan
officer's ability to discriminate between acceptable and unacceptable credit
risks and to identify changes in borrowers financial condition that affect the
borrower's ability to perform in accordance with loan terms. Further, the
Company has developed aging systems which assist in controlling delinquency of
loans and at varying points either the collection department, loan officer or
loan workout department, or a combination of the above, are involved in
collection efforts on past due loans. Additional collateral or guarantees may be
requested if difficulties remain unresolved. During 1998, the Company conformed
the lending policies and procedures of the constituent banks with a greater
emphasis on assessing consolidated financial risk and income flows as well as
collateral values.
An independent loan review department reviews each of the Bank's credit
portfolios and grades each individual credit it reviews. At December 31, 1998,
over 90% of the Company's commercial and consumer portfolio was graded by loan
review. Additionally, residential and home equity loans, which represent more
homogenous pools of loans, were over 50% graded. The grades associated with
reviewed loans are the primary determinant of the allocations to the allowance
for loan and lease losses.
The Bank's regulators require a quarterly assessment of the adequacy of
the allowance for loan and lease losses. The Company's assessment methology
includes, among other things, the results of the Company's continuous loan
review process, trends in economic conditions, the maturity characteristics of
the loan portfolio, volume, growth and composition of the loan portfolio, past
loss history and current loss trends by portfolio type, and the trends in the
classified loans.
For information regarding the performance of the loans in the Bank's
portfolio and the amount and composition of the Bank's allowance for loan
losses, see "Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Asset Quality and Provisions for Loan
Losses" and Item 8, Financial Statements -- Notes to
4
<PAGE>
Consolidated Financial Statements.
RESIDENTIAL AND COMMERCIAL MORTGAGE LOANS. Residential mortgage loans
are comprised primarily of loans on one-to-four family residential units,
construction and land development loans, home equity lines of credit, and
special purpose loans (loans satisfying the objectives of the Community
Reinvestment Act). A particular, but not extensive portion of the Company's
residential mortgage lending, consists of so called "non-conforming" loans
which, while meeting the Company's underwriting standards, does not fully comply
with the underwriting criteria of FNMA and FHLMC. Such loans are written
primarily as ARM's to be held in the Company's loan portfolio.
In underwriting residential mortgage loans, the Bank evaluates both the
prospective borrower's ability to make payments on the loan when due and the
value of the property securing the loan. As required by banking regulations, an
appraisal of the real estate intended to secure the loan is generally undertaken
by an independent New York State licensed or certified appraiser previously
approved by the Bank. Residential mortgages are generally underwritten up to 80%
loan-to-value ("LTV") ratio. However, the Bank has made loans greater than 80%
LTV, up to 95% LTV, with private mortgage insurance generally required for loans
in excess of the 80% LTV ratio.
The Bank offers fixed rate and adjustable rate residential mortgage
loans with a maximum term of 30 years. The Bank generally offers a three year
adjustable rate loan (and, more selectively, one and five year adjustable rate
loans). This loan provides for adjustments in the interest charged to an amount
usually equal to 2.5% - 3% over the applicable constant maturity U. S. Treasury
securities index. Adjustable rate loans are generally retained in the Bank's
portfolio in order to increase the percentage of loans in its portfolio with
greater repricing frequencies than fixed rate loans. Interest rates and
origination fees on adjustable rate loans are priced to be competitive in the
Bank's market area. Periodic adjustments of the interest rate on an adjustable
rate loan is usually limited to not more than 2% per adjustment, with an
interest rate ceiling over the life of the loan, depending on the rate at
origination, ranging from 11% to 15%. Fixed rate loans are underwritten
according to FNMA/FHLMC criteria in order to qualify for sale in the secondary
market. Individual fixed rate loans are usually sold promptly after closing
without recourse to the Bank. The Bank continues to service these loans.
In 1998, the Company sold, but retained the servicing rights on, $22.6
million of fixed rate residential mortgage loans. Total loans serviced for other
investors was $146.0 million at December 31, 1998.
The Bank also offers a 30 year "convertible" adjustable rate mortgage,
which provides the borrower an option to convert a one year adjustable rate
mortgage to a fixed rate mortgage at then prevailing market rates at the end of
five years. The originations of these loans are also usually sold into the
secondary market when the loan has been converted into a fixed rate, with
servicing rights retained.
The Bank offers three types of home equity mortgage loans. The first is
an "express loan" subject to a limit of $25,000 with a five or seven year full
payout amortization, as a substitute for a consumer loan but with possible tax
deductibility of interest. The Bank places a second mortgage on the property
with assessed value used as the principal basis for collateral valuation. The
second is an open-end revolving line of credit, which is an adjustable rate loan
with a term, depending on the size of the loan, of up to twenty years. During
the revolving period, which varies from five to ten years based on the size of
the loan, the borrower is only required to make interest payments. Thereafter,
payments are for both principal and interest. The third type is a closed-end
fixed rate home equity loan with maturities of up to 15 years. All home equity
loans are limited to one-to-four family owner-occupied residences. The Bank
restricts its open-end home equity loans to a maximum of 80% of the appraised
value of the collateral property including the balance of the first mortgage
loan on such property, if any, and executes a second mortgage as collateral. On
closed-end loans, the LTV is limited to 80% of appraised value. Open-end lines
of credit not yet advanced totaled $30.6 million at December 31, 1998. Loans
secured by residential mortgages totaled $358.8 million at December 31, 1998, of
which $342.9 million were first and $15.9 million were second mortgages.
Commercial real estate loans are offered by the Bank generally on a
fixed or variable rate basis with a three to five and exceptionally seven year
balloon maturity, although the amortization basis may range from 10 to 20 and
exceptionally to 30 years. These loans are typically related to commercial
business loans and are secured by the underlying real estate used in these
businesses. The maximum loan-to-value ratio on commercial real estate loans is
75%, with the valuation of the collateral for loans in excess of $250,000 being
based on independent appraisals. The Bank typically requires personal guarantees
of the principals of corporations to which it lends. Commercial real estate
loans are often larger and may involve greater risks than other types of
lending. Because payments on such loans are often dependent upon the successful
operation of the business involved, repayment of such loans may be negatively
impacted to a greater extent by adverse changes in economic conditions. Loans
secured by commercial mortgages totaled $242.1 million at December 31, 1998.
5
<PAGE>
CONSTRUCTION LOANS. The Bank makes short-term construction loans
secured by land, residential, and non-residential properties. At December 31,
1998, total construction loans aggregated approximately $50.9 million and
amounts not yet advanced totaled $15.5 million. While the Bank does finance
residential developments for local builders, the Bank has no major commitments
to lend for developments of significant multi-unit residential or commercial
projects, and does not intend to actively engage in this type of lending.
Construction loans are generally only made for the purpose of site
improvement and building owner occupied dwellings or buildings, and are usually
for terms of 6 months but can be up to 24 months. Funds for construction loans
are disbursed as phases of construction are completed. The Bank's residential
construction loan underwriting procedure generally limits the loan amount to 80%
LTV ratio with an LTV of up to 90% allowed where private mortgage insurance on
the amount over 80% is provided with respect to the permanent mortgage.
Nonresidential construction lending is generally limited to owner-occupied
properties and generally limited to not greater than 75% LTV. The Bank does not
generally fund construction loans for single family homes or commercial real
estate built by investors until the builder has a firm sales contract for the
residence or building to be constructed, although in certain larger projects,
"showhouse" construction may be financed within the overall site improvement
financing package.
COMMERCIAL LOANS. The Bank's commercial loan portfolio consists
primarily of commercial business loans to small and medium sized businesses. At
December 31, 1998, the Bank's commercial business loans outstanding totaled
$113.7 million with an additional $42.2 million available under committed lines
and letters of credit.
Commercial business loans are usually made to finance the purchase of
inventory or new or used equipment or for other short-term working capital
purposes. Generally, these loans are secured, but are also offered on an
unsecured basis. Commercial business loans for the purchase of new or used
equipment are normally written on an installment basis with a term of between
one and seven years. Loans for the purchase of inventory or other working
capital purposes are structured as time or demand loans with a term of 12 months
or less. In granting commercial loans, the Bank looks primarily to the
borrower's cash flow as the principal source of repayment of the loan.
Collateral and personal guarantees may be secondary sources of repayment. The
Bank generally requires commercial borrowers to have a debt service coverage
ratio of 125% or higher. Commercial business loans are often larger and may
involve greater risks than other types of lending. Payments on such loans are
often dependent upon the successful operation of the underlying business
involved and, therefore, repayment of such loans may be negatively impacted by
adverse changes in economic conditions.
CONSUMER, INSTALLMENT, AND OTHER LOANS. The Bank offers a full range of
consumer/installment loans. Such loans include financing for new and used cars,
wholesale and indirect financing programs for autos and other vehicle
dealerships in addition to, on a direct basis, personal loans for consumer
goods, home improvement, overdraft checking, and debt consolidation. Wholesale
dealer loans (secured by dealer inventories) are structured as one year lines of
credit and are reviewed annually. Consumer loans are made on both a secured and
unsecured basis. Maturities for consumer loans are generally for periods of 12
to 60 months, excluding secured home improvement loans which are usually written
as home equity loans. Interest rates for consumer products are structured either
at fixed or variable rates. Leasing services are offered directly by the Bank.
Both debit and credit cards are available. At December 31, 1998, installment,
consumer, and all other loans totaled $139.8 million, of which $114.5 million
represents loans generated from the indirect (dealer) loan program. Indirect
automobile financing is subject to aggressive price competition which can impact
future profitability. It can also carry a higher risk of loss than direct
financing. Such risk is taken into account in management's evaluation of the
adequacy of the Allowance for Loan Losses. At December 31, 1998, unutilized
overdraft lines of credit and credit card lines not advanced totaled $15.2
million.
For additional information concerning asset/liability management, see
"Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Opertions -- "Asset/Liability Management" and "Results of
Operations". The following tables show (1) the Company's loan distribution
(exclusive of loans held for sale) at the end of each of the last five years,
(2) the maturity of loans (excluding construction, consumer, installment, and
other miscellaneous loans and expected amortization) outstanding as of
December 31, 1998, and (3) the amounts due for loans as previously stated in
(2) after one year classified according to their sensitivity to changes in
interest rates.
1) LOAN DISTRIBUTION (DOLLARS IN THOUSANDS):
<TABLE>
<CAPTION>
DECEMBER 31,
1998(B) % 1997 % 1996(A) % 1995(A) % 1994 %
----------- ---------- ------------ --------- ------------- --------- ----------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
R/E CONST. $50,888 5.2% $61,009 5.9% $68,331 6.5% $59,370 6.2% $46,218 5.0%
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
R/E
MORTGAGE
(COMM.) 242,062 24.8 223,542 21.5 221,229 21.2 201,246 20.9 177,740 19.4
R/E
MORTGAGE
(RES.) 427,440 43.9 504,544 48.5 520,018 49.8 504,423 52.5 484,613 52.9
COM'L. &
INDUSTRIAL 113,680 11.7 93,351 9.0 82,221 7.9 76,173 7.9 101,696 11.1
CON., INSTL.
& OTHER 139,777 14.4 158,426 15.1 151,528 14.6 120,618 12.5 106,283 11.6
----------- ---------- ------------ --------- ------------- --------- ----------- --------- ----------- ----------
TOTAL $973,847 100% $1,040,872 100% $1,043,327 100% $961,830 100% $916,550 100%
----------- ---------- ------------ --------- ------------- --------- ----------- --------- ----------- ----------
----------- ---------- ------------ --------- ------------- --------- ----------- --------- ----------- ----------
</TABLE>
(A) IN SEPTEMBER 1995, THE COMPANY CONFORMED THE PRESENTATIONS OF THE SEPARATE
LOAN PORTFOLIOS OF THE PREDECESSORS TO THE BANK. AS A RESULT, $20.7 MILLION OF
LOANS PREVIOUSLY CLASSIFIED AS "COMMERCIAL AND INDUSTRIAL" WERE RECLASSIFIED AS
"REAL ESTATE-MORTGAGE" AND $1.6 MILLION OF LOANS WERE SIMILARLY RECLASSIFIED AS
"REAL ESTATE-CONSTRUCTION". IN ADDITION, THE COMPANY SOLD $25 MILLION OF
PREVIOUSLY ORIGINATED LONG-TERM FIXED RATE RESIDENTIAL MORTGAGES.
(B) IN SEPTEMBER 1998, THE COMPANY CONFORMED THE PRESENTATIONS OF THE
SEPARATE LOAN PORTFOLIOS OF THE PREDECESSORS TO THE BANK. AS A RESULT, $31.1
MILLION OF LOANS PREVIOUSLY CLASSIFIED QUALIFIED AS "REAL ESTATE MORTGAGE"
WERE RECLASSIFIED AS "COMMERCIAL AND INDUSTRIAL".
2) MATURITY OF LOANS AT DECEMBER 31, 1998:
(Dollars in thousands):
Exclusive of "consumer, installment and other loans, the maturities of
loans are summarized as follows:
<TABLE>
<CAPTION>
Maturing
--------
After One But
Within One Year Within Five Years After Five Years Total
---------------------- ---------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C>
Residential Mortgage $12,287 $30,619 $406,557 $449,463
Commercial Mortgage 22,474 33,144 215,309 270,927
Comm/Industrial (A) 75,491 25,715 12,474 113,680
---------------------- ---------------------- ---------------------- ----------------------
Total $110,252 $89,478 $634,340 $834,070
---------------------- ---------------------- ---------------------- ----------------------
---------------------- ---------------------- ---------------------- ----------------------
</TABLE>
(A)Demand loans are categorized as due within one year.
3) RATE SENSITIVITY OF ABOVE LOANS MATURING AFTER ONE YEAR:
(dollars in thousands)
<TABLE>
<CAPTION>
One to Five Years After Five Years
----------------------------- ----------------------------
<S> <C> <C>
Fixed Interest Rate $64,333 $209,700
Variable Interest Rate 25,145 424,640
----------------------------- ----------------------------
Total $89,478 $634,340
----------------------------- ----------------------------
----------------------------- ----------------------------
</TABLE>
7
<PAGE>
SECURITIES
The Company records its investment in securities in accordance with
SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." This statement requires that unrealized gains and losses on
securities classified "available for sale" be recorded, net of taxes, in the
"accumulated other comprehensive income" component of stockholders' equity. The
net balance of unrealized gains recorded in stockholders' equity was $1.5
million, $1.6 million and $1.1 million at December 31, 1998, 1997 and 1996,
respectively. The tax liability recorded in other assets offsetting other
deferred tax assets was $1.1 million, $1.2 million, and $.7 million at December
31, 1998, 1997 and 1996, respectively.
See Note A and Note B to the 1998 Consolidated Financial Statements,
included herein at Item 8, for discussion of accounting policies related to
securities and for information as to the amortized cost and fair value of
securities at December 31, 1998 and 1997:
The table below sets forth the carrying amounts of securities at the
dates indicated (dollars in thousands):
<TABLE>
<CAPTION>
December 31,
1998 1997 1996
-------------------------- -------------------------- --------------------------
<S> <C> <C> <C>
U.S. Treasury and U.S.
Government Agencies $93,394 $116,751 $147,204
Mortgage-backed securities 78,644 191,354 138,990
State and political subdivisions 114,543 95,116 68,117
Other securities 100,270 36,721 35,333
-------------------------- -------------------------- --------------------------
Total $386,851 $439,942 $389,644
-------------------------- -------------------------- --------------------------
-------------------------- -------------------------- --------------------------
</TABLE>
The following table sets forth certain information concerning the
maturities of securities, other than regulatory securities, amortized cost, and
the weighted average yields of such securities (calculated on the basis of their
cost and effective yields) at December 31, 1998. Tax-equivalent adjustments
(using a 35% rate) have been made in calculating yields on obligations of states
and political subdivisions (dollars in thousands):
<TABLE>
<CAPTION>
Maturing
AFTER ONE BUT AFTER FIVE BUT
WITHIN ONE YEAR WITHIN FIVE YEARS WITHIN TEN YEARS AFTER TEN YEARS
(1) (2) (3) (4)
TOTAL
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
US TREASURY
AND US
GOVERNMENT
AGENCIES (5) $38,293 6.10% $116,101 5.91% $11,150 5.93% $ 4,914 5.90% $170,458 5.95%
STATE AND
POLITICAL 29,014 6.22 42,138 6.69 21,376 6.57 19,838 7.61 112,366 6.71
SUBDIVISIONS
OTHER 13,007 5.22 23,508 5.55 52,794 5.63 2,134 5.36 91,443 5.54
----------- ----------- ---------- ---------- -----------
TOTAL $80,314 6.00% $181,747 6.04% $85,320 5.90% $26,886 7.12% $374,267 6.08%
----------- ----------- ---------- ---------- -----------
----------- ----------- ---------- ---------- -----------
</TABLE>
(1) Includes $10.0 million of adjustable rate securities
(2) Includes $5.9 million of adjustable rate securities
(3) Includes $26.0 million of adjustable rate securities
(4) Includes $23.7 million of adjustable rate securities
(5) For purposes of this schedule, mortgage-backed securities consisting of
mortgages guaranteed by U.S. Government agencies and SBA participation
certificates totaling $98.3 million have been included based upon the
estimated average lives of the securities. Prepayments were estimated
based on 1998 levels.
8
<PAGE>
The Company has established written investment, liquidity, and
asset/liability management policies, which are reviewed annually by the Board of
Directors. These policies identify investment criteria and state specific
objectives in terms of risk, interest rate sensitivity, and liquidity. The
policies are administered by the Investment Committee of the Board of Directors.
The Company does not have a trading portfolio. At December 31, 1998, the Company
had no investments in which the aggregate cash value of the securities held by
the Company exceeded 10% of stockholders' equity, except for investments in the
securities of or those guaranteed by the U.S. Government and other U.S.
Government agencies and corporations.
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS 133). The Company adopted SFAS 133 in
the third quarter 1998. In connection with the adoption of SFAS 133, the Company
transferred securities with a carrying value of approximately $95,993 from held
to maturity to available for sale. This transfer of securities resulted in an
increase in unrealized gains (losses) on securities available for sale,
comprehensive income, accumulated other comprehensive income and stockholders'
equity of approximately $576, net of income taxes of $407. Except as discussed
above, the adoption of SFAS 133 did not have a material effect on the
consolidated financial position, results of operations or liquidity of the
Company.
See "Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations" for additional information regarding securities and
interest rate risk.
DEPOSITS
The Company has developed a variety of deposit products ranging in
maturity from demand-type accounts to certificates of deposit with maturities of
up to five years. The Company also offers several multi-product "relationship"
accounts to its depositors. The Company's deposits are primarily derived from
the areas where its banking offices are located. It does not solicit deposits
outside its market area and does not pay fees to others to obtain deposits for
the Company. From time to time, the Company has used premiums, promotions or
special products to attract depositors to branch offices.
The Company influences the flow of deposits primarily by pricing its
accounts to remain generally competitive with other financial institutions in
its market area, although the Company does not necessarily seek to match the
highest rates paid by competing institutions. The Company has established an
Asset/Liability Management Committee which meets monthly to review interest
rates on all deposit and consumer loan products. Periodic changes are made to
the rates and product features based on liquidity needs, competition, and
general economic conditions. While the Company has $386.6 million in time
deposits maturing in 1999, the Company's previous experience indicates that a
significant portion will "roll over" on maturity. Of this amount, $90.9 million
represent time deposits over $100,000 (primarily municipalities whose deposits
are collateralized) which are generally considered to be more volatile than
"core" deposits. Management operates under a formal liquidity policy intended to
provide adequate cash equivalents and other liquid assets to meet unforeseen
outflows of time deposits, as well as outflows from other deposit products that
the Company offers. Demand deposit growth has more than kept pace with overall
deposit growth. For further information regarding the Company's deposits, see
Item 7. "Management's Discussion and Analysis of Financial Condition -- Results
of Operations."
The average amount and the average rates paid on deposits are
summarized in the following table (dollars in thousands):
<TABLE>
<CAPTION>
Year ended December 31,
1998 1997 1996
-------------------------- ------------------------- -------------------------
<S> <C> <C> <C> <C> <C>
Noninterest bearing demand deposits $228,010 - $204,638 - $188,500 -
Money Market & NOW accounts 386,160 3.72% 337,096 3.88% 280,897 3.63%
Savings deposits 333,273 3.44 368,277 3.79 381,731 3.72
Time deposits 511,892 5.33 524,625 5.40 540,549 5.45
----------- ----------- -----------
Total deposits $1,459,335 3.64% $1,434,636 3.86% $1,391,677 3.87%
----------- ----- ----------- ----- ----------- -----
----------- ----- ----------- ----- ----------- -----
</TABLE>
The maturities of time deposits under $100,000 and time deposits of $100,000 or
more outstanding at December 31, 1998,
9
<PAGE>
are summarized for the periods indicated in the following table (balances in
thousands):
<TABLE>
<CAPTION>
Time Deposits Under Time Deposits
$100,000 $100,000 or More Total
------------------------ ------------------------- ------------------------
<S> <C> <C> <C>
BALANCES OUTSTANDING AT DECEMBER 31,
1998, MATURING IN:
3 months or less $103,141 $51,153 $154,294
Over 3 through 6 months 118,112 23,765 141,877
Over 6 through 12 months 74,410 16,030 90,440
Over 12 months 51,998 34,665 86,663
------------------------ ------------------------- ------------------------
Total $347,661 $125,613 $473,274
------------------------ ------------------------- ------------------------
------------------------ ------------------------- ------------------------
</TABLE>
TRUST SERVICES
The Bank maintains a Trust Department which offers a wide range of
custodial, investment management, and investment advisory services to the Bank's
customers. The Trust Department also offers the administration of personal
trusts and estates in a fiduciary capacity, self-directed IRA and Keogh accounts
and pension accounts. At December 31, 1998, customer assets under administration
totaled approximately $265 million, representing approximately 626 accounts.
NON-DEPOSIT INVESTMENT PRODUCTS
Although the Company has offered fixed rate annuities for some time,
during 1998 the Company began offering a wide range of non-deposit investment
products to its customers, through appropriately licensed representatives, under
a third party agency relationship. Such products include mutual funds and
variable rate annuities. Total sales of non-deposit products for 1998 was $11.7
million.
COMPETITION
The Bank principally competes in a market area of seven New York
counties (Dutchess, Putnam, Orange, Sullivan, Westchester, Rockland and Ulster).
As of June 1997 (the latest available data), such market area included 20
commercial banks (467 branches) with deposits of $19.5 billion, 23 thrift
institutions (116 branches) with deposits of $6.9 billion, and 70 credit unions
(70 branches) with deposits of $2.5 billion. Total market deposits aggregated
$28.9 billion as of such date. As of that date, the Bank had the largest share
of the total commercial bank deposits in combined Dutchess and Putnam counties
(24%), and was second in market share for Ulster County with 10%.
Management believes that the Bank is a prominent financial institution
in its market area. Although the Bank faces competition for deposits from other
financial institutions and other investment vehicles offered by securities
firms, management believes the Bank has been able to compete effectively for
deposits because of its image as a community- oriented bank and the high level
of service it offers its local customers. Many of the Bank's competitors have
substantially greater resources and lending limits, and as such may offer a
greater array of products and services. The Bank has emphasized personalized
banking and the advantage of local decision-making in its banking business,
which strategy appears to have been well received in the Bank's market area. The
Bank does not rely upon any individual, group, or entity for a material portion
of its deposits.
In addition, the Bank is a significant provider of credit in its market
area. Although the Bank faces competition for loans from mortgage banking
companies, savings banks, savings and loan associations, other commercial banks,
insurance companies, and other institutional lenders, including manufacturers,
management believes that the Bank's business strategy gives it a competitive
advantage within the market segments it serves. Other factors which affect loan
growth include the general availability of lendable funds and general and local
economic conditions, and current interest rate levels.
10
<PAGE>
RISK MANAGEMENT
In the normal course of business, the Company is subject to various
risks, the most significant of which are credit, liquidity and interest rate.
Although it cannot eliminate these risks, the Company has risk management
processes designed to provide for risk identification, measurement, monitoring
and control.
CREDIT RISK. Credit risk represents the possibility that a customer or
counterpart may not perform in accordance with contractual terms. Credit risk
results from extending credit to customers, purchasing securities and entering
into certain off-balance-sheet financial transactions. Risk associated with the
extension of credit includes general risk, which is inherent in the lending
business, industry risk, and risk specific to individual borrowers. The Company
seeks to manage credit risk through portfolio diversification, underwriting
policies and procedures, and loan monitoring practices.
LIQUIDITY RISK. Liquidity represents an institution's ability to
generate cash or otherwise obtain funds at reasonable rates to satisfy
commitments to borrowers and demands of depositors and debtholders, and to
invest in strategic initiatives. Liquidity risk represents the likelihood the
Company would be unable to generate cash or otherwise obtain funds at reasonable
rates for such purposes. Liquidity is managed through deposit and loan pricing
and the coordination of the relative maturities and liquidity of assets,
liabilities and off-balance-sheet positions and is enhanced by the ability to
raise funds in capital markets through securities sales, direct borrowing or
securitization of assets, such as mortgage loans.
INTEREST RATE RISK. Interest rate risk arises primarily through the
Company's normal business activities of extending loans and taking deposits.
Interest rate risk is the sensitivity of net interest income and the market
value of financial instruments to the timing, magnitude and frequency of changes
in interest rates. Interest rate risk results from various repricing frequencies
and the maturity structure of assets, liabilities, and off-balance-sheet
positions. Interest rate risk also results from, among other factors, changes in
the relationship or spread between interest rates. Many factors, including
economic and financial conditions, general movements in market interest rates
and consumer preferences, affect the spread between interest earned on assets
and interest paid on liabilities. The Company uses a number of measures to
monitor and manage interest rate risk, including income simulation and interest
sensitivity ("gap") analyses.
For additional information relating to the Company's risk management processes,
see Item 7, "Management's Discussion and Analysis of Financial Condition and
Results of Operations".
REGULATION AND SUPERVISION
Bank holding companies and banks are extensively regulated under both
Federal and State law. The following information describes certain aspects of
that regulation. To the extent that the following information describes
statutory and regulatory provisions, it is qualified in its entirety by
reference to the particular provisions. The following is not intended to be an
exhaustive description of the statutes and regulations applicable to the
business of the Company or the Bank.
BANK HOLDING COMPANY REGULATION
The Company is a registered bank holding company under the BHCA and is
subject to Reserve Board regulations, examination, supervision, and reporting
requirements. Under the BHCA, a bank holding company must obtain Reserve Board
approval before acquiring, directly or indirectly, ownership or control of any
voting shares of a bank or bank holding company if, after such acquisition, it
would own or control more than 5% of such shares (unless it already owns or
controls a majority of such shares). Reserve Board approval also must be
obtained before any bank holding company acquires all or substantially all of
the assets of another bank or bank holding company or merges or consolidates
with another bank holding company. The George Gale Foster Corporation ("GGF"),
which controls approximately 5.45% of the Company's Common Stock, is also a
registered bank holding company of the Bank under the BHCA. As a result,
activities undertaken by the Company may also require approval of an application
filed by GGF.
Under the Change in Bank Control Act, persons who intend to acquire
control of a bank holding company, whether acting directly or indirectly or
through or in concert with one or more persons, must give 60 days prior written
notice to the Reserve Board, unless the transaction is subject to prior Reserve
Board approval under the BHCA. "Control" exists when the acquiring party has
voting control of at least 25% of the bank holding company's voting securities
or the power to direct the management or policies of such company. Under the
Reserve Board regulations, a rebuttable presumption of control
11
<PAGE>
arises with respect to an acquisition where, after the transaction, the
acquiring party has ownership, control, or the power to vote at least 10% (but
less than 25%) of any class of the Company's voting securities. The Reserve
Board may disapprove proposed acquisitions of control on certain specified
grounds.
Under New York State Banking Law, the Company must obtain the prior
approval of the New York State Banking Board before acquiring, directly or
indirectly, 5% or more of the voting stock of another banking institution
located in New York State unless by way of merger. Federal law permits
adequately capitalized and adequately managed bank holding companies to acquire
banks and bank holding companies in any state, subject to certain conditions,
including certain nationwide and statewide concentration limits. Consequently,
subject to such conditions, the Company has the authority to acquire any bank or
bank holding company, and can be acquired by any bank or bank holding company
located anywhere in the United States. Federal law permits banks, subject to
certain provisions, including state opt-out provisions, to merge with banks in
other states, or to acquire, by acquisition or merger, branches outside its home
state. The establishment of new interstate branches also is possible in those
states with laws that expressly permit it. Branches of interstate banks are
subject to various host state laws, including laws relating to intrastate
branching, consumer protection, fair lending, community reinvestment, and
taxation (unless in the case of national banks such laws are preempted by
Federal law or discriminatory in effect). Competition has increased as banks
branch across state lines and enter new markets.
The BHCA also prohibits a bank holding company, with certain limited
exceptions, from acquiring or retaining direct or indirect ownership or control
of more than 5% of the voting shares of any company that is not a bank or a bank
holding company, and from engaging in any activities other than those of
banking, managing or controlling banks, or activities which the Reserve Board
has determined to be so closely related to the business of banking or managing
or controlling banks as to be a proper incident thereto.
As a bank holding company, the Company is required to file with the
Reserve Board an annual report and any additional information as the Reserve
Board may require pursuant to the BHCA. The Reserve Board also makes
examinations of the Company and the Bank, and possesses cease and desist powers
over bank holding companies and their non-bank subsidiaries if their actions
represent unsafe or unsound practices.
The Company has registered its common stock with the Securities and
Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). As a result of such registration, the proxy and tender
offer rules, periodic reporting requirements and insider trading restrictions
and reporting requirements, as well as certain other requirements of the
Exchange Act, are applicable to the Company. Because the Company's stock is
listed on the American Stock Exchange (the "AMEX"), the Company is also subject
to the rules and regulations of the AMEX. The Company also may, from time to
time, be subject to regulation by various state securities commissions with
respect to the offer and sale of its securities.
The Company is a legal entity separate and distinct from the Bank and
any non-bank subsidiaries thereof. Accordingly, the right of the Company, and
consequently the right of creditors and stockholders of the Company, to
participate in any distribution of the assets or earnings of any subsidiary is
necessarily subject to the prior claims of creditors of the subsidiary, except
to the extent that claims of the Company in its capacity as a creditor may be
recognized.
BANK REGULATION
As a national bank, the Bank is subject to the supervision of, and is
regularly examined by, the Comptroller and is required to furnish quarterly
reports to the Comptroller under the National Bank Act. In addition, the Bank is
insured by and subject to certain regulations of the FDIC. The Bank is also
subject to various requirements and restrictions under Federal and State law,
including requirements to maintain reserves against deposits, restrictions on
the types, amounts, terms and conditions of loans that may be granted and
limitations on the types of investments that may be made, the activities that
may be engaged in, and the types of services that may be offered. Various
consumer laws and regulations also affect the operations of the Bank. The
approval of the Comptroller is required for the establishment of additional
branch offices by any national bank, subject to applicable state law
restrictions. New York State Banking Law precludes a bank from establishing a de
novo branch in any city or village with a population of 50,000 or less in which
the principal office of another bank or trust company is located (other than a
bank which is a subsidiary of a bank holding company or is itself a bank holding
company).
CAPITAL
12
<PAGE>
The Company and the Bank are subject to substantially similar minimum
capital requirements. The capital adequacy guidelines provide for three types of
capital: (I) Tier 1 capital (or core capital), (ii) Tier 2 capital (or
supplementary capital), and (iii) total capital. Tier 1 capital primarily
includes common stockholders' equity, and qualifying perpetual preferred stock
and related surplus less goodwill and certain disallowed tangibles.
Tier 2 capital generally includes allowances for credit losses in an
amount up to 1.25% of risk-weighted assets, other perpetual preferred stock and
any related surplus, certain hybrid capital instruments, and subordinated and
other qualifying debt, subject to certain limitations. Total capital generally
includes Tier 1 capital, plus qualifying Tier 2 capital, minus investments in
unconsolidated subsidiaries and other adjustments. At least 50% of total capital
must consist of Tier 1 capital.
Under current capital adequacy guidelines, bank holding companies and
banks must maintain minimum leverage ratios of Tier 1 capital to adjusted
average total consolidated assets of 3.0% for bank holding companies and banks
meeting certain specified criteria, which include having the highest composite
regulatory examination rating, and between 4.0% and 5.0% for all other bank
holding companies and banks, such as the Company and Bank. Bank holding
companies and banks must also maintain minimum ratios of total risk based
capital to risk-weighted assets of 8.0%, including a minimum ratio of Tier 1
capital to risk-weighted assets of 4.0%. The risk-weighted asset base is
determined by assigning each asset and the credit equivalent amount of
off-balance sheet items to one of several broad risk categories, after which the
aggregate dollar value of the items in each category is multiplied by a weight
(ranging from 0% to 100%) assigned to each asset category and totaled. The
federal bank regulatory agencies may set higher capital requirements when
particular circumstances warrant. Regulators also consider interest rate risk,
concentrations of credit risk and the risk arising from non-traditional
activities, as well as the ability to manage these risks, as important factors
in assessing overall capital adequacy. Exposure to a decline in the economic
value of capital due to changes in interest rates is also considered in
evaluating capital adequacy.
At December 31, 1998, the Company and Bank exceeded all minimum capital
requirements. The Company had a ratio of Tier I capital to total assets of 9.1%,
a ratio of Tier 1 capital to risk-weighted assets of 14.1%, and a ratio of total
capital to risk-weighted assets of 15.4%. The Bank had a ratio of Tier 1 capital
to total assets of 7.8%, a ratio of Tier 1 capital to risk-weighted assets of
11.4%, and a ratio of total capital to risk-weighted assets of 12.6%.
The Company's ability to pay dividends and expand business can be
restricted if capital falls below minimum requirements. In addition, the
Comptroller has established levels at which a national bank is well capitalized,
adequately capitalized, undercapitalized, significantly undercapitalized, and
critically undercapitalized, and is required to take prompt corrective action
with respect to banks that fall below minimum capital standards. The degree of
regulatory intervention is tied to an insured institution's capital category.
The prompt corrective actions for undercapitalized institutions include
increased monitoring and periodic review of capital compliance efforts, a
requirement to submit a capital plan, restrictions on dividends and total asset
growth, and limitations on certain new activities (such as opening new branch
offices and engaging in acquisitions and new lines of business). The Comptroller
may determine that a national bank should be classified in a lower category
based on other information, such as the institution's examination report, after
written notice. At December 31, 1998, the Bank met the requirements for a
"well-capitalized" institution based on its capital ratios as of such date.
In connection with the submission of a capital restoration plan, a
company that has control of an undercapitalized institution must guarantee that
the institution will comply with the plan and provide appropriate assurances of
performance. The aggregate liability of any such controlling company under such
guaranty is limited to the lesser of (i) 5% of the institution's assets at the
time it became undercapitalized, or (ii) the amount necessary to bring the
institution into capital compliance at the time it failed to comply with its
capital plan. If the Bank becomes undercapitalized, the Company will be required
to guarantee performance of the capital plan as a condition of the approval of
the Comptroller.
TRANSACTIONS WITH AFFILIATES
The Bank is also subject to federal law that limits its transactions to
or on behalf of the Company and to or on behalf of any nonbank subsidiaries.
Such transactions are individually limited to 10 percent of the Bank's capital
and surplus and, with respect to the Company and all nonbank subsidiaries, to an
aggregate of 20 percent of the Bank's capital and surplus. Further, loans and
extensions of credit generally are required to be secured by eligible collateral
in specified amounts. Federal law also prohibits the Bank from purchasing
"low-quality" assets from affiliates.
DEPOSIT INSURANCE
13
<PAGE>
The deposits of the Bank are insured by the FDIC up to the limits set
forth under applicable law. Most of the deposits of the Bank are subject to
deposit insurance assessments of the Bank Insurance Fund ("BIF") of the FDIC.
However, approximately $11.3 million in deposits are subject to assessments of
the Savings Association Insurance Fund ("SAIF") of the FDIC.
The assessment rates imposed on all FDIC deposits for deposit insurance ranges
from 0 to 27 basis points per $100 of insured deposits, depending on the
institution's capital position and other supervisory factors. The rate does not
differ between BIF and SAIF-insured deposits. However, because legislation
enacted in 1996 requires all FDIC-insured institutions to bear the cost of bonds
issued by the Financing Corporation ("FICO"), the FDIC is currently assessing
BIF- insured deposits an additional 1.22 basis points per $100 of deposits, and
SAIF-insured deposits an additional 6.10 basis points per $100 of deposits, in
each case on an annualized basis, to cover those obligations. The Bank's
assessment rate was 0 basis points before the FICO assessment.
FEDERAL RESERVE SYSTEM
The Bank is a member of the Federal Reserve Bank of New York, which is
one of 12 regional Federal Reserve Banks comprising the Federal Reserve System.
The Federal Reserve Bank of New York provides a central credit facility for
member institutions. As a member bank, the Bank is required to own shares of
Federal Reserve Bank capital stock in an amount equal to 6% of the Bank's
paid-up capital and surplus. The Bank is in compliance with this requirement
with an investment in Federal Reserve Bank of New York stock at December 31,
1998 of 34,216 shares. The Reserve Board also requires depository institutions
to maintain non-earning reserves against certain transaction accounts (primarily
checking accounts) and non-personal time deposits (those which are transferable
or held by a person other than a natural person).
At December 31, 1998, the Bank was in compliance with these requirements.
RESTRICTIONS ON THE PAYMENT OF DIVIDENDS
The principal source of the Company's revenue and cash flows is
dividends from the Bank. The Bank is subject to various statutory and regulatory
restrictions on its ability to pay dividends to the Company. As of January 1999,
the amount available for payment of dividends to the Company by the Bank totaled
$7.3 million. In addition, the Comptroller has authority to prohibit the Bank
from paying dividends, depending upon the Bank's financial condition if such
payment is deemed to constitute an unsafe or unsound practice. The Comptroller
and the Reserve Board have indicated their view that it generally would be an
unsafe and unsound practice to pay dividends except out of current operating
earnings. The ability of the Bank to pay dividends could be further influenced
by bank regulatory and supervisory policies.
Under New York law, the Company may declare and pay dividends on its
outstanding common stock out of available surplus, unless such payment would
render the Company insolvent. As of December 31, 1998, the Company had $57.6
million in "available surpluses" for such purposes.
COMMUNITY REINVESTMENT
Bank holding companies and their subsidiary banks are subject to the
provisions of the Community Reinvestment Act of 1977, as amended (the "CRA"). A
bank's record in meeting the credit needs of its community, including low-and
moderate-income neighborhoods is evaluated as part of the examination process,
as well as when an institution applies to undertake a merger, acquisition, or to
open a branch facility. The Bank received a "satisfactory" CRA rating during its
1998 OCC examination.
SOURCE OF STRENGTH POLICY
Under Reserve Board policy, a bank holding company is expected to act
as a source of financial strength to its subsidiary bank and to commit resources
to support the bank. Consistent with its "source of strength" policy for
subsidiary banks, the Reserve Board has stated that, as a matter of prudent
banking, a bank holding company generally should not pay cash dividends unless
its net income available to common shareholders has been sufficient to fund
fully the dividends, and the prospective rate of earnings retention appears to
be consistent with the corporation's capital needs, asset quality, and overall
financial condition.
GOVERNMENT POLICIES
Bank holding companies and their subsidiaries are affected by the
credit and monetary polices of the Reserve
14
<PAGE>
Board. An important function of the Reserve Board is to regulate the national
supply of bank credit. Among the instruments of monetary policy used by the
Reserve Board to implement its objectives are open market operations in U.S.
Government securities, changes in the discount rate on bank borrowings, and
changes in reserve requirements on bank deposits.
These instruments of monetary policy are used in varying combinations
to influence the overall level of bank loans, investments and deposits, the
interest rates charged on loans and paid for deposits, the price of the dollar
in foreign exchange markets, and the level of inflation. The monetary policies
of the Reserve Board are expected to continue to have a significant effect on
the operating results of banking institutions. It is not possible to predict the
nature or timing of future changes in monetary and fiscal policies, or the
effect that they may have on the Company's business and earnings.
LEGISLATIVE PROPOSALS AND REFORM
The United States Congress has periodically considered and adopted
legislation which has resulted in and could result in further deregulation of
banks and other financial institutions. Such legislation could place the Company
and the Bank in more direct competition with other financial institutions,
including mutual funds, insurance companies, credit unions and securities
brokerage firms. No assurance can be given as to whether any additional
legislation will be enacted or as to the effect of such legislation on the
business of the Company.
EMPLOYEES
As of December 31, 1998, the Company had 499 full-time and 110
part-time employees. The employees are not represented by a collective
bargaining agreement. The Company believes its relationship with its employees
to be satisfactory.
EXECUTIVE OFFICERS OF THE COMPANY
THE FOLLOWING TABLE SETS FORTH THE NAME, AGE AND POSITION FOR EACH
EXECUTIVE OFFICER OF THE COMPANY AND THE BANK AND THE BUSINESS EXPERIENCE OF
THESE INDIVIDUALS FOR THE PAST FIVE YEARS. EACH EXECUTIVE OFFICER HELD THE
POSITION INDICATED OR A SIMILAR POSITION WITH THE SAME ENTITY OR ONE OF ITS
PREDECESSORS FOR THE PAST FIVE YEARS, UNLESS OTHERWISE INDICATED.
<TABLE>
<CAPTION>
NAME AGE(A) POSITION WITH THE COMPANY AND/OR THE BANK AND RECENT EXPERIENCE
- ---- ------ ---------------------------------------------------------------
<S> <C> <C>
T. JEFFERSON CUNNINGHAM III 56 CHAIRMAN OF THE COMPANY AND THE BANK.
PETER VAN KLEECK 64 PRESIDENT AND CHIEF EXECUTIVE OFFICER OF THE COMPANY AND THE BANK.
JOHN CHARLES VANWORMER 51 EXECUTIVE VICE PRESIDENT OF THE COMPANY; VICE CHAIRMAN OF THE BANK.
DAVID S. MACFARLAND 55 EXECUTIVE VICE PRESIDENT OF THE BANK (1994-PRESENT); REGIONAL CHAIRMAN,
FLEET BANK OF NEW YORK, HUDSON VALLEY REGION (1993-1994).
PAUL A. MAISCH 43 EXECUTIVE VICE PRESIDENT OF THE BANK; TREASURER AND CHIEF FINANCIAL
OFFICER OF THE COMPANY.
ROBERT APPLE 43 CORPORATE COUNSEL AND CORPORATE SECRETARY OF THE COMPANY AND
THE BANK.
PAUL S. MACK 51 EXECUTIVE VICE PRESIDENT, CHIEF CREDIT OFFICER OF THE BANK.
GEORGE ELFERINK 59 SENIOR VICE PRESIDENT/SENIOR TRUST OFFICER OF THE BANK (1997-PRESENT);
PRESIDENT OF KEY TRUST CO. (1996-1997); EXECUTIVE VICE PRESIDENT OF
KEY TRUST CO. (1993-1995).
ROBERT GABRIELSEN 40 EXECUTIVE VICE PRESIDENT OF THE BANK.
</TABLE>
(A) AS OF FEBRUARY 28, 1999
ITEM 2. PROPERTIES
The Company owns the land and a two-story 20,000 square foot building at 20 Mill
Street, Rhinebeck, New York, which houses the Bank's largest branch
(approximately 3,200 square feet are leased to tenants).
15
<PAGE>
In addition, the Company owns two buildings at Route 55 in Lagrangeville, New
York. The complex is two parcels of land comprising 23 acres, of which
approximately 18 acres are undeveloped. The buildings house the Company's
executive offices as well as several administrative support services and a
branch facility. The facilities contain approximately 36,000 square feet of
which approximately 70% is occupied by the Company and the remaining 30% is
leased to tenants. These properties represent approximately 15% the value of the
premises and equipment owned by the Company.
The Company's operations center is a 44,000 square foot facility located on
Route 52, Fishkill, New York. This owned building houses the Bank's processing,
services and several other support services. This property represents
approximately 10% of the value of the premises and equipment owned by the
Company.
Further, the Company owns a 12,600 square foot two-story office building located
at 289-291 Main Mall in Poughkeepsie, New York. This building houses certain
administrative support functions and the Bank's Trust department as well as a
banking office.
The Company, through the Bank, also owns 17 other banking premises which are
used almost exclusively for conducting commercial banking business. Similarly,
the Bank leases 18 other branch banking premises [of which two are vacant and
theleases are for sale] for conducting its commercial banking business.
ITEM 3. LEGAL PROCEEDINGS
As the nature of the Bank's business involves providing certain financial
services, the collection of loans and the enforcement and validity of security
interests, mortgages and liens, the Bank is plaintiff or defendant in various
legal proceedings which may be considered as arising in the ordinary course of
its business. Neither the Company nor the Bank are presently involved in any
legal proceedings the outcome of which management or counsel to the Company
believe to be material to its financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of shareholders of Premier National Bancorp,
Inc. during the fourth quarter of 1998.
16
<PAGE>
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock has been listed on American Stock Exchange (AMEX),
since August 4, 1997, and currently trades under the symbol "PNB". Previously,
the Company's common stock was traded on the Nasdaq National Market System
(NASDAQ). On March 15, 1999, there were approximately 2,250 shareholders of
record of Common Stock and 15,764,332 shares of Common Stock issued and
outstanding.
The following table sets forth the cash dividends declared by the Company on its
Common Stock and the range of high and low prices of the Common Stock during the
two most recent years based on high and low sale prices as quoted by the AMEX or
NASDAQ, as applicable, since January 1, 1997. This table has been adjusted
retroactively to give effect to the 10% stock dividends paid January 15, 1997
and January 6, 1999, and the 50% stock dividend paid October 31, 1997.
<TABLE>
<CAPTION>
Cash Dividends
Per Share Price
---------------------- -----------------------------------
HIGH LOW
---- ---
1997
<S> <C> <C> <C>
First Quarter $0.109 $16 31/32 $15 39/64
Second Quarter 0.109 17 17/64 15 3/4
Third Quarter 0.116 20 19/64 16 57/64
Fourth Quarter 0.118 20 29/32 18 3/16
1998
First Quarter 0.118 22 47/64 18 1/16
Second Quarter 0.118 21 45/64 19 5/16
Third Quarter 0.118 21 9/64 14 49/64
Fourth Quarter 0.130 17 17/64 13 33/64
</TABLE>
The declaration and payment of future dividends is at the sole discretion of the
Board of Directors and the amount, if any, depends upon the earnings, financial
condition and capital needs of the Company and the Bank and other factors,
including restrictions arising from federal banking laws and regulations to
which the Company and the Bank are subject. The ability of the Bank to pay cash
dividends to the Company on its capital stock is subject to, among other
matters, the restrictions set forth in federal statutes and regulations. For
additional information, see Note N - "Restriction on Subsidiary Dividends and
Loans to Affiliates" of the Notes to Consolidated Financial Statements under
Item 8.
17
<PAGE>
ITEM 6 - SELECTED FINANCIAL DATA (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
- ---------------------------------------------------------------------------
THE FOLLOWING SELECTED FINANCIAL DATA FOR THE FIVE YEARS ENDED DECEMBER 31, 1998
IS DERIVED FROM THE CONSOLIDATED FINANCIAL STATEMENTS OF PREMIER NATIONAL
BANCORP INC. THE INFORMATION PRESENTED HAS BEEN RESTATED FOR ALL YEARS TO
REFLECT THE MERGER OF PROGRESSIVE BANK INC. WITH AND INTO HUDSON CHARTERED
BANCORP, INC. TO BECOME PREMIER NATIONAL BANCORP, INC. ON JULY 17, 1998. THE
MERGER HAS BEEN ACCOUNTED FOR UNDER THE POOLING-OF-INTERESTS METHOD. THE DATA
SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED FINANCIAL STATEMENTS,
RELATED NOTES, AND OTHER FINANCIAL INFORMATION INCLUDED HEREIN AT ITEM 8
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA AT OR FOR THE YEAR ENDED DECEMBER
31,
<TABLE>
<CAPTION>
1998* 1997* 1996 1995*
----- ----- ---- -----
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
AVERAGE - ASSETS $1,630,920 $1,599,351 $1,550,059 $1,384,071
- DEPOSITS 1,459,335 1,434,636 1,391,677 1,244,531
- LOANS 1,002,263 1,046,967 996,539 940,371
- EQUITY 153,001 141,767 133,055 123,083
YEAR END - ASSETS 1,574,169 1,615,018 1,572,055 1,439,697
- DEPOSITS 1,407,059 1,452,698 1,420,027 1,288,072
- LOANS 952,577 1,021,541 1,024,794 945,300
- EQUITY 156,154 148,837 137,707 128,587
- PREFERRED STOCK INCLUDED IN EQUITY 5,713
- INTEREST-EARNING ASSETS 1,481,798 1,531,793 1,476,198 1,345,025
- INTEREST-BEARING LIABILITIES 1,167,495 1,235,643 1,222,003 1,099,356
INCOME DATA:
NET INTEREST INCOME $67,095 $66,054 $62,901 $57,265
PROVISION FOR LOAN LOSSES (5,929) (4,475) (5,150) (2,900)
REALIZED GAINS (LOSSES) ON SALES OF SECURITIES AND LOANS,
NET 816 782 327 958
TOTAL OTHER OPERATING INCOME 8,736 8,687 9,379 8,127
---------- -------- -------- ----------
GROSS OPERATING INCOME 70,718 71,048 67,457 63,450
TOTAL OTHER OPERATING EXPENSES (49,988) (43,411) (42,566) (41,735)
---------- -------- -------- ----------
INCOME BEFORE INCOME TAXES 20,730 27,637 24,891 21,715
INCOME TAXES (3) (7,678) (9,997) (6,904) (7,964)
NET INCOME 13,052 17,640 17,987 13,751
DIVIDEND REQUIREMENTS OF PREFERRED STOCK (89) (414)
NET INCOME APPLICABLE TO COMMON SHARES $13,052 $17,640 $17,898 $13,337
---------- -------- -------- ----------
---------- -------- -------- ----------
PER COMMON SHARE: (1)
BASIC EARNINGS $0.84 $1.14 $1.16 $0.89
DILUTED EARNINGS 0.82 1.11 1.13 0.83
CASH DIVIDENDS 0.48 0.45 0.37 0.31
BOOK VALUE (2) 9.95 9.60 8.90 8.22
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: (1)
BASIC 15,613,000 15,421,900 15,465,000 15,049,100
DILUTED 15,969,000 15,843,000 18,893,000 16,038,000
SELECTED FINANCIAL RATIOS:
RETURN ON AVERAGE ASSETS 0.80% 1.10% 1.15% 0.96%
RETURN ON AVERAGE EQUITY 8.53 12.44 13.45 10.84
AVERAGE EQUITY TO AVERAGE ASSETS 9.38 8.86 8.57 8.89
ALLOWANCE FOR LOAN LOSSES AS A PERCENTAGE OF LOANS 2.18 1.85 1.78 1.75
ALLOWANCE FOR LOAN LOSSES AS A PERCENT OF NONPERF. LOANS 226 214 1.81 155
NONPERFORMING LOANS AND OREO TO TOTAL LOANS & OREO 1.03 1.00 1.26 1.47
CAPITAL TO RISK-WEIGHTED ASSETS 15.38 15.30 14.88 16.16
COMMON DIVIDEND PAYOUT RATIO 62.89 33.80 32.80 35.10
TIER 1 CAPITAL TO AVERAGE ASSETS (LEVERAGE RATIO) 9.13 8.69 8.11 8.89
</TABLE>
<TABLE>
<CAPTION>
1994*
-----
<S> <C>
BALANCE SHEET DATA:
AVERAGE - ASSETS $1,294,238
- DEPOSITS 1,159,462
- LOANS 858,576
- EQUITY 118,530
YEAR END - ASSETS 1,342,269
- DEPOSITS 1,204,399
- LOANS 896,910
- EQUITY 118,478
- PREFERRED STOCK INCLUDED IN EQUITY 5,714
- INTEREST-EARNING ASSETS 1,264,268
- INTEREST-BEARING LIABILITIES 1,024,763
INCOME DATA:
NET INTEREST INCOME $57,165
PROVISION FOR LOAN LOSSES (3,900)
REALIZED GAINS (LOSSES) ON SALES OF SECURITIES AND LOANS,
NET (4,236)
TOTAL OTHER OPERATING INCOME 7,855
-----------
GROSS OPERATING INCOME 56,884
TOTAL OTHER OPERATING EXPENSES (44,642)
-----------
INCOME BEFORE INCOME TAXES 12,242
INCOME TAXES (3) (1,308)
NET INCOME 10,934
DIVIDEND REQUIREMENTS OF PREFERRED STOCK (415)
NET INCOME APPLICABLE TO COMMON SHARES $10,519
-----------
-----------
PER COMMON SHARE: (1)
BASIC EARNINGS $0.68
DILUTED EARNINGS 0.64
CASH DIVIDENDS 0.30
BOOK VALUE (2) 7.47
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: (1)
BASIC 15,393,400
DILUTED 16,397,700
SELECTED FINANCIAL RATIOS:
RETURN ON AVERAGE ASSETS 0.81%
RETURN ON AVERAGE EQUITY 8.87
AVERAGE EQUITY TO AVERAGE ASSETS 9.16
ALLOWANCE FOR LOAN LOSSES AS A PERCENTAGE OF LOANS 1.94
ALLOWANCE FOR LOAN LOSSES AS A PERCENT OF NONPERF. LOANS 142
NONPERFORMING LOANS AND OREO TO TOTAL LOANS & OREO 1.74
CAPITAL TO RISK-WEIGHTED ASSETS 15.79
COMMON DIVIDEND PAYOUT RATIO 44.67
TIER 1 CAPITAL TO AVERAGE ASSETS (LEVERAGE RATIO) 9.16
</TABLE>
*INCLUDES AFTER TAX MERGER EXPENSE OF $5,316,000, $314,000, $145,000 AND
$3,023,000 IN 1998, 1997, 1995 AND 1994 RESPECTIVELY.
(1) INFORMATION HAS BEEN ADJUSTED RETROACTIVELY TO GIVE EFFECT TO THE 10% STOCK
DIVIDENDS DECLARED IN DECEMBER 1995, DECEMBER 1996 AND DECEMBER 1998, AS WELL AS
A 50% STOCK DIVIDEND DECLARED SEPTEMBER 1997.
(2) AS TO 1995 INCLUDES THE DILUTIVE EFFECT OF SERIES B CONVERTIBLE PREFERRED
STOCK OF APPROXIMATELY 800,000 SHARES.
(3) THE 1996 TOTALS REFLECT A TAX BENEFIT OF $2.4 MILLION RELATED TO FORMER
PBI'S SETTLEMENT OF AUDITS OF CERTAIN PRIOR YEARS' TAX RETURNS. THE 1994
TOTALS REFLECT A TAX BENEFIT OF $3.5 MILLION FOR REDUCTION IN PBI'S VALUATION
ALLOWANCE FOR DEFERRED TAX ASSETS.
18
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion is to be read in conjunction with the Company's
consolidated financial statements, presented elsewhere in this report under Item
8.
FINANCIAL CONDITION
The following table compares the changes in major categories of the Company's
balance sheet from December 31, 1997 to December 31, 1998 (dollars in
thousands):
<TABLE>
<CAPTION>
CHANGE 12/31/98 VS. 12/31/97
----------------------------
12/31/98 12/31/97 AMOUNT PERCENT
-------------------- ---------------------- ---------------------- -------------------
<S> <C> <C> <C> <C>
CASH & CASH EQUIVALENTS $174,330 $93,261 $81,069 86.9%
SECURITIES 386,851 439,942 (53,091) (12.1)
LOANS 973,847 1,040,872 (67,025) (6.4)
ALLOWANCE FOR LOAN LOSSES (21,270) (19,331) 1,939 10.0
PREMISES & EQUIPMENT 28,714 25,318 3,396 13.4
OTHER 31,697 34,956 (3,259) (9.3)
------------- ----------- ----------
TOTAL ASSETS $1,574,169 $1,615,018 $(40,849) (2.5)%
------------- ----------- ----------
------------- ----------- ----------
DEPOSITS:
NON-INTEREST BEARING $241,289 $218,780 $22,509 10.3%
INTEREST BEARING 1,165,770 1,233,918 (68,148) (5.5)
------------- ----------- ----------
TOTAL DEPOSITS 1,407,059 1,452,698 (45,639) (3.2)
OTHER INTEREST BEARING LIABILITIES 1,725 1,725
OTHER LIABILITIES 9,231 11,758 (2,527) (21.5)
------------- ----------- ----------
TOTAL LIABILITIES 1,418,015 1,466,181 (48,166) (3.3)
STOCKHOLDERS' EQUITY 156,154 148,837 7,317 4.9
------------- ----------- ----------
TOTAL LIABILITIES &
STOCKHOLDERS' EQUITY $1,574,169 $1,615,018 $(40,849) ( 2.5)%
------------- ----------- ----------
------------- ----------- ----------
</TABLE>
19
<PAGE>
FINANCIAL CONDITION
DECEMBER 31, 1998 COMPARED TO DECEMBER 31, 1997
Total assets in 1998 decreased by $40.8 million from year end 1997 or 2.5%. Such
declines were principally in net loans of $69.0 and $53.1 million in securities,
while cash and cash equivalents increased $81.1 million. Of the decrease in
loans, residential mortgages, principally ARM's, and construction loans held by
the Bank decreased $87.2 million or 15.4% and consumer and other (primarily
indirect automobile financing) decreased $18.6 million or 11.8%. Although the
balances of residential mortgages held by the Bank declined, new originations of
such loans totaled approximately $116 million of which approximately $22.6
million were sold into the secondary market reflecting the Company's interest
rate risk management policy. These decreases were partially offset by increases
in commercial mortgage loans which increased by $18.5 million or 8.3% and
commercial and industrial loans which increased $20.3 million or 21.8%.
While average investments and taxable securities were up about $23 million, or
6.7%, at year end, a decrease of $53.1 million was due mainly to the sale of
mortgage-backed securities of $50.4 million in December 1998 as part of a
restructuring of the portfolio after the merger. However, municipal holdings
increased by $20.0 million or 21.0%. This shift was made principally by
investing in "bank-qualified" bonds within New York State, where the tax
equivalent yields are significantly higher (and market price volatility value
risks lower) than other securities of comparable maturity. Corporate securities
also increased by $63.6 million or 173% as a result of the Company redeploying
the proceeds of securities sales into a State tax advantaged subsidiary.
Deposits decreased by $45.6 million principally reflecting the Company's
interest rate policies in light of its high liquidity and low loan demand. While
noninterest bearing deposits increased by $22.5 million, interest bearing
deposits declined by $68.1 million. Of the decrease in interest bearing
deposits, $41.8 million of growth in money market deposit accounts (primarily
Premier products) was offset by declines in savings accounts of $51.9 million,
NOW of $7.6 million, and certificate of deposit accounts of $50.5 million. For
additional information regarding deposits, see "Item 1 - BUSINESS - Deposits".
Additionally, net investments in premises and equipment increased by $3.4
million due to costs associated with branch automation and new branches in
Wappingers, Newburgh, Middletown, Mt. Kisco and Somers. Of the seven offices
consolidated in 1998, five were leased and two were owned facilities. Although
on the market, the owned facilities have not been sold as of December 31, 1998.
Other assets decreased $2.6 million, primarily due to lower levels of interest
income receivable.
The allowance for loan losses grew by $1.9 million to $21.3 million or a 10%
increase, as provisions for loan losses of $5.9 million exceeded net charge-offs
of $4.0 million. (In June, in connection with conforming its accounting policies
with regard to the allowance, the Company made an additional provision for loan
losses of $1.4 million.) The allowance for loan losses represented 2.18% of
total loans for 1998 compared to 1.85% in 1997. Further, the allowance for loan
losses was 226% of nonperforming loans at December 31, 1998 compared to 214% at
December 31, 1997, as nonperforming loans increased slightly from $9.0 million
at year end 1997 to $9.4 million at year end 1998.
Stockholders' equity grew $7.3 million or 4.9% in 1998 compared to year end
1997. Of this increase, $13.1 million arose from net income and $2.8 million
from the sale of additional shares of stock through the Company's dividend
reinvestment and employee stock option plans and $.1 million from the net change
in the unrealized gains on securities available for sale, after tax. These
sources were offset by dividends declared of $8.2 million and treasury stock
repurchases, in connection with the exercise of employee stock options, of $.2
million.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity management involves the ability to meet the cash flow requirements of
customers who may be depositors wishing to withdraw funds or borrowers who need
to draw funds under their available credit facilities.
As detailed in the Company's Consolidated Statement of Cash Flows included in
the financial statements, cash flows are derived from three sources: cash flows
from operating activities, cash flows from investing activities and cash flows
from financing activities. Net cash provided by operating activities was $18.8
million in 1998. Investing activities (primarily purchases and sales of
securities and the funding of loans) generated $112.4 million in 1998 as
purchases of securities of $239.8 million did not exceed sales, maturities, and
prepayment of loans and securities of $357.2 million. Financing activities used
$50.1 million represented by $45.6 million decrease in deposits, dividends of
$7.1 million and stock repurchases and redemptions of $.2 million, offset by the
proceeds of new common stock issuances of $2.8 million. The overall result was
that cash and cash equivalents increased $81.1 million at December 31, 1998. The
Company's liquidity ratio (defined as cash and cash equivalents plus securities
available-for-sale ($359.6 million) to total assets) was 34% at year end 1998.
The average life of the available-for-sale portfolio, on a rate sensitivity
basis, is slightly over three years. These liquid assets, together with maturing
loans, are deemed by management to be more than adequate to meet expected
liquidity needs. In addition, the Bank is a member
20
<PAGE>
of the Federal Home Loan Bank and has the ability to borrow substantial funds
($100 million) under its secured advance program.
The Holding Company's own liquidity needs are chiefly for paying dividends. The
principal sources of income for the Company are investment income, dividends and
rents received from the Bank. Dividends from the Bank are subject to certain
regulatory limitations at year end. The Company had ample cash and liquid
investments at the holding company level [$16 million] to meet its reasonably
anticipated cash needs in 1999.
Financial institutions' assets are monetary in nature and are thus impacted by
inflation, interest rate and credit considerations. This results in the need to
maintain an appropriate equity to assets ratio. In addition, the Company and the
Bank are subject to regulatory requirements to maintain minimum capital levels.
These capital requirements and the actual levels maintained by the Bank and the
Company are summarized in Note O to the Consolidated Financial Statements,
included herein under Item 8. The capital levels of both the Bank and the
Company exceed all regulatory requirements and Regulatory agencies have informed
management that, as of December 31, 1998, the Bank qualifies for "well
capitalized" status under the appropriate regulatory definitions. Further, the
Company believes that the capital levels maintained are more than adequate to
meet its currently foreseeable needs and that additional capital resources would
be required only for exceptional investment opportunities.
Pursuant to the Federal Deposit Insurance Corporation Improvement Act of 1991,
the Bank's regulator developed risk-based capital standards that take account of
interest-rate risk, concentration of credit risk, the risk of nontraditional
activities and the actual performance and expected risk of loss on multi-family
mortgages. Such standards may have the effect of increasing the level of
regulatory capital that the Company and Bank are required to maintain. The
Company's risk based capital ratio as of December 31, 1998 was 15.4%.
In February 1999, the Board of Directors approved a stock repurchase program and
authorized management to purchase up to 1,250,000 shares (approximately 7.9%) of
the Company's Common stock from the market. At the current market prices, the
total repurchase program would utilize approximately $22 - $25 million offset by
Dividend Reinvestment Plan issuances estimated to total approximately $2.5
million and an unknown amount of employee stock option exercises over the next
two years. The purpose of the repurchase program is to offset the effects of new
stock issuances under the Company's dividend reinvestment and stock option plans
and for other general corporate purposes. The Company has sufficient cash and
securities to effect this repurchase program over the next two years.
IMPACT OF YEAR 2000 ISSUE
1) The Company's state of readiness
INFORMATION TECHNOLOGY: The Company relies heavily on complex internal
and third party computer systems for all phases of its operations,
including document and electronic transaction processing, interest
calculation, financial record keeping and customer service. The Company
has outsourced services and software for substantially all of its
mission critical systems, and has been working with these third party
providers since mid-1997 to address Year 2000 concerns. At December 31,
1998, mission critical applications had been certified by the providers
as Year 2000 compliant.
The Company's internal testing of these mission critical systems,
originally scheduled for completion by December 31, 1998, was completed
by February 28, 1999. Based on its initial review of the test results,
the Company believes that its mission critical systems are now year 2000
compliant.
A bank-wide evaluation of non-mission critical software and hardware was
completed February 28, 1999. This evaluation was conducted in
conjunction with an upgrade of branch automation software planned for
1998 and 1999. Replacement of non-compliant non-mission critical
hardware and software is targeted for completion by June 30, 1999, and
will be largely accomplished as the Company completes the roll-out of
the planned branch automation hardware and software.
NON-INFORMATION TECHNOLOGY: The Company's exposure to non-information
technology systems is not material, in that its fixtures such as vaults,
elevators and environmental control systems are not generally equipped
with date sensitive microchips.
THIRD PARTIES: During 1998, the Company implemented a process for
evaluating the credit risk associated with its major customers.
21
<PAGE>
The Year 2000 risk associated with each credit is based in part on
responses to a Year 2000 questionnaire, in part on evaluations completed
by account officers and in part on other considerations, such as the
type of industry and reliance on automated systems. The Company
disclaims any liability or obligation for the completeness, or lack
thereof, of its customers' Year 2000 remediation plans. To the extent
that this process discloses borrowers or classes of borrowers with
significant Year 2000 risk, the Company plans to allocate appropriate
reserves for possible Y2K related credit losses. At December 31, 1998,
the Company has not allocated any significant reserves for such
potential losses.
The Company is also working with its key vendors and suppliers and its
correspondent banks and brokers to assure no interruption in the
business relationship between the Company and these important third
party providers. These key providers include, but are not limited to,
payroll service providers, secondary market software providers,
telephone and utility companies and fiduciary record keeping processors.
The Company plans to complete additional testing in cooperation with the
more critical contract providers. At December 31, 1998, the Company is
not aware of the potential failure of any of these suppliers, but will
continue to monitor and evaluate their Year 2000 readiness.
The Company is critically dependent on certain unrelated non-contractual
third parties for the conduct of its business, such as the Federal
Reserve payment system, the automated clearinghouse system, and
telecommunications and local energy providers. The Company exercises no
influence over these providers, and there are few, if any, alternatives
for obtaining these services. At December 31, 1998 the Company had
successfully completed testing its wire transfer system with the Federal
Reserve Bank, and had also successfully completed its testing with the
automated clearinghouse system.
2) THE COSTS TO ADDRESS THE COMPANY'S YEAR 2000 ISSUES
Management does not consider the amounts expended to date to be
material, and the projected costs to be incurred over the next 12 months
are not expected to have a material effect on the Company's results of
operations or financial position. These projected costs include
upgrading a number of the Company's ATMs, replacing non-compliant
network software and testing costs incurred in connection with certain
phases of the Company's test plan, which will include proxy testing and
scheduling test time with the Bank's primary service bureau, and will
include the costs of consultants engaged to evaluate the results of the
Company's Year 2000 testing program.
At December 31, 1998, the Company has incurred approximately $47,000 of
the originally estimated $300,000 in anticipated Year 2000 costs. These
anticipated costs included renovation of custom code by a third party
provider, proxy testing, the cost of consultants, and the renovation of
certain ATMs and vaults. Although this original estimate seems to remain
appropriate, no assurance can be given that challenges will not be
uncovered in the future which will require additional expense to
address.
Although the Company does not specifically monitor the cost of internal
resources diverted to the Year 2000 project, these costs have consumed,
and can be expected to continue to consume, a substantial portion of
these internal resources, notably information technology department
resources. Management will fund these Year 2000 costs, which represent
current best estimates, from normal cash flow.
3) THE RISKS OF THE COMPANY'S YEAR 2000 ISSUES
At December 31, 1998, the Company views an extended disruption in
service to its customers as the most likely worst case scenario. If the
Company's mission critical systems are not compliant, it may not be able
to correctly process transactions in a reasonable period of time. This
scenario could result in a wide variety of claims for improper handling
of its assets as well as liabilities and other borrowings from its
customers.
22
<PAGE>
At December 31, 1998, management deems the probability of this scenario
to be low, but the impact of any such disruption on the Company could be
anticipated to be material, and to raise serious concerns about the
ability of the Company to continue.
A more likely scenario is one in which the Company experiences temporary
disruptions in service of one or more of the unrelated vendors on which
the Company or its data processing company is critically dependent is
not Year 2000 compliant. These unrelated vendors include providers of
telecommunication services and other utilities. The Company would manage
this risk by relying, temporarily, on manual record keeping; as well as
by closing or limiting hours of operations at selected offices, and by
utilizing staff and equipment at locations not affected by the loss of
service.
4) THE COMPANY'S CONTINGENCY PLANS
The Company anticipates completing its initial mission critical Year
2000 contingency plans by March 31, 1999. The deferral from the original
target date of January 31, 1999 is the result of the rescheduling of
mission critical testing to February 1999.
ASSET/LIABILITY MANAGEMENT
The primary functions of asset/liability management are to assure adequate
liquidity and maintain an appropriate balance between interest-sensitive earning
assets and interest-bearing liabilities and capital resources. The Company's
Investment Committee of the Board monitors, and the Bank, through its treasury
division, controls the rate sensitivity of the balance sheet while maintaining
an appropriate level of net interest income contribution to the operations of
the Company.
The Company's net interest revenue is affected by fluctuations in market
interest rates as a result of timing differences in the repricing of its assets
and liabilities. These repricing differences are quantified in specific time
intervals and are referred to as interest rate sensitivity gaps. The Company
manages the interest rate risk of current and future earnings to a level that is
consistent with its mix of businesses and seeks to limit such risk exposure to
appropriate percentages of both earnings and the imputed value of stockholders'
equity. The objective in managing interest rate risk is to support the
achievement of business strategies, while controlling earnings variability and
ensuring appropriate liquidity. Further, the historical level of demand deposits
(approximately 20% of total assets) serves to mitigate the effects of increases
in interest rates and reduces the average cost of total liabilities.
The following chart (in thousands) provides a quantification of the Company's
interest rate sensitivity gap as of December 31, 1998, based upon the known
repricing dates of certain assets at amortized cost and liabilities and the
assumed repricing dates of others. As shown in the chart below, at December 31,
1998, assuming no management action, the Company's principal interest rate risk
is to a rising rate environment and particularly within one year time frame.
That is, net interest revenue would be expected to be adversely affected by an
increase in interest rates above the rates embedded in the current yield curve,
principally due to the higher level of liabilities ($1,077) that would reprice
relative to similarly situated assets ($791) in that time frame.
This exposure would be mitigated over the longer term as the Company has $589.0
million more in repriceable interest earning assets than interest bearing
liabilities beyond one year.
23
<PAGE>
This chart displays only a static view of the Company's interest rate
sensitivity gap and does not capture the dynamics of rate and spread movements
nor management's actions that may be taken to manage this risk.
<TABLE>
<CAPTION>
THREE MONTHS FOUR MONTHS TO TOTAL WITHIN ONE YEAR TO FIVE GREATER THAN
MATURITY REPRICING DATE (1) (2) OR LESS ONE YEAR ONE YEAR YEARS FIVE YEARS TOTAL
- -------------------------------- -------------- --------------- -------------- ---------------- ---------------- ------------
<S> <C> <C> <C> <C> <C> <C>
SECURITIES $75,745 $53,598 $129,343 $173,034 $81,859 $384,236
FED FUNDS 121,100 121,100 121,100
FIXED RATE LOANS 74,867 65,468 140,335 364,280
FLOATING RATE LOANS 200,443 199,582 400,025 195,225 5,449 600,699
------- ------- ------- ------- ----- -------
TOTAL INTEREST
EARNING ASSETS (1) 472,155 318,648 790,803 544,558 134,954 1,470,315
------- ------- ------- ------- ------- ---------
OTHER INTEREST BEARING DEPOSITS(3) 367,839 320,844 688,683 3,812 692,495
TIME AND OTHER (3) 190,617 195,994 386,611 83,128 3,535 473,274
FHLB ADVANCE 1,725 1,725 1,725
------- ------- ------- ------- ----- -------
TOTAL INTEREST-
BEARING LIABILITIES 560,181 516,838 1,077,019 83,128 7,347 1,167,494
------- ------- --------- ------ ----- ---------
INTEREST SENSITIVITY GAP (4) $(88,026) $(198,190) $(286,216) $461,430 $127,607 $302,821
------- ------- ------- ------- ----- -------
------- ------- ------- ------- ----- -------
GAP AS A PERCENT OF
EARNING ASSETS (6.0)% (13.5)% (19.5)% 31.4% 8.7% 20.6%
------- ------- ------- ------- ----- -------
------- ------- ------- ------- ----- -------
</TABLE>
NOTES TO CHART:
(1) INTEREST RATE SENSITIVITY GAPS ARE DEFINED AS THE FIXED RATE POSITIONS
(ASSETS LESS LIABILITIES) FOR A GIVEN TIME PERIOD. THE GAPS MEASURE THE
TIME WEIGHTED DOLLAR EQUIVALENT VOLUME OF POSITIONS FIXED FOR A
PARTICULAR PERIOD. THE GAP POSITIONS REFLECT A REPRICING DATE AT WHICH
DATE FUNDS ARE ASSUMED TO "MATURE" AND REPRICE TO A CURRENT MARKET RATE
FOR THE ASSET OR LIABILITY. THE TABLE DOES NOT INCLUDE LOANS ON
NONACCRUAL STATUS OR NET UNREALIZED GAINS RECORDED ON
"AVAILABLE-FOR-SALE" SECURITIES AS OF DECEMBER 31, 1998.
(2) VARIABLE RATE BALANCES ARE REPORTED BASED ON THEIR REPRICING FORMULAS.
FIXED RATE BALANCES ARE REPORTED BASED ON THEIR SCHEDULED CONTRACTUAL
MATURITY DATES, EXCEPT FOR CERTAIN INVESTMENT SECURITIES AND LOANS
SECURED BY 1-4 FAMILY RESIDENTIAL PROPERTIES THAT ARE BASED ON
ANTICIPATED CASH FLOWS.
(3) SAVINGS ACCOUNTS: ONE HALF OF THE LEVEL OF "MERIT" SAVINGS ACCOUNTS,
WHICH REPRICE AGAINST CHANGES IN THE FEDERAL RESERVE DISCOUNT RATE, ARE
CLASSIFIED AS THREE MONTHS OR LESS MATURITIES. MANAGEMENTS' ANALYSIS OF
CHANGES IN LEVELS INDICATE THAT CHANGES IN THIS RATE ARE APPROXIMATELY
HALF AS OFTEN AS CHANGES IN OTHER MARKET RATES. THE BALANCE OF THESE
ACCOUNTS AND OTHER SAVINGS ACCOUNTS ARE CLASSIFIED AS FOUR MONTHS TO
ONE YEAR MATURITIES, REFLECTING THE LAGGING PERIOD THAT HISTORICALLY
EXISTS IN RATES PAID ON PASSBOOK AND SAVINGS ACCOUNTS. OTHER DEPOSITS:
TIME DEPOSITS ARE CLASSIFIED BY CONTRACTUAL MATURITY OR REPRICING
FREQUENCY. NOW ACCOUNTS ARE CLASSIFIED AS FOUR MONTHS TO ONE YEAR
MATURITIES. THE BALANCE OF DEPOSITS ARE CONSIDERED LESS THAN THREE
MONTHS, INCLUDING ALL MONEY MARKET DEPOSIT ACCOUNTS. THE INTEREST RATE
SENSITIVITY ASSUMPTIONS PRESENTED FOR THESE DEPOSITS ARE BASED ON
HISTORICAL AND CURRENT EXPERIENCES REGARDING BALANCE RETENTION AND
INTEREST RATE REPRICING BEHAVIOR.
(4) NON-INTEREST BEARING DEPOSIT LIABILITIES WERE APPROXIMATELY $241.3
MILLION AT DECEMBER 31, 1998.
INTEREST RATE RISK
Management of interest rate risk focuses on both tactical (one year or less) and
structural (beyond one year) time frames. The Company has established interest
rate risk limits based on an Earnings at Risk (EAR) concept and on an imputed
market value of portfolio equity (MVPE). EAR measures the potential adverse
impact on earnings from a given change in the yield curve, while the market
value of portfolio equity risk limit is set in terms of changes in the economic
present value of future cash flow streams. To effectively measure and manage
interest rate risk, the Company uses simulation analysis to determine the impact
on EAR and MVPE under various interest rate scenarios. From these simulations,
interest rate risk is quantified and appropriate strategies are developed and
implemented. Model parameters are determined based on past interest rate
movements and are periodically updated. EAR is calculated by multiplying the gap
between asset and liability maturities/repricings by given changes in the yield
curve. MVPE is calculated by subtracting the net present value of deposits and
other interest bearing liabilities from the net present value of interest
earning assets using the same yield curve model. Both MVPE and EAR are measured
assuming a parallel change in market interest rates up 300 basis points and down
300 basis points over a one year
24
<PAGE>
shock.
While the Company principally utilizes the parallel rate shift model for
monitoring its compliance with its interest rate risk limits, it also
periodically reviews and assesses its rate risk exposure to non-parallel yield
curve changes (including inversion). Compliance with established limits is
monitored by the Investment Committee and the Company's interest rate risk
profile is presented quarterly to the Board of Directors. Both MVPE and EAR
assess the Company's interest rate risk based on the Company's current asset and
liability mix. Such limit for MVPE changes is a maximum 50% change in the excess
of the Company's current MVPE over the Company's GAAP equity value. At year end
1998, this limit was $25.6 million. For EAR, the limit is not greater than a $15
million (pre-tax) change in EAR.
The following table presents an analysis of the sensitivity inherent in the
Company's net interest income and market value of portfolio equity (market value
of assets, less liabilities). The interest rate scenarios presented in the table
are based on interest rates at December 31, 1998 adjusted by instantaneous
parallel rate changes upward and downward of up to 300 basis points. Each rate
scenario reflects unique prepayment and repricing assumptions.
Since there are limitations inherent in any methodology used to estimate the
exposure to changes in market interest rates, this analysis is not intended to
be a forecast of the actual effect of a change in market interest rates on the
Company. The net interest income variability reflects the Company's negative
interest rate sensitivity gap. The MVPE is significantly impacted by the
estimated effect of prepayments on the value of loans, and amortizing investment
securities. Further, this analysis is based on the Company's present profile of
assets, liabilities and equity and does not reflect any actions the Company
might undertake in response to changes in market interest rates. This action
could minimize the change in MVPE in the various rate scenarios (in thousands).
<TABLE>
<CAPTION>
CHANGE IN CHANGE IN NET INTEREST CHANGE IN MARKET VALUE OF
- ---------- ----------------------- -------------------------
INTEREST RATES INCOME (EAR) PORTFOLIO EQUITY (MVPE) % CHANGE MVPE
- -------------- ------------ ----------------------- -------------
<S> <C> <C> <C>
+300 $1,399 $8,568 4.2%
+200 1,082 6,203 3.0%
+100 537 3,314 1.6%
0 0 0 0
- -100 (615) (4,274) (2.1)%
- -200 (957) (8,210) (4.0)%
- -300 (1,208) (11,014) (5.3)%
</TABLE>
MORTGAGE-BACKED AND SBA SECURITIES OF U.S. GOVERNMENT AGENCIES
The Company currently invests in mortgage-backed securities (FHLMC, FNMA, and
GNMA) and SBA pooled loans in connection with its asset/liability management
strategy. As of December 31, 1998, the Company had $73.5 million in fixed rate
securities and $24.8 million in adjustable rate securities of this nature. These
securities are all guaranteed by U.S. Government agencies and are, therefore, of
the highest investment grade. These securities are subject to varying monthly
payments due to varying prepayments by the borrowers on the underlying loans. As
a general rule, when interest rates rise, prepayments slow down, extending the
anticipated maturities of the fixed rate securities. Conversely, when interest
rates decline, prepayments rise, as many of the borrowers refinance their loans
at lower rate levels. The Company may not be able to reinvest the proceeds of
prepayments in securities or other earning assets with comparable yields, which
can adversely affect net interest income. Prepayment levels affect the
contractual repayment profile of the securities.
These uncertainties cause more volatile market value shifts than do serial or
single payment bonds, particularly as interest rates rise. The Company manages
this portion of its investment portfolio by only investing in such fixed rate
securities with expected average lives of 2-4 years but not greater than 5
years, or in adjustable rate securities which evidence lower price volatility
due to their adjustable rate feature.
25
<PAGE>
RESULTS OF OPERATIONS
The table that follows sets forth the major components of net income for each of
the three years ended December 31, 1998, 1997 and 1996. Net income decreased
$4.6 million in 1998 over 1997. This decrease is due entirely to a pretax
merger-related expense of $7.5 million recorded in 1998 vs. $.5 million for
similar expense in 1997. [After tax merger-related expense was $5.3 million in
1998 and $.3 million in 1997.] The Company also experienced an increase in net
interest income of $1.0 million and a slight increase in other income of $.08
million. These 1998 results also reflect $.7 million (after tax) in charges to
conform the accounting policies of the predecessor companies. Reported diluted
earnings per share decreased by $.29 per share to $.82. Net income for 1997 was
$17.6 million or $1.11 per diluted share compared to net income for 1996 of
$18.0 million or $1.13 per diluted share. Excluding merger-related expenses, net
income would have been $18.4 million in 1998 or $1.15 per diluted share compared
to $17.9 million or $1.14 per diluted share in 1997.
Return on average assets was .80%, 1.10% and 1.15% in 1998, 1997 and 1996,
respectively. The return on average equity was 8.53%, 12.44% and 13.45% in 1998,
1997 and 1996, respectively. Excluding merger-related expense, return on average
assets would have been 1.13% and 1.12% in 1998 and 1997, respectively, and
return on average equity would have been 12.01% and 12.66% for 1998 and 1997,
respectively.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1998 VS. % CHANGE 1997 VS. % CHANGE
1997 1998 VS. 1996 1997 VS.
1998 VARIANCE 1997 1997 VARIANCE 1996 1996
------------ ------------ ------------ ------------ -------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
TOTAL INTEREST
INCOME $120,327 $(1,218) (1.0)% $121,545 $4,621 4.0% $116,924
TOTAL INTEREST
EXPENSE 53,232 (2,259) (4.1) 55,491 1,468 2.7 54,023
------------ ------------ ------------ -------------- ------------
NET INTEREST INCOME 67,095 1,041 1.6 66,054 3,153 5.0 62,901
PROVISION FOR LOAN
LOSSES 5,929 1,454 32.5 4,475 (675) (13.1) 5,150
------------ ------------ ------------ -------------- ------------
NET INTEREST INCOME
AFTER PROVISION
FOR LOAN LOSSES 61,166 (413) (0.7) 61,579 3,828 6.6 57,751
OTHER INCOME 9,552 83 0.9 9,469 (237) (2.4) 9,706
------------ ------------ ------------ -------------- ------------
GROSS OPERATING
INCOME 70,718 (330) (0.5) 71,048 3,591 5.3 67,457
MERGER EXPENSE 7,511 6,970 1,288.4 541 541 100.0 -
OTHER EXPENSE 42,477 (393) (0.9) 42,870 304 0.7 42,566
------------ ------------ ------------ -------------- ------------
INCOME BEFORE
INCOME TAXES 20,730 (6,907) (25.0) 27,637 2,746 11.0 24,891
INCOME TAXES 7,678 (2,319) (23.2) 9,997 3,093 44.8 6,904
------------ ------------ ------------ -------------- ------------
NET INCOME $13,052 $(4,588) (26.0)% $17,640 $(347) (1.9)% $17,987
------------ ------------ ------------ -------------- ------------
------------ ------------ ------------ -------------- ------------
PER COMMON SHARE:*
BASIC EARNINGS $.84 $1.14 $1.16
------------ ------------ ------------ -------------- ------------
------------ ------------ ------------ -------------- ------------
DILUTED EARNINGS .82 1.11 1.13
------------ ------------ ------------ -------------- ------------
------------ ------------ ------------ -------------- ------------
</TABLE>
(*) BASED UPON THE WEIGHTED-AVERAGE NUMBER OF DILUTED SHARES OF COMMON
STOCK OUTSTANDING DURING EACH OF THE PERIODS, ADJUSTED RETROACTIVELY
FOR 10% STOCK DIVIDENDS DECLARED DECEMBER 1996, 1997 AND 1998, AND THE
50% STOCK DIVIDEND DECLARED SEPTEMBER 1997.
Net interest income is the primary component of the Company's earnings and is
derived from interest income earned on loans and securities offset by interest
expense paid on deposits and other interest-bearing liabilities.
26
<PAGE>
The following table presents, for each of the years 1998, 1997 and 1996, the
average balances of the various categories of the Company's balance sheet and
the related interest income on earning assets and interest expense on
interest-bearing deposits and liabilities. Also presented are the related
average tax equivalent interest yields and interest rates paid on the Company's
interest-earning assets and interest-bearing liabilities.
AVERAGE BALANCES, INTEREST, AND AVERAGE YIELDS/COSTS FOR THE YEAR ENDED DECEMBER
31, (DOLLARS IN THOUSANDS):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
AVERAGE AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST BALANCE INTEREST COST BALANCE INTEREST COST
- ------------------ ------------ ---------- ----------- ----------- --------- --------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
LOANS(1) $1,002,263 $89,807 8.96% $1,046,967 $93,849 8.96% $996,539 $88,826 8.91%
TAXABLE
SECURITIES 363,068 22,736 6.26 340,075 21,782 6.41 356,278 22,692 6.37
TAX-EXEMPT
SECURITIES (2) 81,688 5,558 6.80 69,199 5,002 7.23 47,656 3,409 7.15
FED FUNDS SOLD 82,381 4,171 5.06 48,357 2,613 5.40 53,688 3,155 5.88
------------ ---------- ----------- --------- ------------ ---------
------------ ---------- ----------- --------- ------------ ---------
TOTAL INTEREST
EARNING ASSETS 1,529,400 122,272 7.99 1,504,598 123,246 8.19 1,454,161 118,082 8.12
------------ ---------- ----------- --------- ------------ ---------
CASH & DUE FROM
BANKS 51,706 44,344 44,123
PREMISES &
EQUIPMENT 27,525 25,654 26,440
OTHER ASSETS 42,425 43,807 42,844
ALLOWANCE FOR
LOAN LOSSES (20,136) (19,052) (17,509)
------------ ----------- ------------
TOTAL NON-INTEREST
EARNING ASSETS 101,520 94,753 95,898
------------ ----------- ------------
TOTAL ASSETS $1,630,920 122,272 7.50% $1,599,351 123,246 7.71% $1,550,059 $118,082 7.62%
------------ ---------- ----------- --------- ------------ ---------
------------ ---------- ----------- --------- ------------ ---------
LIABILITIES
MONEY MARKET $314,383 $13,552 4.31 $266,022 $12,143 4.56 $204,921 $9,136 4.46
NOW ACCOUNTS 71,777 825 1.15 71,074 944 1.33 75,976 1,050 1.38
SAVINGS 333,273 11,470 3.44 368,277 13,955 3.79 381,731 14,213 3.72
TIME DEPOSITS 511,892 27,290 5.33 524,625 28,342 5.40 540,549 29,463 5.45
OTHER 1,725 95 5.51 1,809 107 5.91 2,782 161 5.79
------------ ---------- ----------- --------- ------------ ---------
TOTAL INTEREST
BEARING
LIABILITIES 1,233,050 53,232 4.32 1,231,807 55,491 4.50 1,205,959 54,023 4.48
DEMAND DEPOSITS
228,010 204,638 188,500
OTHER 16,859 21,139 22,545
------------ ----------- ------------
------------ ----------- ------------
TOTAL NON-
INTEREST BEARING
LIABILITIES 244,869 225,777 211,045
AVERAGE COST OF
TOTAL LIABILITIES 3.60% 3.81% 3.81%
STOCKHOLDERS'
EQUITY 153,001 141,767 133,055
------------ ----------- ------------
TOTAL LIABILITIES
AND EQUITY $1,630,920 53,232 3.26% $1,599,351 55,491 3.47% $1,550,059 54,023 3.49%
------------ ---------- ----------- --------- ------------ ---------
------------ ----------- ------------
</TABLE>
(TABLE CONTINUED ON NEXT PAGE.)
27
<PAGE>
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
AVERAGE AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST BALANCE INTEREST COST BALANCE INTEREST COST
- ------------------- ----------- ---------- ----------- ---------- ----------- --------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET INTEREST
MARGIN 69,040 4.51% 67,755 4.50% 64,059 4.41%
LESS TAX
EQUIVALENT
ADJUSTMENTS (1,945) (1,701) (1,158)
------- ------- -------
NET INTEREST
INCOME $67,095 4.39% $66,054 4.39% $62,901 4.33%
------- ----- ------- ----- ------- -----
------- ----- ------- ----- ------- -----
EXCESS OF INTEREST
EARNING ASSETS OVER
INTEREST BEARING
LIABILITIES $296,350 $272,791 $248,202
RATIO OF AVERAGE
INTEREST EARNING
ASSETS TO AVERAGE
INTEREST BEARING
LIABILITIES 124.03% 122.15% 120.58%
</TABLE>
(1) AVERAGE BALANCES INCLUDE NON-ACCRUAL LOANS.
(2) YIELDS ON TAX-EXEMPT SECURITIES BASED ON A FEDERAL TAX RATE OF 35% IN 1998
AND 34% IN 1997 AND 1996.
The Company's net interest margin (tax equivalent net interest income dividend
by average earning assets) has continued to improve over the period from 4.41%
in 1996 to 4.50% in 1997 and 4.51% in 1998 as the Company continued its efforts
to improve the quality of its core net interest income. In 1998, the Company's
interest margin increased due to downward pricing of interest paid on interest
bearing deposits and other interest bearing liabilities. In 1997, net interest
margin improved primarily from income earned on higher levels of loans and
tax-exempt securities.
The table below details the changes in interest income and interest expense for
the periods indicated due to both changes in average outstanding balances and
changes in average interest rates (in thousands):
<TABLE>
<CAPTION>
1998 COMPARED TO 1997 1997 COMPARED TO 1996
INCREASE/(DECREASE) DUE TO: INCREASE/(DECREASE) DUE TO:
VOLUME RATE TOTAL (1) VOLUME RATE TOTAL (1)
------ ---- --------- ------- ----- ---------
<S> <C> <C> <C> <C> <C> <C>
INTEREST EARNED ON:(2)
LOANS $(4,006) $(36) $(4,042) $4,521 $502 $5,023
TAXABLE SECURITIES 1,440 (486) 954 (1,038) 128 (910)
TAX-EXEMPT SECURITIES 850 (294) 556 1,557 36 1,593
FEDERAL FUNDS SOLD 1,723 (165) 1,558 (288) (254) (542)
----------- ----- ----- --------- -------- --------
TOTAL INTEREST INCOME 7 (981) (974) 4,752 412 5,164
----------- ----- ----- --------- -------- --------
INTEREST PAID ON:
MONEY MARKET ACCOUNTS 2,085 (676) 1,409 2,789 218 3,007
NOW ACCOUNTS 8 (127) (119) (65) (41) (106)
SAVINGS ACCOUNTS (1,205) (1,280) (2,485) (510) 252 (258)
TIME DEPOSITS (679) (373) (1,052) (860) (261) (1,121)
OTHER (4) (8) (12) (58) 4 (54)
TOTAL INTEREST EXPENSE 205 (2,464) (2,259) 1,296 172 1,468
NET INTEREST MARGIN (198) 1,483 1,285 3,456 240 3,696
LESS TAX EQUIVALENT EFFECT (297) 53 (244) (529) (14) (543)
NET INTEREST INCOME $(495) $ 1,536 $1,041 $ 2,927 $ 226 $3,153
----------- ----- ----- --------- -------- --------
----------- ----- ----- --------- -------- --------
</TABLE>
(1) THE CHANGE IN INTEREST DUE TO BOTH RATE AND VOLUME HAS BEEN ALLOCATED TO
VOLUME AND RATE CHANGES IN PROPORTION TO THE RELATIONSHIP OF THE ABSOLUTE DOLLAR
AMOUNTS OF THE CHANGE IN EACH TO THE TOTAL CHANGE.
(2) YIELDS ON TAX EXEMPT SECURITIES BASED ON A FEDERAL TAX RATE OF 35% IN 1998
AND $34% IN 1997 AND 1996.
28
<PAGE>
In 1998 vs. 1997, net interest income was positively impacted by $1.5 million
due to changes in rates. The primary component was decreases in rates paid on
deposits of $2.5 million. While overall gross interest income was down slightly
due to changes in volume, average loan interest volume declines of $4.0 was
offset by increases in the securities portfolio, while the average increase in
the volume of interest bearing liabilities reduced interest income by $.2
million.
In 1997 vs. 1996, net interest income was positively impacted by $2.9 million,
due to changes in volume, as the impact of increases in average earning assets,
primarily in average loans and tax-exempt securities offset the impact of
increasing money market account balances. Net interest income also was also
positively impacted $.2 million in 1997 due to changes in interest rates on
earning assets net of increases on interest bearing liabilities.
ASSET QUALITY AND PROVISIONS FOR LOAN LOSSES
The following table presents details of the Company's nonperforming assets and
restructured loans. The accrual of interest income is generally discontinued
when a loan becomes 90 days past due as to interest or principal or, with
respect to "current" loans, if management has doubts about the ability of the
borrower to regularly pay interest and/or principal on a timely basis. When
interest accruals are discontinued, any interest income credited to the current
year which has not been collected is reversed, and any interest accrued in the
prior year is charged to the allowance for loan losses. Management may elect to
continue the accrual of interest when the loan is in the process of collection
and the estimated fair value of the collateral is sufficient to cover the
principal and accrued interest. If payments on nonaccrual loans are made, income
is recorded when received unless management has reason to doubt the ultimate
collectibility of the principal remaining on the loan in which all payments are
applied to principal. Loans are returned to accrual status once the doubt
concerning collectibility has been removed and the borrower has demonstrated
performance in accordance with the loan terms and conditions.
The table below summarizes the Company's non-performing assets and restructured
loans for the years indicated (in thousands):
<TABLE>
<CAPTION>
At December 31,
1998 1997 1996 1995 1994
------------ ------------ ------------ ----------------- ------------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans (1) $8,868 $7,889 $9,113 $10,010 $9,643
Accruing loans past due 90 days or more (2) 497 443 645 694 953
Restructured loans and troubled debt 28 682 500 1,849 1,919
------------ ------------ ------------ ----------------- ------------
Total non-performing loans 9,393 9,014 10,258 12,553 12,515
------------ ------------ ------------ ----------------- ------------
AMOUNT COLLATERALIZED BY REAL ESTATE 8,282 8,420 8,701 10,141 11,867
------------ ------------ ------------ ----------------- ------------
Other real estate owned 628 1,366 2,923 1,758 3,415
------------ ------------ ------------ ----------------- ------------
Total non-performing assets $10,021 $10,380 $13,181 $14,311 $15,930
------------ ------------ ------------ ----------------- ------------
------------ ------------ ------------ ----------------- ------------
</TABLE>
(1) Nonaccrual status denotes loans on which, in the opinion of management,
the collection of interest or principal is unlikely, or loans that meet
other nonaccrual criteria as established by regulatory authorities.
Payments received on loans classified as nonaccrual are either applied
to the outstanding principal balance or recorded as interest income,
depending upon management's assessment of the collectibility of the
loan.
(2) Includes loans and mortgages secured by residential real estate of
$224, $128, $457, $406 and $577 at December 31, 1998, 1997, 1996, 1995,
and 1994, respectively.
Non-performing loans increased by $.4 million to $9.4 million at December 31,
1998 as the result of several residential mortgage loans being placed on
nonaccrual status partially offset by declines in restructured loans. Other real
estate owned declined $.7 million due to disposal of such properties. Of the
amount of non-performing loans outstanding at December 31, 1998, $8.3 million is
collateralized by real estate (approximately 88%). At December 31, 1997, the
Company had $9.0 million in non-performing loans of which $8.4 million (93%) was
collateralized by real estate compared to December 31, 1996 non-performing loans
total $10.3 million (85% being collateralized by real estate). Other real estate
owned (OREO) comprised eight properties at December 31, 1998 of which one was a
commercial property and seven were residential properties. During the year the
Company's net disposal of OREO properties was $.7 million.
For a discussion of the allowance for loan losses, concentrations of credit risk
and impaired loans, see Notes A, C and D to the 1998 Consolidated Financial
Statements, under Item 8 contained herein. At December 31, 1998, there were no
commitments to lend additional funds to borrowers whose loans were classified as
non-performing.
If the Company's nonaccrual loans had been current in accordance with the
original loan terms, $892,000 in gross interest income
29
<PAGE>
would have been recorded in 1998 vs. $858,000 in 1997 and $1,038,000 in 1996.
The actual amount of interest income on nonaccrual loans recorded in interest
income for 1998 was $100,000 vs. $273,000 in 1997 and $215,000 in 1996.
At December 31, 1998, the Company had a total of approximately $19.0 million in
loans classified as substandard, in addition to the nonperforming assets noted
above. Of this amount, $14.5 million are loans collateralized by real estate.
Such loans may be classified as nonperforming in the future, if present concerns
about the borrower's ability to comply with repayment terms become clearly
evident.
The following table details changes in the Allowance for Loan Losses for the
years ended December 31 (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
- ------------------------------------------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $19,331 $18,533 $16,803 $17,728 $21,242
Chargeoffs:
Commercial 406 1,448 894 441 407
Installment 1,620 1,146 821 812 527
Real estate 3,344 2,164 2,575 3,299 6,984
------------- ------------- ------------- ------------- -------------
Total chargeoffs 5,370 4,758 4,290 4,552 7,918
------------- ------------- ------------- ------------- -------------
Recoveries:
Commercial 462 164 118 81 114
Installment 481 160 180 249 224
Real estate 437 757 572 397 97
------------- ------------- ------------- ------------- -------------
Total recoveries: 1,380 1,081 870 727 435
------ ------ ------ ----- ----
Net charge-offs (3,990) (3,677) (3,420) (3,825) (7,483)
------------- ------------- ------------- ------------- -------------
Provision for loan losses 5,929 4,475 5,150 2,900 3,900
Transfers, other* 69
-----------
Balance at end of year $21,270 $19,331 $18,533 $16,803 $ 17,728
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Ratio of net charge-offs to
average loans outstanding
during year .40% .35% .34% .41% .87%
Allowance for loan losses as a
percent of year-end loans 2.18 1.85 1.78 1.75 1.94
Allowance as a percent of non- 226 214 181 134 142
performing loans
</TABLE>
*An adjustment of $69 was transferred to the allowance for the loan losses as a
result of the acquisition of assets and liabilities of the First National Bank
of Armenia.
30
<PAGE>
The provision for loan losses, which is charged to operations, is based on both
the amount of net loan losses incurred and management's ongoing evaluation of
the level and composition of risk in the loan portfolio. The evaluation
considers, in addition to the results of a continuous program of individual loan
assessment, factors including, but not limited to, general economic conditions
and expected impact of Year 2000 on its borrowers and recent trends, loan
portfolio composition, the level of nonperforming assets, prior loan loss
experience and trends, growth of the portfolio and management's statistical
estimate of losses inherent in the portfolio. The Company has not been involved
in any foreign loans or highly leveraged transactions, which are generally
considered high risk loans. The provision for loan losses increased by $1.4
million or 32.5% in 1998 compared to a decrease of $.7 million or 13.1% in 1997.
This increase was substantially attributable to a special provision of $1.4
million taken in June of 1998 to conform the provisioning policy of the
constituent banks.
The following table shows, at the dates indicated, the allocation of the
allowance for loan losses, by category, and the percentage of loans in each
category to total gross loans:
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
------ ------ ------ ------ -----
% of % of % of % of % of
Balance at end of total total total total total
year applicable to: Amount loans Amount loans Amount loans Amount loans Amount loans
---------- -------- ---------- --------- ---------- --------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial $2,472 11.7% $2,131 9.0% $2,476 7.9% $2,355 7.9% $2,010 11.1%
Consumer & other 3,530 14.4 3,699 15.1 3,341 14.6 2,307 12.5 2,189 11.6
Real Estate - Mortgage 11,679 73.9 9,451 75.9 6,964 77.5 8,319 79.6 8,976 77.3
Unallocated 3,589 4,050 5,752 3,822 4,553
---------- -------- ---------- --------- ---------- --------- ---------- -------- ---------- --------
Total allowance
for loan losses $21,270 100% $19,331 100% $18,533 100% $16,803 100% $17,728 100%
---------- -------- ---------- --------- ---------- --------- ---------- -------- ---------- --------
---------- -------- ---------- --------- ---------- --------- ---------- -------- ---------- --------
</TABLE>
The ratio of allowance for loan losses to total loans has remained relatively
stable varying between 1.8% and 2.2% from 1994 through 1998. The ratio of the
allowance to nonperforming loans has steadily increased since 1994, as the
Company loan loss allowance model reflects the risk potential of both performing
and non-performing loans. This ratio also does not reflect collateral values,
although the large majority of the Bank's nonperforming assets are
collateralized by real estate. Net charge-offs of loans were $4.0 million in
1998 as compared to $3.7 million in 1997 and $3.4 million in 1996.
Management believes the allowance for loan losses is adequate to cover credit
risk inherent in the portfolio but no assurance can be given that the current
apparent stabilization of the local economy will not be unsettled by future
events. Such developments could be expected to adversely affect the financial
performance of the Company.
31
<PAGE>
NONINTEREST INCOME
The following table details the components of noninterest income for the years
ended December 31 (dollars in thousands):
<TABLE>
<CAPTION>
NET CHANGE NET CHANGE
1998 AMOUNT PERCENT 1997 AMOUNT PERCENT 1996
- -------------------------------- ----------- ----------- ----------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME FROM FIDUCIARY
ACTIVITIES $923 $186 25.2% $737 $94 14.6% $643
SERVICE CHARGE INCOME 7,516 (218) (2.8) 7,734 (209) (2.6) 7,943
NET REALIZED GAINS (LOSSES)
ON SECURITIES 373 44 13.4 329 366 989.2 (37)
NET GAINS ON SALES OF
LOANS 443 (10) (2.2) 453 89 24.5 364
OTHER 297 81 37.5 216 (577) (72.8) 793
----------- ----------- ----------- ----------- ------------
TOTAL $9,552 $83 .9% $9,469 $(237) (2.4)% $9,706
----------- ----------- ----------- ----------- ------------
----------- ----------- ----------- ----------- ------------
</TABLE>
Noninterest income was little changed in 1998 compared to 1997 as increases in
trust income of $.2 million and was offset by a comparable decrease in service
charge income. (1998 service charge income reflect little impact from the
introduction of new service charge schedules which did not become fully
effective until year end.) Noninterest income decreased $.2 million in 1997
compared to 1996, primarily due to the 1996 sale of the Company's merchant
processing services in which the Company recorded a one-time gain of $.4
million.
NONINTEREST EXPENSE
The following chart outlines the major changes in noninterest expense for the
years ended December 31, 1998, 1997 and 1996, respectively (dollars in
thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
NET CHANGE NET CHANGE
---------- ----------
1998 AMOUNT PERCENT 1997 AMOUNT PERCENT 1996
- ---------------------------- ------------ ------------ ------------- ------------ ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
SALARIES & BENEFITS $23,129 $(120) (.5)% $23,249 $947 4.2% $22,302
NET OCCUPANCY &
EQUIPMENT 7,124 364 5.4 6,760 (334) (4.7) 7,094
OREO (175) (397) (178.8) 222 (644) (74.4) 866
MERGER-RELATED 7,511 6,970 1,288.4 541 541 100
OTHER 12,399 (240) (1.9) 12,639 335 2.7 12,304
------------ ------------ ------------ ------------- ------------
TOTAL $49,988 $6,577 15.2% $43,411 $845 2.0% $42,566
------------ ------------ ------------ ------------- ------------
------------ ------------ ------------ ------------- ------------
</TABLE>
Salaries and benefits expense decreased in 1998 by $.1 million as reductions in
salary expense in connection with the merger were substantially offset by 18
staff in the four new branches, general salary increases during 1998, and
temporary staff costs incurred in connection with the data processing
conversion. Salaries and benefits expense increased in 1997 by $.9 million
compared to 1996 due to the staffing increases in the fourth quarter of 1996 for
the Company's new Orange County branches (1997 first full year of operations),
and the restructuring of the Company's commercial lending division, new hires
and normal salary increases.
32
<PAGE>
Occupancy and equipment expenses increased by $.4 million in 1998 vs. 1997
primarily due to the expense of four new branches in 1998. Although the Company
consolidated seven branches in connection with the merger, the occupancy cost
associated with these branches was very modest as the branches consolidated were
long established. Occupancy and equipment expense decreased in 1997 vs. 1996
primarily due to the severe winter experienced in the first quarter of 1996.
Other Real Estate Owned expense was a net $.2 million recovery in 1998 compared
to net $.2 million charge in 1997 due principally to a conforming accounting
adjustment of $.4 million in connection with the merger. OREO writedowns and
provisions were $.1 million, $.1 million and $.8 million in 1998, 1997 and 1996,
respectively. Writedowns of properties after foreclosure reflect the continuing
difficulty of maintaining "distressed" real estate values in the Company's
marketplace. Exclusive of these large items, OREO expense principally relates to
insuring and maintaining properties carried during the year.
Merger-related expenses amounted to $7.5 million ($5.3 million after tax) in
1998 vs. $.5 million ($.3 million after tax) in 1997. The following is the
summary of the costs incurred in connection with the merger:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Legal, accounting and other professional fees $1,555 $541
Operational and promotional costs 2,184
Abandonments and redundancies 1,068
Staff and benefit expenses 1,952
Net recapture of tax on thrift bad debt reserve 752
-----
Total costs 7,511 541
Tax benefit 2,195 227
----- ----
Net merger related expenses $5,316 $314
----- ----
----- ----
</TABLE>
Other expenses decreased by $.2 million in 1998, of which $.4 million represents
savings achieved in the levels of expense for postage, supplies, advertising,
foreclosure expense and consultant fees, somewhat offset by increases in data
processing, telephone and miscellaneous losses of $.6. Other expenses increased
by $.3 million in 1997 vs. 1996 mainly due to $.4 million of increased
amortization of intangibles (first full year) of Rockland County branches and
$.3 million increase in advertising and public relations partially offset by
decrease in printing and postage, etc. of $.4 million. Exclusive of merger
expenses, the Company's efficiency ratio for 1998 was 55.65% vs. 56.47% for
1997, and 57.99% for 1996.
Income taxes decreased to $7.7 million in 1998 compared to $10.0 million in 1997
and $6.9 million in 1996, reflecting pretax income of $20.7 million, $27.6
million and $24.9 million in 1998, 1997 and 1996, respectively. The Company's
effective tax rates were 37.0%, 36.2% and 27.7% in 1998, 1997 and 1996,
respectively. The increase in the Company's effective tax rate in 1998 reflects
$1.6 million in nondeductible merger-related expense and the increase in 1997's
effective rate relates to the lower rate in 1996 due to realization of $2.4
million in tax credit recorded on the settlement of certain of the Company's
prior year tax returns. For further information regarding income taxes, see Note
J to the Consolidated Financial Statements under Item 8.
33
<PAGE>
SELECTED QUARTERLY FINANCIAL DATA
The following table shows selected quarterly financial data of the Company for
the periods indicated. The information contained in the table does not purport
to be complete and is qualified in its entirety by the more detailed financial
information contained elsewhere herein.
Selected Quarterly Financial Data (Unaudited)
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
1998
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
----------------- ----------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Interest income $30,673 $30,619 $30,377 $28,658
Interest expense 13,881 13,988 13,373 11,990
---------- ---------- ---------- ----------
Net interest income 16,792 16,631 17,004 16,668
Provision for loan losses (975) (2,555) (1,199) (1,200)
Other income 2,346 2,235 2,365 2,606
Merger related expense (1,2,3) (648) (1,552) (5,311) -
Other expense (10,809) (10,513) (10,496) (10,659)
---------- ---------- ---------- ----------
Income before income taxes 6,706 4,246 2,363 7,415
Income tax expense 2,518 1,589 1,136 2,435
---------- ---------- ---------- ----------
$4,188 $2,657 $1,227 $4,980
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Weighted average common shares:
Basic 15,503,025 15,608,000 15,634,300 15,677,000
Diluted 16,003,502 16,089,525 16,099,600 15,974,000
Earnings per common share:*
Basic $.27 $.17 $.08 $.32
Diluted $.26 $.17 $.08 $.31
</TABLE>
The following table shows selected quarterly financial data (unaudited) of the
Company for the three month periods ended:
<TABLE>
<CAPTION>
1997
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
----------------- ----------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Interest income $29,671 $30,434 $30,541 $30,899
Interest expense 13,532 13,842 14,001 14,116
---------- ---------- ---------- ----------
Net interest income 16,139 16,592 16,540 16,783
Provision for loan losses (1,300) (1,100) (1,101) (974)
Other income 2,497 2,180 2,340 2,452
Merger related expense (4) - - - (541)
Other expense (10,681) (10,599) (10,686) (10,904)
---------- ---------- ---------- ----------
Income before income taxes 6,655 7,073 7,093 6,816
Income tax expense 2,413 2,596 2,565 2,423
---------- ---------- ---------- ----------
$4,242 $4,477 $4,528 $4,393
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Weighted average common shares:
Basic 15,469,895 15,385,362 15,637,600 15,435,000
Diluted 15,884,415 15,854,206 15,869,700 15,882,000
Earnings per common share:*
Basic $.27 $.29 $.29 $.28
Diluted $.27 $.28 $.29 $.28
</TABLE>
*Earnings per share have been retroactively adjusted to give effect to the 10%
stock dividends, declared December 1998 and December 1996 and the three for
two stock split in the form of a 50% stock dividend declared September 1997.
(1)The merger related expense charge of $5.3 reduced third quarter 1998 income
by $3.7 after tax and reduced diluted earnings per share by $.26.
(2)The merger-related expense charge of $1.6 million reduced second quarter net
income by $1.2 after tax and reduced diluted earnings per share by $.11.
(3)The merger-related expense charge of $.6 million reduced first quarter net
income by $.4 million after tax and reduced diluted earnings per share
by $.03.
(4)The merger related expense charge of $.5 million reduced fourth quarter 1997
income by $.3 million after tax and reduced diluted earnings per share
by $.02.
34
<PAGE>
Item 7A. QUANTITIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
See Item 7, Management's Discussion and Analysis of Financial Condition and
Results of Operations "Asset/Liability Management".
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
The following are included in this item beginning on the pages indicated: Page
<S> <C>
Report of Management to the Stockholders 40
Independent Accountants' Report 41
Independent Auditors' Report 42
Consolidated Balance Sheets at December 31, 1998 and 1997 43
Consolidated Statements of Income and Expense for each of the three years in the
period ended December 31, 1998 44
Consolidated Statements of Cash Flows for each of the three years in the period
ended December 31, 1998 45
Consolidated Statements of Changes in Stockholders' Equity for each of the three
years in the period ended December 31, 1998 46
Consolidated Statements of Comprehensive Income for each of the three years in the period 47
ended December 31, 1998
Notes to Consolidated Financial Statements 48
</TABLE>
Selected quarterly financial data of the Company for 1998 and 1997 are reported
in "Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations - Selected Quarterly Financial Data."
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEMS 10 THROUGH 13.
Information required by Part III (Items 10 through 13) of this Form 10-K is
incorporated by reference to the Company's definitive Proxy Statement for the
Annual Meeting of Shareholders scheduled to be held on May 13, 1999, which will
be filed with the Securities and Exchange Commission not later than 120 days
after the end of the fiscal year to which this report relates.
35
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) List of Documents Filed as Part of This Report.
(1) Financial Statements Filed:
1. Independent Auditors' Report
2. Consolidated Balance Sheets at December 31, 1998 and
1997
3. Consolidated Statements of Income and Expense for
each of the three years in the period ended December
31, 1998
4. Consolidated Statements of Changes in Stockholders'
Equity for each of the three years in the period
ended December 31, 1998
5. Consolidated Statements of Cash Flows for each of the
three years in the period ended December 31, 1998
6. Consolidated Statements of Comprehensive Income for
each of the three years in the period ended December
31, 1998
7. Notes to Consolidated Financial Statements
(2) Financial Statement Schedules. All schedules are omitted
because of the absence of conditions under which they are
required or because the required information is included
in the consolidated financial statements or related notes.
(3) Exhibits. The exhibits listed on the Exhibit Index on page
37 of this Form 10-K are filed herewith or are
incorporated herein by reference.
(b) Reports on Form 8-K
None.
36
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
3.1 RESTATED CERTIFICATE OF INCORPORATION OF PREMIER NATIONAL BANCORP, INC.*
3.2 BYLAWS, AS AMENDED, OF PREMIER NATIONAL BANCORP, INC.*
10.1 FISHKILL NATIONAL CORPORATION INCENTIVE STOCK OPTION PLAN, AS AMENDED
(INCORPORATED HEREIN BY REFERENCE TO THE FISHKILL NATIONAL CORPORATION
ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1990,
FILE NO. 33-79844).+
10.2 EXECUTIVE SUPPLEMENTAL INCOME PLAN BETWEEN THE COMPANY AND JOHN CHARLES
VANWORMER (INCORPORATED HEREIN BY REFERENCE TO EXHIBIT 10(J) TO THE
COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31,
1993).+
10.3 DIRECTORS DEFERRED COMPENSATION PLAN (INCORPORATED HEREIN BY REFERENCE
TO EXHIBIT 10.3 TO THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE
FISCAL YEAR ENDED DECEMBER 31, 1995).+
10.4 HUDSON CHARTERED BANCORP, INC. 1995 INCENTIVE STOCK PLAN (INCORPORATED
HEREIN BY REFERENCE TO EXHIBIT 10.4 TO THE COMPANY'S ANNUAL REPORT ON
FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995).+
10.5 EMPLOYMENT AGREEMENT OF T. JEFFERSON CUNNINGHAM III.+*
10.6 EMPLOYMENT AGREEMENT OF JOHN CHARLES VANWORMER DATED JULY 1, 1995
(INCORPORATED HEREIN BY REFERENCE TO EXHIBIT 10.6 TO THE COMPANY'S
ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31,
1995).+
10.7 EMPLOYMENT AGREEMENT OF PETER VAN KLEECK.+*
10.8 EMPLOYMENT AGREEMENT OF PAUL A. MAISCH.+*
10.9 INDEMNIFICATION AGREEMENT BY AND BETWEEN PREMIER NATIONAL BANCORP, INC.
AND EACH OF THE MEMBERS OF THE BOARD OF DIRECTORS.*
10.10 EMPLOYMENT AGREEMENT OF DAVID S. MACFARLAND.+*
10.11 EMPLOYMENT AGREEMENT OF PAUL S. MACK.+*
10.12 SEPARATION AND CONSULTING AGREEMENT OF ROBERT GABRIELSEN.+*
10.13 FIRST NATIONAL BANK OF THE HUDSON VALLEY DIRECTORS' SEVERANCE PLAN
(INCORPORATED HEREIN BY REFERENCE TO EXHIBIT 10.10 TO THE COMPANY'S
ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31,
1997).+
10.14 PROGRESSIVE BANK, INC. AMENDED AND RESTATED INCENTIVE STOCK OPTION PLAN
(INCORPORATED BY REFERENCE TO EXHIBIT 10.2 TO THE ANNUAL REPORT ON FORM
10-K, FILE NO. 0-15025, OF PROGRESSIVE BANK, INC., FILED MARCH 22,
1988).
10.15 PROGRESSIVE BANK, INC. 1993 NON-QUALIFIED STOCK OPTION PLAN -- DIRECTORS
(INCORPORATED BY REFERENCE TO EXHIBIT 10.9 TO THE ANNUAL REPORT ON FORM
10-K, FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994, FILE NO. 0-15025, OF
PROGRESSIVE BANK, INC.)
10.16 PROGRESSIVE BANK, INC. NONCONTRIBUTORY RETIREMENT AND SEVERANCE PLAN FOR
CERTAIN MEMBERS OF THE BOARD OF DIRECTORS (INCORPORATED BY REFERENCE TO
EXHIBIT 10.11 OF THE FILE NO. 01-15025 TO THE COMPANY'S ANNUAL REPORT ON
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1996).+
37
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
10.17 PROGRESSIVE BANK, INC. DEFERRED COMPENSATION PLAN, AS AMENDED AND
RESTATED (INCORPORATED HEREIN BY REFERENCE TO THE PROGRESSIVE BANK, INC.
ANNUAL REPORT ON FORM 10-K FOR HE FISCAL YEAR ENDED DECEMBER 31, 1997,
FILE NO. 01-15025).+
10.18 THE PAWLING SAVINGS BANK SUPPLEMENTAL RETIREMENT PLAN (INCORPORATED
HEREIN BY REFERENCE TO THE PROGRESSIVE BANK, INC. ANNUAL REPORT ON FORM
10-K FOR HE FISCAL YEAR ENDED DECEMBER 31, 1997, FILE NO. 01-15025).+.
11 COMPUTATION OF EARNINGS PER SHARE (INCLUDED IN NOTE A TO THE COMPANY'S
CONSOLIDATED FINANCIAL STATEMENTS).*
21 SUBSIDIARIES OF PREMIER NATIONAL BANCORP, INC.*
23.1 CONSENT OF DELOITTE & TOUCHE LLP.*
23.2 INDEPENDENT AUDITORS' REPORT OF KPMG LLP.*
27 FINANCIAL DATA SCHEDULE.*
- ----------------------
+ MANAGEMENT CONTRACT OR COMPENSATORY PLAN.
* FILED HEREWITH.
38
<PAGE>
REPORT OF MANAGEMENT TO THE STOCKHOLDERS.
CONSOLIDATED FINANCIAL STATEMENTS
The management of Premier National Bancorp, Inc. and subsidiaries, (the
"Company"), is responsible for the preparation, integrity, and fair presentation
of its published financial statements and all other information presented in
this Annual Report. The consolidated financial statements have been prepared in
accordance with generally accepted accounting principles and, as such, include
amounts based on informed judgments and estimates made by management.
INTERNAL CONTROL
Management is responsible for establishing and maintaining an effective
internal control over financial reporting, including safeguarding of assets, for
financial presentations in conformity with generally accepted accounting
principles and, for the Company's bank subsidiary, Premier National Bank, in
conformity with the Federal Financial Institutions Examination Council
instructions for Consolidated Reports of Condition and Income ("Call Report"
instructions). The internal control contains monitoring mechanisms, and actions
are taken to correct deficiencies identified.
There are inherent limitations in the effectiveness of any internal
control, including the possibility of human error and the circumvention or
overriding of controls. Accordingly, even effective internal control can provide
only reasonable assurance with respect to financial statement preparation.
Further, because of changes in conditions, the effectiveness of internal control
may vary over time.
Management assessed the Company's internal control over financial
reporting, including safeguarding of assets, for financial presentations in
conformity with generally accepted accounting principles and, for Premier
National Bank, in conformity with Call Report instructions as of December 31,
1998. This assessment was based on criteria for effective internal control over
financial reporting, including safeguarding of assets, described in INTERNAL
CONTROL--INTEGRATED FRAMEWORK issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on this assessment, management
believes that the Company maintained effective internal control over financial
reporting, including safeguarding of assets, for financial presentations in
conformity with generally accepted accounting principles and, for its bank
subsidiary, Call Report instructions as of December 31, 1998.
AUDIT COMMITTEE
The Audit Committee of the Board of Directors is comprised entirely of
non-employee directors who are independent of the Company's management. The
Audit Committee is responsible for recommending to the Board of Directors the
selection of independent auditors. It meets periodically with management, the
independent auditors, and the internal auditors to ensure that they are carrying
out their responsibilities. The Audit Committee is also responsible for
performing an oversight role by reviewing and monitoring the financial,
accounting and auditing procedures of the Company in addition to reviewing the
Company's financial reports. The independent auditors and the internal auditors
have full and free access to the Audit Committee, with or without the presence
of management, to discuss the adequacy of the internal control over financial
reporting and any other matters which they believe should be brought to the
attention of the Audit Committee.
COMPLIANCE WITH LAWS AND REGULATIONS
Management is also responsible for ensuring compliance with the federal
laws and regulations concerning loans to insiders and the federal and state laws
and regulations concerning dividend restrictions, both of which are designated
by the Federal Deposit Insurance Corporation as safety and soundness laws and
regulations.
Management assessed Premier National Bank's compliance with the
designated safety and soundness laws and regulations and has maintained records
of its determinations and assessments as required by the Federal Deposit
Insurance Corporation. Based on this assessment, management believes that
Premier National Bank has complied, in all material respects, with the
designated safety and soundness laws and regulations for the year ended December
31, 1998.
Peter Van Kleeck Paul A. Maisch
President & Chief Executive Officer Treasurer & Chief Financial Officer
39
<PAGE>
[LOGO] [LETTERHEAD]
INDEPENDENT ACCOUNTANTS' REPORT
To the Audit Committee
Premier National Bancorp, Inc.
We have examined management's assertion that, as of December 31, 1998, Premier
National Bancorp, Inc. and subsidiaries (the "Company"), maintained effective
internal control over financial reporting, including safeguarding of assets,
presented in conformity with generally accepted accounting principles and, for
the Company's bank subsidiary, Premier National Bank, in conformity with the
Federal Financial Institutions Examination Council Instructions for Consolidated
Reports of Condition and Income ("Call Report" instructions) included in the
accompanying Management's Report to the Stockholders.
Our examination was made in accordance with standards established by the
American Institute of Certified Public Accountants and, accordingly, included
obtaining an understanding of internal control over financial reporting,
testing, and evaluating the design and operating effectiveness of internal
control over financial reporting, including safeguarding of assets, and such
other procedures as we considered necessary in the circumstances. We believe
that our examination provides a reasonable basis for our opinion.
Because of inherent limitations in any internal control, misstatements due to
error or fraud may occur and not be detected. Also, projections of any
evaluation of internal control over financial reporting to future periods are
subject to the risk that the internal control may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
In our opinion, management's assertion that, as of December 31, 1998, the
Company maintained effective internal control over financial reporting,
including safeguarding of assets, presented in conformity with generally
accepted accounting principles and, for its bank subsidiary, the Call Report
instructions is fairly stated, in all material respects, based on the criteria
established in INTERNAL CONTROL--INTEGRATED FRAMEWORk issued by the Committee of
Sponsoring Organizations of the Treadway Commission.
DELOITTE & TOUCHE LLP
/s/Deloitte & Touche
Stamford, Connecticut
February 5, 1999
[LOGO]
40
<PAGE>
[LOGO] [LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Premier National Bancorp, Inc.
We have audited the consolidated balance sheets of Premier National Bancorp,
Inc. and subsidiaries (the "Company") as of December 31, 1998 and 1997 and the
related consolidated statements of income and expense, comprehensive income,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits. The consolidated financial statements
give retroactive effect to the merger of Progressive Bank, Inc. and Hudson
Chartered Bancorp, Inc., which has been accounted for as a pooling of interests
as described in Note A to the consolidated financial statements. We did not
audit the consolidated balance sheet of Progressive Bank, Inc. as of December
31, 1997, or the related statements of income, stockholders' equity and cash
flows of Progressive Bank, Inc. for each of the two years in the period ended
December 31, 1997, which statements reflect total assets of $883.5 million as of
December 31, 1997, and net interest income of $34.0 million and $32.0 million
for the years ended December 31, 1997 and 1996, respectively. Those statements
were audited by other auditors whose unqualified report dated February 2, 1998
has been furnished to us, and our opinion, insofar as it relates to the amounts
included for Progressive Bank, Inc. for 1997 and 1996, is based solely on the
report of such other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, such
consolidated financial statements present fairly, in all material respects, the
financial position of Premier National Bancorp, Inc. and subsidiaries at
December 31, 1998 and 1997 and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1998 in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
/s/Deloitte & Touche
Stamford, Connecticut
February 5, 1999
(February 25, 1999 as to the subsequent
event described in Note O)
41
[LOGO]
<PAGE>
PREMIER NATIONAL BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31,
NOTES 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C> <C>
Cash and due from banks K $53,230 $42,961
Federal funds sold 121,100 50,300
---------------- -------------
Total cash and cash equivalents 174,330 93,261
Securities: B
Available for sale, at fair value 359,612 276,678
Held to maturity, fair value of $18,117 in 1998 17,536 155,544
and $156,404 in 1997.
Regulatory securities 9,703 7,720
Loans held for sale K - 679
Loans: C,D,K,L
Gross loans 973,847 1,040,872
Allowance for loan losses (21,270) (19,331)
---------------- -------------
Net loans E 952,577 1,021,541
Premises and equipment, net F 28,714 25,318
Accrued income 8,940 11,181
Deferred taxes 10,463 8,844
Other real estate owned 628 1,366
Intangible assets, net G 6,734 7,490
Other assets D 4,932 5,396
---------------- -------------
TOTAL ASSETS $ 1,574,169 $ 1,615,018
---------------- -------------
---------------- -------------
LIABILITIES
Deposits: G
Non-interest bearing deposits $241,289 $218,780
Interest bearing deposits 1,165,770 1,233,918
---------------- -------------
Total deposits 1,407,059 1,452,698
Other interest bearing liabilities M 1,725 1,725
Other liabilities 9,231 11,758
---------------- -------------
TOTAL LIABILITIES 1,418,015 1,466,181
---------------- -------------
Commitments and contingencies C,K
STOCKHOLDERS' EQUITY N,O
Preferred stock ($.01 par value; 5,000,000 shares authorized; none issued) - -
Common stock ($.80 par value; 50,000,000 shares authorized in 1998 and 12,558 11,308
20,000,000 shares authorized in 1997);
15,697,290 shares issued less 2,166 treasury shares in 1998 and 14,135,170
shares issued less 85,015 treasury shares in 1997
Additional paid-in capital 84,492 59,628
Retained earnings 57,621 78,612
Accumulated other comprehensive income 1,521 1,647
Treasury stock, at cost (38) (2,358)
---------------- -------------
TOTAL STOCKHOLDERS' EQUITY 156,154 148,837
---------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,574,169 $ 1,615,018
---------------- -------------
---------------- -------------
</TABLE>
See notes to consolidated financial statements.
42
<PAGE>
PREMIER NATIONAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME AND EXPENSE
(dollars in thousands, except share data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
NOTES 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------------
Interest income:
<S> <C> <C> <C>
Loans, including fees $89,807 $93,849 $88,826
Federal funds sold 4,171 2,613 3,155
Taxable securities 22,736 21,782 22,692
Tax-exempt securities 3,613 3,301 2,251
------------- ------------- --------------
Total interest income 120,327 121,545 116,924
------------- ------------- --------------
Interest expense:
Deposits G 53,137 55,384 53,862
Other 95 107 161
------------- ------------- --------------
Total interest expense 53,232 55,491 54,023
------------- ------------- --------------
NET INTEREST INCOME 67,095 66,054 62,901
Provision for loan losses E 5,929 4,475 5,150
------------- ------------- --------------
Net interest income after provision for loan losses 61,166 61,579 57,751
Noninterest income:
Service charges on deposit accounts 5,503 6,182 5,760
Other service charges, commissions and fees 2,013 1,552 2,183
Income from fiduciary activities 923 737 643
Realized gains (losses) on sales of securities, net B 373 329 (37)
Gains on sales of loans, net E 443 453 364
Other 297 216 793
------------- ------------- --------------
Total noninterest income 9,552 9,469 9,706
------------- ------------- --------------
GROSS OPERATING INCOME 70,718 71,048 67,457
Noninterest expense:
Salaries and employee benefits H 23,129 23,249 22,302
Net occupancy and equipment I 7,124 6,760 7,094
Printing, postage, telephone and supplies 2,693 2,725 3,118
Advertising and public relations 1,368 1,542 1,227
Merger related expense 7,511 541 -
Other real estate owned D (175) 222 866
Amortization of intangible assets 1,526 1,516 1,135
Other 6,812 6,856 6,824
------------- ------------- --------------
Total noninterest expense 49,988 43,411 42,566
------------- ------------- --------------
Income before income taxes 20,730 27,637 24,891
Income taxes J 7,678 9,997 6,904
------------- ------------- --------------
NET INCOME 13,052 17,640 17,987
Dividend requirements of preferred stock - - 89
------------- ------------- --------------
NET INCOME AVAILABLE TO COMMON SHARES $13,052 $17,640 $17,898
------------- ------------- --------------
------------- ------------- --------------
Weighted average common shares: (1)
Basic 15,613,000 15,421,000 15,465,000
Diluted 15,969,000 15,843,000 15,893,000
Per common share (1)
Earnings - basic $0.84 $1.14 $1.16
Earnings - diluted 0.82 1.11 1.13
Dividends declared 0.48 0.45 0.37
</TABLE>
(1) Adjusted for 10% stock dividends declared in December 1996 and 1998 and 3
for 2 stock split in the form of a 50% stock dividend declared in September
1997.
See notes to consolidated financial statements.
43
<PAGE>
PREMIER NATIONAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $13,052 $17,640 $17,987
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 5,929 4,475 5,150
Provision for losses on other real estate - - 525
Depreciation and amortization 2,731 2,800 3,009
Amortization of security premiums, net 464 622 200
Amortization of intangible assets 1,526 1,516 1,135
Realized gains on sales of securities and loans (816) (782) (327)
Gains on sales of premises and equipment (85) (186) -
Gains on sales of other real estate (443) (627) (242)
Deferred income tax benefit (1,687) (39) (1,212)
(Increase) decrease in accrued income 2,241 78 (612)
Other, net (4,125) (3,041) 2,929
---------- --------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 18,787 22,456 28,542
---------- --------- ----------
INVESTING ACTIVITIES:
Proceeds from sales of securities available-for-sale 56,448 60,695 45,234
Proceeds from maturities of securities available-for-sale 219,560 108,872 141,382
Proceeds from maturities of securities held-to-maturity 16,622 33,199 18,753
Purchase of securities available-for-sale (231,372) (148,411) (219,729)
Purchase of securities held-to-maturity (8,446) (103,956) (52,370)
Proceeds from sales of loans 22,563 21,495 19,936
Net (increase) decrease in loans 42,037 (22,761) (108,597)
Purchase of investment subsidiary (250)
Purchase of premises and equipment (6,300) (2,010) (2,846)
Proceeds from sales of premises and equipment 258 650 -
Proceeds from sales of other real estate owned 1,292 4,588 2,716
---------- --------- ----------
NET CASH USED (PROVIDED) BY INVESTING ACTIVITIES 112,412 (47,639) (155,521)
---------- --------- ----------
FINANCING ACTIVITIES:
Net increase (decrease) in demand, money market, NOW and savings accounts 4,826 43,578 (37,220)
Net increase (decrease) in other time deposits (50,465) (10,907) 16,423
Increase in deposits from acquisition of branches, net of premium paid - - 143,030
Repurchase of common stock held in treasury (190) (3,858) (5,250)
Proceeds from issuance of common stock 2,789 2,745 2,151
Repurchase of preferred stock - - (123)
Cash dividends - preferred - - (193)
Cash dividends - common (7,090) (5,963) (4,736)
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (50,130) 25,595 114,082
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 81,069 412 (12,897)
CASH AND CASH EQUIVALENTS:
AT BEGINNING OF YEAR 93,261 92,849 105,746
---------- --------- ----------
AT END OF YEAR $174,330 $93,261 $92,849
---------- --------- ----------
---------- --------- ----------
Non-cash investing activities:
Transfer from loans to OREO $2,001 $2,898 $5,509
Net unrealized gains (losses) recorded on securities 1,521 987 (1,110)
Increase (decrease) in deferred tax liability on net unrealized securities gains 68 405 (453)
Transfer of securities from held to maturity to available-for-sale 96,985 - -
Loans originated to finance sales of other real estate 493 676 431
Additional cash flow disclosures:
Interest paid $53,762 $57,466 $54,195
Income taxes paid 9,228 9,206 9,297
Conversion of preferred stock to common stock - - 5,590
Cancellation of predecessor entity treasury stock 486 362 3,789
Purchase of land by issuance of stock 300
</TABLE>
See notes to consolidated financial statements.
44
<PAGE>
PREMIER NATIONAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(dollars in thousands, except share data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Preferred Common Additional
Stock Stock Paid-in
Capital
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BALANCE AT JANUARY 1, 1996 $5,713 $10,219 $42,670
Net income - - -
Cash dividends declared on preferred stock - - -
Cash dividends declared on common stock - - -
Stock reinvestment and purchase plan - 76,530 shares* - 56 750
Conversion of Series B preferred stock - 783,200 shares* (5,590) 582 5,008
Redemption of Series B preferred stock (123) - -
Options exercised - 104,817 shares* - 45 503
Effect of treasury stock issued at less than cost - - -
Purchase of treasury stock - 77,418 shares - - -
Payments on ESOP borrowings - - -
Other comprehensive loss - - -
Stock dividend declared on common - 517 10,792
Predecessor entity tranactions:
Purchase and retirement of treasury stock - (182) (1,065)
Options exercised - 129,114 shares - 64 733
---------- ---------- ------------
BALANCE AT DECEMBER 31, 1996 - 11,301 59,391
---------- ---------- ------------
---------- ---------- ------------
Net income
Cash dividends declared on common stock - - -
Stock reinvestment and purchase plan - 53,695 shares* - - -
Cash in lieu paid on fractional shares - 369 shares - - (9)
Options exercised - 139,624 shares* - - -
Effect of treasury stock issued at less than cost - - -
Purchase of treasury stock - 129,475 shares (1) - - -
Payments on ESOP borrowings - - -
Other comprehensive income - - -
Stock dividend declared on common - - -
Predecessor entity transactions:
Purchase and retirement of treasury stock - (15) (88)
Options exercised - 44,294 shares - 22 334
---------- ---------- ------------
BALANCE AT DECEMBER 31, 1997 - 11,308 59,628
---------- ---------- ------------
---------- ---------- ------------
Net income - - -
Cash dividends declared on common stock - - -
Stock reinvestment and purchase plan - 62,108 shares* - 34 835
Purchase of land by issuances of treasury stock - 15,998 - - -
Options exercised - 189,906 shares* - 74 736
Effect of treasury stock issued at less than cost - - -
Purchase of treasury stock from employees - 9,017 - - -
Stock dividend declared on common - 1,142 23,293
Other comprehensive income - - -
---------- ---------- ------------
BALANCE AT DECEMBER 31, 1998 $0 $12,558 $84,492
---------- ---------- ------------
---------- ---------- ------------
<CAPTION>
Retained Accumulated Treasury
Earnings Other Stock
Comprehensive
Income
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BALANCE AT JANUARY 1, 1996 $68,561 $1,712 ($117)
Net income 17,987 - -
Cash dividends declared on preferred stock (89) - -
Cash dividends declared on common stock (4,951) - -
Stock reinvestment and purchase plan - 76,530 shares* - - -
Conversion of Series B preferred stock - 783,200 shares* - - -
Redemption of Series B preferred stock - - -
Options exercised - 104,817 shares* - - -
Effect of treasury stock issued at less than cost (29) - 29
Purchase of treasury stock - 77,418 shares - - (1,461)
Payments on ESOP borrowings - - -
Other comprehensive loss - (647) -
Stock dividend declared on common (11,309) - -
Predecessor entity tranactions:
Purchase and retirement of treasury stock (2,542) - -
Options exercised - 129,114 shares - - -
------------ ---------------- ------------
BALANCE AT DECEMBER 31, 1996 67,628 1,065 (1,549)
------------ ---------------- ------------
------------ ---------------- ------------
Net income 17,640
Cash dividends declared on common stock (6,107) - -
Stock reinvestment and purchase plan - 53,695 shares* - - 923
Cash in lieu paid on fractional shares - 369 shares - - -
Options exercised - 139,624 shares* - - 1,474
Effect of treasury stock issued at less than cost (290) - 290
Purchase of treasury stock - 129,475 shares (1) - - (3,496)
Payments on ESOP borrowings - - -
Other comprehensive income - 582 -
Stock dividend declared on common - - -
Predecessor entity transactions:
Purchase and retirement of treasury stock (259) - -
Options exercised - 44,294 shares - - -
BALANCE AT DECEMBER 31, 1997 78,612 1,647 (2,358)
------------ ---------------- ------------
Net income 13,052 - -
Cash dividends declared on common stock (8,208) - -
Stock reinvestment and purchase plan - 62,108 shares* - - 290
Purchase of land by issuances of treasury stock - 15,998 - - 300
Options exercised - 189,906 shares* - - 520
Effect of treasury stock issued at less than cost (1,400) - 1,400
Purchase of treasury stock from employees - 9,017 - - (190)
Stock dividend declared on common (24,435) - -
Other comprehensive income - (126) -
------------ ---------------- ------------
BALANCE AT DECEMBER 31, 1998 $57,621 $1,521 ($38)
------------ ---------------- ------------
------------ ---------------- ------------
<CAPTION>
ESOP Total
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
BALANCE AT JANUARY 1, 1996 ($171) $128,587
Net income - 17,987
Cash dividends declared on preferred stock - (89)
Cash dividends declared on common stock - (4,951)
Stock reinvestment and purchase plan - 76,530 shares* - 806
Conversion of Series B preferred stock - 783,200 shares* - -
Redemption of Series B preferred stock - (123)
Options exercised - 104,817 shares* - 548
Effect of treasury stock issued at less than cost - -
Purchase of treasury stock - 77,418 shares - (1,461)
Payments on ESOP borrowings 42 42
Other comprehensive loss - (647)
Stock dividend declared on common - -
Predecessor entity tranactions:
Purchase and retirement of treasury stock - (3,789)
Options exercised - 129,114 shares - 797
----------- -------------
BALANCE AT DECEMBER 31, 1996 (129) 137,707
----------- -------------
----------- -------------
Net income 17,640
Cash dividends declared on common stock - (6,107)
Stock reinvestment and purchase plan - 53,695 shares* - 923
Cash in lieu paid on fractional shares - 369 shares - (9)
Options exercised - 139,624 shares* - 1,474
Effect of treasury stock issued at less than cost - -
Purchase of treasury stock - 129,475 shares (1) - (3,496)
Payments on ESOP borrowings 129 129
Other comprehensive income - 582
Stock dividend declared on common - -
Predecessor entity transactions:
Purchase and retirement of treasury stock - (362)
Options exercised - 44,294 shares - 356
BALANCE AT DECEMBER 31, 1997 - 148,837
----------- -------------
Net income - 13,052
Cash dividends declared on common stock - (8,208)
Stock reinvestment and purchase plan - 62,108 shares* - 1,159
Purchase of land by issuances of treasury stock - 15,998 - 300
Options exercised - 189,906 shares* - 1,330
Effect of treasury stock issued at less than cost - -
Purchase of treasury stock from employees - 9,017 - (190)
Stock dividend declared on common - -
Other comprehensive income - (126)
----------- -------------
BALANCE AT DECEMBER 31, 1998 $0 $156,154
----------- -------------
----------- -------------
</TABLE>
* Adjusted for 10% stock dividends declared in December 1996 and 1998 and 3 for
2 stock splits in the form of 50% dividend declared in September 1997. See Note
O. (1) Treasury shares not adjusted for 50% stock dividend declared in Sept.
1997. The effect of such shares reissued prior to the 50% stock dividend
included in the shares (adjusted for the stock dividend) for the "stock
reinvestment and purchase plan" and "options exercised" is 53,304 shares
See notes to consolidated financial statements.
45
<PAGE>
PREMIER NATIONAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(dollars in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended December 31,
1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Income $13,052 $ 17,640 $ 17,987
Other comprehensive income, net of tax:
Net unrealized gains (loss) on securities:
Net unrealized holding gains (losses)
arising during year 955 829 (804)
Less effect of securities transferred to
available for sale from held to maturity (576) - -
Less reclassification adjustment for (gains)
losses included in net income: (505) (247) 157
--------- -------- ----------
Other comprehensive income (loss) (126.00) 582.00 (647)
--------- -------- ----------
COMPREHENSIVE INCOME $ 12,926 $ 18,222 $ 17,340
--------- -------- ----------
</TABLE>
See notes to consolidated financial statements
46
<PAGE>
PREMIER NATIONAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, unless otherwise indicated, except share data)
NOTE A - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Premier National Bancorp, Inc. is a New York State bank holding company which
operates 35 branches in Dutchess, Ulster, Sullivan, Orange, Westchester, Putnam
and Rockland counties of Southeastern New York State through its commercial
banking subsidiary, Premier National Bank (Bank). Collectively, these entities
are referred to herein as the "Company". The Bank is principally engaged in a
variety of lending activities and deposit gathering activities within the above
noted market place. As such, its future growth and profitability are dependent,
in large part, on the performance of the local economy and the value of local
real estate. The Bank competes with a significant number of other financial
institutions. Diversity of product lines, availability of funds, interest rates
charged on loans and offered on deposits, responsiveness and customer
convenience are all factors in competing effectively with these other financial
institutions. The local economy is heavily dependent on employment levels of two
large employers, IBM and New York State and local government. Although present
conditions are stable, the local economy was weakened, in recent years, from
large employment cutbacks from these employers. Approximately 75% of the
Company's loans outstanding are collateralized by real estate. The Company also
has made commitments to lend additional funds also collateralized by real estate
in the amount of approximately $105.0 million.
The Company does not presently engage in hedging activities, utilize derivative
financial instruments or maintain a trading portfolio.
MERGER
Effective July 17, 1998, Progressive Bank, Inc. ("PBI") was merged with and into
Hudson Chartered Bancorp, Inc. ("HCB") under the name of Premier National
Bancorp, Inc. pursuant to a plan of merger dated December 16, 1997. Each share
of PBI common stock was converted into 1.82 shares of the Company's common
stock. Approximately 7,954,316 common shares were issued for the outstanding
common stock of PBI. At the same time, Pawling Savings Bank ("Pawling"), a
subsidiary of PBI, was merged with and into First National Bank of the Hudson
Valley ("Hudson Valley"), a subsidiary of HCB, under the name Premier National
Bank.
The transaction was accounted for using the pooling-of-interests method and,
accordingly, all historical financial data has been restated to include both
entities for all periods presented. Direct costs of mergers accounted for by the
pooling-of-interests method are expensed as incurred. Merger related costs
expensed in 1997 aggregated $541 ($314 net of tax), and in 1998 aggregated
$7,511 ($5,316 net of tax). These merger expenses include legal, accounting,
regulatory and severance costs as well as integration costs such as conversions,
abandonments and relocations. The following table presents summary results of
operations for the companies for the immediate years prior to the merger.
<TABLE>
<CAPTION>
1997 1996
NET INTEREST NET NET INTEREST NET
INCOME INCOME INCOME INCOME
<S> <C> <C> <C> <C>
PBI $34,066 $8,632 $32,047 $9,321
HCB 31,988 9,008 30,854 8,666
------- ------- ------- -------
Consolidated $66,054 $17,640 $62,901 $17,987
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
47
<PAGE>
FORWARD-LOOKING STATEMENTS
The Company has made, and may continue to make, various forward-looking
statements with respect to earnings, credit quality and other financial and
business matters for 1999 and, in certain instances, subsequent periods. The
Company cautions that these forward-looking statements are subject to numerous
assumptions, risks and uncertainties, and that statements for subsequent periods
are subject to greater uncertainty because of the increased likelihood of
changes in underlying factors and assumptions. Actual results could differ
materially from forward-looking statements.
In addition to those factors previously disclosed by the Company and those
factors identified elsewhere herein, the following factors could cause actual
results to differ materially from such forward-looking statements; pricing
pressures on loan and deposit products; actions of competitors; changes in local
and national economic conditions; the extent and timing of actions of the
Federal Reserve Board or the Office of the Comptroller of the Currency; customer
deposit disintermediation; changes in customers' acceptance of the Company's
products and services; the extent and timing of legislative and regulatory
actions and reform; estimated cost savings from recent or anticipated
acquisitions and mergers cannot be fully realized or realized within the
expected time frame, revenues following such transactions are lower than
expected, costs or difficulties related to the integration of acquired and
existing businesses are greater than expected, or system costs or remediation
improvements on the part of the Company's third parties related to the year 2000
are greater than expected.
The Company's forward-looking statements speak only as of the date on which such
statements are made. By making any forward-looking statements, the Company
assumes no duty to update them to reflect new, changing or unanticipated events
or circumstances.
BASIS OF PRESENTATION
The Company's consolidated financial statements include the accounts of Premier
National Bancorp, Inc., its commercial banking subsidiary, Premier National
Bank, and Premier National Realty, Inc., a company utilized to hold title to
certain foreclosed real estate properties. The consolidated financial statements
have been prepared in accordance with generally accepted accounting principles.
All significant intercompany transactions have been eliminated in consolidation.
Assets held in an agency or fiduciary capacity for trust department customers
totaling $264.6 million at year end 1998 and mortgages serviced for others by
the Bank totaling $146.0 million at year end 1998 are not included in the
consolidated financial statements.
In preparing financial statements, management is required to make estimates and
assumptions, particularly in determining the adequacy of the allowance for loan
losses, that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities as of the date of the
consolidated balance sheet and the results of operations for the period. Actual
results could differ significantly from those estimates.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is maintained at a level believed adequate by
management to absorb potential losses in the loan portfolio. Management's
determination of the adequacy of the allowance is based on an evaluation of the
credit quality of the portfolio, past loan loss experience and current loan loss
trends, local and regional economic conditions, the volume, growth and
composition of the loan portfolio, and other relevant factors. The allowance is
increased by provisions for loan losses charged against income and by recoveries
of loans previously charged off.
While management uses available information to determine possible loan losses,
future additions to the allowance may be necessary based on changes in economic
conditions, particularly in real estate values and employment levels in
Company's primary market area, Dutchess, Ulster, Sullivan, Orange, Westchester,
Putnam and Rockland counties of Southeastern New York State. In addition,
regulatory agencies, as an integral part of their examination process,
periodically review the allowance for loan losses. Such agencies may require the
Bank to recognize additions to the allowance based on their judgments of
information available to them at the time of their examination. A regulatory
examination of the bank was conducted in 1998 and no increase in the allowance
was required as a result of the examination.
48
<PAGE>
IMPAIRED LOANS
Statement of Financial Accounting Standards ("SFAS") No. 114, "Accounting by
Creditors for Impairment of a Loan", as amended by SFAS No. 118, "Accounting for
Impairment of a Loan - Income Recognition and Disclosures", has been adopted by
the Company.
A loan is recognized as impaired when it is probable that principal and/or
interest are not collectible in accordance with the contractual terms of the
loan. When a loan is considered impaired, it is placed on nonaccrual status.
Income is recorded using the income recognition principles outlined below.
Measurement of impairment is based on the present value of expected future cash
flows discounted at the loan's effective interest rate or at the loan's
observable market price or at the fair value of the collateral, if the loan is
collateral dependent. Smaller homogenous performing loans, principally
residential mortgages, consumer loans, and credit cards, are not separately
reviewed for impaired status. Separate allocations of the allowance for loan
losses for these loans are made based upon trends and prior loss experience and
composition of credit risk in these types of loans. This evaluation is
inherently subjective as it requires material estimates that may be susceptible
to significant change.
If the fair value of an impaired loan is less than the related recorded amount,
a specific valuation allowance is established or, if the impairment is
considered to be permanent, a write down is charged against the allowance for
loan losses.
INCOME RECOGNITION
Interest on loans is determined using the level yield method. Under this method,
discount accretion and premium amortization on loans are recorded in interest
income.
The accrual of interest income generally is discontinued when its receipt is in
doubt, which typically occurs at or prior to the date when a loan becomes 90
days past due as to principal or interest. When interest accruals are
discontinued, any interest credited to income in the current year which has not
been collected is reversed, and any interest accrued in the prior year is
charged to the allowance for loan losses. If payments on nonaccrual loans are
made, income is recorded as received unless management has reason to doubt the
ultimate collectibility of the principal remaining on the loan. When the
ultimate collectibility of the loan principal is in doubt, all of such payments
are applied to reduce the principal balance of the loan. Management may elect to
continue the accrual of interest when a loan is in the process of collection and
the estimated fair value of collateral is clearly sufficient to cover the
principal balance and accrued interest. Loans are returned to accrual status
once the doubt concerning collectibility has been removed and the borrower has
demonstrated performance in accordance with the loan terms and conditions.
OTHER REAL ESTATE OWNED (OREO)
OREO includes properties for which the Bank has obtained title through
foreclosure or deed in lieu of foreclosure. These properties are recorded at the
lower of cost or estimated fair value (net of estimated disposal costs). If a
valuation loss exists when properties are acquired, the loss is recorded as a
charge to the allowance for loan losses. Management periodically monitors the
value of such OREO properties. If, due to further reductions in estimated fair
value, further losses are anticipated, such losses are recorded as OREO expense.
Any gains on disposition of such properties reduce OREO expense. Holding costs
on properties are included in current operations, while costs that improve such
properties may be capitalized. If the Bank lends funds in conjunction with
dispositions of OREO, such loans are required to meet normal loan underwriting
criteria.
LOAN ORIGINATION FEES
Loan origination and commitment fees and direct loan origination costs are
deferred and the net amount is amortized or accreted as an adjustment of
interest income using the level yield method. These deferrals are amortized over
the expected lives or commitment period of the respective categories, which
generally vary from one to twelve years.
49
<PAGE>
SECURITIES
Securities include U.S. Treasury, mortgage-backed and other U. S. Government
Agency, municipal and corporate bonds, regulatory and equity securities. Those
debt securities which management has the positive intent and ability to hold
until maturity are classified as held to maturity and are carried at amortized
cost (specific identification) with amortization of premiums and accretion of
discounts determined using the level yield method to the earlier of the call or
maturity date, respectively. Held to maturity securities primarily include local
municipal bonds purchased from smaller municipalities in the Company's market
area, and certain other securities with yield and/or maturity characteristics
such that management intends to retain them until maturity. Equity securities
principally include modest investments in the common stock of certain banks in
the Company's market area. Regulatory securities include equity investments
required for membership in the Federal Reserve System, Federal Home Loan Bank,
and New York State Business Development Corporation. Such investments are
carried at cost unless considered impaired, in which case a writedown would be
taken and charged to income.
Securities which have been identified as assets for which there is not a
positive intent to hold to maturity are classified as available for sale.
Dispositions of such securities may be appropriate for either liquidity or
interest rate risk management. Available for sale securities are reported at
fair value with unrealized gains and losses (net of tax) excluded from
operations and reported in the "Accumulated Other Comprehensive Income"
component of stockholders' equity. At December 31, 1996, 1997 and 1998, the net
unrealized gains, after tax, on available for sale securities were $1,065,
$1,647 and $1,521, respectively. In the third quarter 1998, the Company
transferred securities having a fair value of $96,985 from held to maturity to
available for sale in accordance with the adoption of SFAS No. 133 "Accounting
for Derivative Instruments and Hedging Activities". Realized gains and losses
from sales of securities are recognized on the trade date by specific
identification of the security sold.
RELATED PARTY TRANSACTIONS
It is the policy of the Company that loans and other business transactions with
directors, officers and other related parties be made on terms and conditions no
more favorable than those with unrelated parties.
LOANS HELD FOR SALE
Loans held for sale are carried at the lower of cost or market value as
determined on an aggregate basis.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost, less accumulated depreciation and
amortization. Depreciation and amortization are computed on the straight-line
method based on estimated useful lives ranging from, dependent on asset type, 3
to 40 years. Leasehold improvements are amortized over the shorter of the terms
of the respective leases, including available extensions, or the estimated
useful lives of the assets. Maintenance and repair costs are charged to
operating expenses as incurred.
INCOME TAXES
The provision for income taxes is based on income as reported in the financial
statements. Deferred taxes are provided when income or expense is recognized in
different periods for tax purposes than for financial reporting purposes using
an asset-liability approach for recognizing the tax effects of temporary
differences between tax and financial reporting. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. A valuation allowance is recognized if, based on analysis
of available evidence, management determines that some or all of the deferred
tax asset is not "more likely than not" to be realized. Adjustments to increase
or decrease the valuation allowance are charged or credited, respectively, to
income tax expense. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in the income statement in the period the
change is enacted.
50
<PAGE>
POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions," requires the recognition of the cost of these benefits over an
employee's working career on an accrual basis. SFAS No. 112, "Employers'
Accounting for Postemployment Benefits" establishes standards for accounting and
reporting the cost of benefits provided by an employer to its former or inactive
employees after employment but before retirement. SFAS No. 112 requires an
employer to recognize an obligation for such benefits if certain conditions are
met. SFAS Nos. 106 and No. 112 resulted in postretirement benefit liabilities of
$1,713 and $2,219 at December 31, 1998 and 1997, respectively.
EARNINGS PER COMMON SHARE
The Company adopted SFAS No. 128, "Earning Per Share", which became effective in
1997. As required, the Company has applied the new definitions of basic and
diluted earnings per share to all prior periods. This change did not have a
material effect on previously reported earnings per share amounts. Basic
earnings per common share is computed by dividing net income, adjusted for any
preferred stock dividends, by the weighted average number of common shares
outstanding. Diluted earnings per common share includes the additional dilutive
effect of stock options using the treasury stock method based on the average
market price of the Company's common stock for the period and the effects of
converting preferred shares.
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net income $13,052 $17,640 $17,987
Less preferred stock dividend requirements - - 89
---------- ---------- ----------
Net income available to common shares $13,052 $17,640 $17,898
---------- ---------- ----------
---------- ---------- ----------
Weighted average basic shares outstanding 15,613,000 15,421,000 15,465,000
Effect of dilutive stock options 356,000 422,000 259,500
Approved conversion of Series B preferred stock - - 168,500
---------- ---------- ----------
Weighted average diluted shares 15,969,000 15,843,000 15,893,000
---------- ---------- ----------
---------- ---------- ----------
Earnings per common share:
Basic $.84 $1.14 $1.16
Diluted .82 1.11 1.13
</TABLE>
MORTGAGE SERVICING RIGHTS
The Company's mortgage servicing portfolio totaled $146.0 million, $150.6
million and $154.6 million for the benefit of third party investors (primarily
Federal Home Loan Mortgage Corporation and Federal National Mortgage
Association) at December 31, 1998, 1997 and 1996, respectively, and it recorded
servicing fee income of $418, $458 and $523 for the years ended December 31,
1998, 1997 and 1996. The Company records the sale of loans in which servicing is
retained on the basis of the relative fair values of the loans and the servicing
rights. The Company sold loans of $22.6 million, $21.5 million and $19.9 million
in 1998, 1997 and 1996, respectively, with servicing rights retained, and at
December 31, 1998, 1997 and 1996 recorded servicing rights of $434, $118 and
$96, respectively. The value of servicing rights must be evaluated for
impairment on a quarterly basis and a valuation allowance established if fair
value is lower than the recorded amounts.
The cost of mortgage servicing rights is amortized in proportion to, and over
the period of, estimated net servicing revenues. Impairment of mortgage
servicing rights is assessed based on the fair value of those rights. Fair
values are estimated using discounted cash flows based on a current market
interest rate. The amount of impairment recognized is the amount by which the
capitalized mortgage servicing rights exceed their fair value. No impairment of
servicing assets was experienced in 1998, 1997 or 1996.
When participating interests in loans sold have an average contractual interest
rate, adjusted for servicing fees, that differs from the agreed yield to the
purchaser, gains or losses are recognized equal to the present value of such
differential over the estimated remaining life of such loans. The resulting
"mortgage servicing receivable" or "deferred servicing revenue" is amortized
over the estimated life using a method approximating the interest method.
51
<PAGE>
Quoted market prices are not available for the mortgage servicing receivables.
Thus, the mortgage servicing receivables and the amortization thereon are
periodically evaluated in relation to estimated future servicing revenues,
taking into consideration changes in interest rates, current prepayment rates,
and expected future cash flows. The Company evaluates the carrying value of the
mortgage servicing receivables by estimating the future servicing income of the
mortgage servicing receivables based on management's best estimate of remaining
loan lives and discounted at the original discount rate.
BRANCH PURCHASE PREMIUM
The purchase premium paid in connection with the 1996 acquisition of two
branches has been capitalized as an intangible asset. The premium is being
amortized on a straight-line basis over seven years (the estimated average
remaining life of the acquired customer base). The unamortized premium is
reviewed for impairment if events or changes in circumstances indicate that the
carrying amount may not be fully recoverable.
STOCK-BASED COMPENSATION
SFAS No. 123, "Accounting for Stock-Based Compensation", encourages but does not
require, companies to record compensation cost from stock-based employee
compensation plans at fair value. As permitted, the Company has elected to
continue to account for stock-based compensation using the intrinsic value
method prescribed in Accounting Principles Board Opinion (APB) No. 25,
"Accounting for Stock Issued to Employees," and related interpretations.
Accordingly, compensation cost for stock options is measured as the excess, if
any, of the quoted market price of the Company's stock at the date of the grant
over the amount an employee must pay to acquire the stock. Compensation cost for
stock appreciation rights is recorded annually in each reporting period based on
the quoted market price of the Company's stock at the end of the period.
TRANSFERS AND SERVICING OF FINANCIAL ASSETS
The then effective provisions of SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities," were adopted
by the Company as of January 1, 1997 and had no significant effect on the
Company's consolidated financial statements. This standard specifies accounting
and reporting standards for transfers and servicing of financial assets and
extinguishments of liabilities and for distinguishing whether a transfer of
financial assets in exchange for cash or other consideration should be accounted
for as a sale or as a pledge of collateral in a secured borrowing. Certain
provisions of SFAS No. 125 (relating to the accounting for secured borrowings
and collateral and the accounting for transfers and servicing of repurchase
agreements, dollar rolls, securities lending and similar transactions) were
deferred until January 1, 1998 in accordance with SFAS No. 127, "Deferral of the
Effective Date of Certain Provisions of FASB Statement No. 125." The adoption of
these deferred provisions did not have any material impact on the Company's
consolidated financial statements.
COMPREHENSIVE INCOME
SFAS NO. 130, "Reporting Comprehensive Income" (SFAS No. 130), has been adopted
by the Company as of January 1, 1998 and financial statements for earlier
periods have been reclassified to reflect the application of the provisions of
this standard. Comprehensive income is defined as "the change in equity (net
assets) of a business enterprise during a period from transactions and other
events and circumstances from non-owner sources. It includes all changes in
equity during a period, except those resulting from investments by owners and
distributions to owners." The Company's only current source of other
comprehensive income is net unrealized gains and losses on available for sale
securities which, in accordance with prior accounting standards, had been
directly included, net of tax, in a separate component of stockholders' equity.
Under SFAS No. 130, all items that are recognized as components of comprehensive
income are required to be reported in a financial statement that is displayed
with the same prominence as other financial statements. Adoption of this
standard had no effect on the Company's financial condition or results of
operations.
52
<PAGE>
SEGMENT INFORMATION
SFAS No. 131 "Disclosures About Segments of an Enterprise and Related
Information"(SFAS No. 131), which became effective for the Company as of January
1, 1998, establishes standards for the way public business enterprises report
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in
subsequent interim financial reports issued to shareholders. SFAS No. 131 also
establishes standards for related disclosures about products and services,
geographic areas and major customers. The Company has determined it operates as
one reportable segment, "Community Banking." All of the Company's activities are
interrelated, and each activity is dependent and assessed based on how each of
the activities of the Company supports the others. For example, commercial
lending is dependent upon the ability of the Bank to fund itself with retail
deposits and other borrowings and to manage interest rate and credit risk of the
portfolio and related funding. This situation is also similar for personal and
residential mortgage lending. Accordingly, all significant operating decisions
are based upon analysis of the Company as one operating segment or unit.
Although the Company's trust department is managed as a relatively distinct
unit, its impact on the assets, liabilities and net income of the Company is not
material.
General information required by SFAS No. 131 is disclosed in the Consolidated
Financial Statements and accompanying notes. The Company operates in only the
U.S. domestic market, specifically the Hudson Valley, which includes the
counties of Dutchess, Rockland, Westchester, Orange, Putnam, Sullivan and
Ulster, New York, as well as Long Island, New York and southern Connecticut. For
the year ended December 31, 1998, 1997 and 1996, no customer accounted for more
than 10% of the Company's revenue.
EMPLOYERS' DISCLOSURES ABOUT PENSIONS AND OTHER POSTRETIREMENT BENEFITS
Effective 1998, the Company adopted Statement of Financial Accounting Standards
No. 132 (SFAS 132), "Employers' Disclosures about Pensions and Other
Postretirement Benefits". The statement revises employers' disclosures about
pension and other postretirement benefit plans. It does not change the
measurement or recognition of those plans, but requires additional information
on changes in the benefit obligations and fair values of plan assets.
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In the third quarter of 1998, the Company adopted Statement of Financial
Accounting Standards No. 133 (SFAS No. 133), "Accounting for Derivative
Instruments and Hedging Activities". The Statement requires the Company to
recognize all derivatives on the balance sheet at fair value. Derivatives that
are not hedges must be recorded at fair value through earnings. If the
derivative qualifies as a hedge, depending on the nature of the exposure being
hedged, changes in the fair value of derivatives are either offset against the
change in fair value of assets, liabilities, or firm commitments through
earnings or recognized in other comprehensive income until the hedged item is
recognized in earnings. The ineffective portion of a derivative's change in fair
value is recognized in earnings. The adoption of this standard did not have a
material effect on the Company's financial statements. However, although the
Company does not hold derivative instruments at present, it may do so in the
future under certain circumstances. Therefore, in connection with the adoption
of SFAS No. 133, the Company, as permitted, transferred, at fair value,
securities having a fair value of $96,985 and a carrying amount of $95,993 from
its held to maturity portfolio to its available for sale portfolio. The effect
of this increase was to increase stockholders' equity after tax by $576.
CASH FLOW INFORMATION
Cash and cash equivalents include federal funds sold, which generally are
available to the Company on one day's notice, and other highly liquid
instruments with an original term of three months or less.
RECLASSIFICATIONS
Certain reclassifications have been made to prior years' financial statements to
conform to the presentation of 1998 financial information.
53
<PAGE>
NOTE B - SECURITIES
SECURITIES CONSIST OF THE FOLLOWING:
<TABLE>
<CAPTION>
AT DECEMBER 31, 1998
---------------------------------------------------------------------
CARRYING AMORTIZED GROSS UNREALIZED GROSS UNREALIZED FAIR
AMOUNT COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C> <C>
U.S. TREASURY SECURITIES
AVAILABLE FOR SALE $64,933 $64,027 $906 $64,933
U.S. GOVERNMENT AGENCIES
AVAILABLE FOR SALE 28,461 28,270 227 $36 28,461
OBLIGATIONS OF STATES AND
POLITICAL SUBDIVISIONS
AVAILABLE FOR SALE 97,082 94,905 2,254 77 97,082
HELD TO MATURITY 17,461 17,461 577 18,038
MORTGAGE BACKED SECURITIES
AVAILABLE FOR SALE 78,644 78,161 640 157 78,644
OTHER DEBT SECURITIES
AVAILABLE FOR SALE 90,188 91,368 88 1,268 90,188
HELD TO MATURITY 75 75 4 79
EQUITY SECURITIES
AVAILABLE FOR SALE 304 266 38 304
REGULATORY SECURITIES 9,703 9,703 9,703
-------- -------- ------ ------ --------
TOTAL SECURITIES $386,851 $384,236 $4,734 $1,538 $387,432
-------- -------- ------ ------ --------
-------- -------- ------ ------ --------
TOTAL AVAILABLE FOR SALE 359,612 $356,997 $4,153 $1,538 $359,612
TOTAL HELD TO MATURITY 17,536 17,536 581 18,117
REGULATORY SECURITIES 9,703 9,703 9,703
-------- -------- ------ ------ --------
TOTAL SECURITIES $386,851 $384,236 $4,734 $1,538 $387,432
-------- -------- ------ ------ --------
-------- -------- ------ ------ --------
</TABLE>
54
<PAGE>
At December 31, 1998, the net unrealized gain on securities "available for sale"
(net of tax effect at a rate of 42% or $1,094) that was included in the
"Accumulated Other Comprehensive Income" component of stockholders' equity was
$1,521.
<PAGE>
<TABLE>
<CAPTION>
AT DECEMBER 31, 1997
------------------------------------------------------------------------
CARRYING AMORTIZED GROSS UNREALIZED GROSS UNREALIZED FAIR
AMOUNT COST GAINS LOSSES VALUE
------- --------- ---------------- ---------------- -----
<S> <C> <C> <C> <C> <C>
U.S. TREASURY SECURITIES
AVAILABLE FOR SALE $64,793 $64,444 $350 $1 $64,793
U.S. GOVERNMENT AGENCIES
AVAILABLE FOR SALE 51,958 51,926 79 47 51,958
OBLIGATIONS OF STATES AND
POLITICAL SUBDIVISIONS
AVAILABLE FOR SALE 70,946 69,686 1,282 22 70,946
HELD TO MATURITY 24,170 24,170 499 24,669
MORTGAGE BACKED SECURITIES
AVAILABLE FOR SALE 60,055 58,963 1,165 73 60,055
HELD TO MATURITY 131,299 131,299 628 267 131,660
OTHER DEBT SECURITIES
AVAILABLE FOR SALE 28,734 28,694 89 49 28,734
HELD TO MATURITY 75 75 75
EQUITY SECURITIES
AVAILABLE FOR SALE 192 162 30 192
REGULATORY SECURITIES 7,720 7,720 7,720
-------- -------- ------ ---- --------
TOTAL SECURITIES $439,942 $437,139 $4,122 $459 $440,802
-------- -------- ------ ---- --------
-------- -------- ------ ---- --------
TOTAL AVAILABLE FOR SALE $276,678 $273,875 $2,995 $192 $276,678
TOTAL HELD TO MATURITY 155,544 155,544 1,127 267 156,404
REGULATORY SECURITIES 7,720 7,720 7,720
-------- -------- ------ ---- --------
TOTAL SECURITIES $439,942 $437,139 $4,122 $459 $440,802
-------- -------- ------ ---- --------
-------- -------- ------ ---- --------
</TABLE>
In the third quarter of 1998, the Company transferred, at fair value,
mortgage-backed securities having a fair value of $96,985 (carrying value of
$95,993) from its "held to maturity" portfolio to its portfolio of "available
for sale" securities. This was done to enhance the Company's ability to respond
to changes in the interest rate environment. This transfer was made in
accordance with SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities". Concurrent with the adoption of this statement, corporations were
permitted to reclassify their "available for sale" and "held to maturity"
securities without calling into question the past intent of an entity to hold
securities to maturity. The effect of this transfer, after tax, was a $576
increase in stockholders' equity.
Subsequent changes in unrealized gains or losses on these transferred securities
have been reflected in the "Accumulated Other Comprehensive Income" component of
the Company's equity accounts, on an after-tax basis. If
55
<PAGE>
any of the transferred securities are sold, the realized gains or losses would
be reflected in the Company's results of operations.
The Company has no plans to establish a trading account.
The Company's mortgage-backed securities at year end 1998 are all classified as
available for sale and are principally pass-through securities issued by Federal
Home Loan Mortgage Corporation (Freddie Mac) and Federal National Mortgage
Association (Fannie Mae). As of December 31, 1997, Mortgage-backed securities
principally were five and seven-year balloon payment and seasoned pass-through
15 year securities, and adjustable rate securities.
The contractual maturities at December 31, 1998 of the Company's available for
sale and held to maturity debt securities other than mortgage-backed and SBA
securities are summarized in the following table. Actual maturities may differ
from contractual maturities because certain issuers have the right to call or
prepay obligations with or without call premiums.
<TABLE>
<CAPTION>
AVAILABLE FOR SALE HELD TO MATURITY
------------------ ----------------
AMORTIZED FAIR AMORTIZED FAIR
MATURITY PERIOD COST VALUE COST VALUE
--------- -------- --------- -------
<S> <C> <C> <C> <C>
Within 1 year $85,618 $85,314 $9,778 $9,831
1-5 years 106,572 107,996 4,624 4,832
5-10 years 48,255 48,188 2,395 2,623
Over 10 years 19,366 20,286 739 831
Mortgage-backed and SBA securities of
U.S. Government Agencies not allocated
by maturity date 97,186 97,828
-------- -------- ------- -------
TOTAL DEBT SECURITIES $356,997 $359,612 $17,536 $18,117
-------- -------- ------- -------
-------- -------- ------- -------
</TABLE>
Gross realized gains from sales of securities were $537, $338 and $225 in 1998,
1997 and 1996, respectively, and gross realized losses were $164, $9 and $262.
At December 31, 1998, securities with a carrying amount of $95.7 million were
pledged as collateral for municipal deposits and other purposes. Municipal
deposits so collateralized totaled $66 million at the same date.
56
<PAGE>
NOTE C - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CONCENTRATIONS OF
CREDIT RISK
The Company utilizes financial instruments with off-balance-sheet risk to
accommodate the financing needs of its customers. These instruments involve
varying degrees of credit or interest-rate risk which are not recognized on the
balance sheet. Credit risk is defined as the possibility of sustaining a loss
because the other parties to a financial instrument fail to perform in
accordance with the terms of the contract, whereas interest-rate risk arises
from changes in the market value of positions stemming from movements in
interest rates. In order to minimize credit risk, the Company subjects such
commitments to its lending policy which includes a formal credit approval and
monitoring process. This lending policy requires collateral where the customer
credit evaluation determines that the inherent risk in the transaction warrants
such collateral. In order to minimize interest-rate risk, the Company has
established an asset/liability management policy, adherence to which is
monitored by the Bank's Investment Committee of the Board. The contract amounts
of the instruments referred to in the chart below reflect the extent of
involvement in particular classes of financial instruments.
UNUSED COMMITMENTS AND STANDBY LETTERS OF CREDIT
Unused commitments include loan origination commitments, which are legally
binding agreements to lend with a specified interest rate and purpose, usually
containing an expiration date, and lines of credit, which represent loan
agreements under which the lender has an obligation, subject to certain
conditions, to lend funds up to a particular amount, whereby the borrower may
repay and re-borrow at any time within the contractual period. Standby letters
of credit are conditional commitments issued by the Company to guarantee the
performance of a customer to a third party.
The Company's maximum exposure to accounting loss related to the contract
amounts of these financial instruments,
assuming they are fully funded, all borrowers default and any collateral proves
to be worthless, at December 31, 1998 is as follows:
<TABLE>
<CAPTION>
LOAN
ORIGINATION UNUSED LINES STANDBY LETTERS
COMMITMENTS OF CREDIT OF CREDIT TOTAL
------------- ------------- ---------------- -------------
<S> <C> <C> <C> <C> <C>
Real Estate - Mortgage $21,703 $17,657 $39,360
Real Estate - Construction 8,110 7,419 15,529
Home Equity Loans 30,606 30,606
Other Consumer Loans 15,150 15,150
Commercial Loans 38,926 $3,284 42,210
------- -------- ------ --------
TOTAL (December 31, 1998) $29,813 $109,758 $3,284 $ 142,855
------- -------- ------ --------
TOTAL (December 31,1997) $48,540 $113,697 $3,389 $165,626
------- -------- ------ --------
------- -------- ------ --------
</TABLE>
The Company lends primarily in the Dutchess, Ulster, Sullivan, Orange,
Westchester, Putnam and Rockland counties of Southeastern New York State. The
Company also originates larger one-to-four family mortgage and commercial
mortgage loans in the Connecticut counties of Fairfield, Hartford, New Haven and
Litchfield and larger one-to-four family mortgage loans in the New York counties
of Nassau and Suffolk. The ability of borrowers to make principal and interest
payments in the future will depend upon, among other things, the level of
overall economic activity and real estate market conditions prevailing within
the Company's lending region.
57
<PAGE>
Approximately 75% of the Company's loans (commercial, residential and personal)
are collateralized by real estate. In addition to such loans outstanding, as
shown on the balance sheet, the Company has standby letters of credit and other
off-balance sheet credit risk exposure related to real estate loans. The Company
generally requires collateral on all real estate related facilities and loan to
value ratios not exceeding 75% to 80%. Private mortgage insurance is generally
required on residential mortgages with loan to value ratios above 80%.
NOTE D - NONPERFORMING ASSETS, PAST DUE LOANS AND IMPAIRED LOANS
The following table presents nonperforming assets outstanding at December 31:
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- ----
<S> <C> <C> <C>
Nonaccrual loans $8,868 $7,889 $9,113
Loans past due 90 days and still accruing 497 443 645
Restructured troubled debt 28 682 500
------- ------- -------
Total nonperforming loans 9,393 9,014 10,258
Other real estate owned, net 628 1,366 2,923
------- ------- -------
Total nonperforming assets $10,021 $10,380 $13,181
------- ------- -------
------- ------- -------
</TABLE>
Information concerning interest income on nonperforming loans and restructured
troubled debt is summarized below:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Interest income if all loans were current $892 $858 $1,038
Interest income recorded 100 273 215
</TABLE>
At December 31, 1998 there were no commitments to lend additional funds to the
borrowers associated with the nonperforming assets noted above.
Loans past due 30-89 days were as follows at December 31:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Amount past due $12,813 $7,392 $11,511
Percent of total loans 1.32% 0.71% 1.10%
</TABLE>
As described in Note A, the Company applies the guidelines in SFAS No. 114 to
loans individually evaluated for impairment (principally commercial mortgage,
commercial and industrial, construction loans and nonaccrual residential
mortgages). Generally, the fair value of impaired loans was determined using the
fair value of underlying collateral. Additional impaired residential mortgages
might have been identified if the impairment identification procedures of SFAS
No. 114 were required to be applied to homogenous loan portfolios. In the
opinion of management, the amount of any such additional impaired loans would
not be significant to the Company's consolidated financial position or results
of operations.
58
<PAGE>
Information regarding the recorded investment in impaired loans at December 31
and for the year then ended consists of the following:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Impaired loans for which an allowance of $2,242, $912 and $933, $5,545 $7,339 $7,520
respectively has been established
Impaired loans for which an impairment write down of
$1,641, $1,483 and $1,672, respectively, has been taken 3,323 1,232 2,093
Total recorded investment in impaired loans $8,868 $8,571 $9,613
Additional information regarding impaired loans is as follows:
Income recorded on impaired loans while they were considered to
be impaired, on a cash basis
$100 $273 $215
------ ------ -------
Average investment in impaired loans during the year $8,720 $9,092 $10,245
------ ------ -------
------ ------ -------
</TABLE>
Activity in the allowance for losses on "other real estate owned" is summarized
as follows for the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year $464 $671 $203
Provision (credit) to other real estate owned expense (384) 525
Net charge-offs for realized losses (80) (207) (57)
---- ---- ----
Balance at end of year $ 0 $464 $671
---- ---- ----
---- ---- ----
</TABLE>
NOTE E - LOANS AND ALLOWANCE FOR LOAN LOSSES
The following table outlines the balances, including related deferred loan fees
and costs, of loan categories at December 31:
<TABLE>
<CAPTION>
CATEGORY 1998 1997
---- ----
<S> <C> <C>
Real Estate - Residential $427,440 $504,544
Real Estate - Commercial 242,062 223,542
Consumer & Installment 134,152 144,977
Commercial & Industrial 113,680 93,351
Real Estate - Construction 50,888 61,009
Other loans 5,625 13,449
-------- ----------
Total $973,847 $1,040,872
-------- ----------
-------- ----------
</TABLE>
59
<PAGE>
Changes in the allowance for loan losses for the years ended December 31 were as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Balance, beginning of year $19,331 $18,533 $16,803
Charge-offs (5,370) (4,758) (4,290)
Recoveries 1,380 1,081 870
------- ------- -------
Net charge-offs (3,990) (3,677) (3,420)
Provision for loan losses 5,929 4,475 5,150
------- ------- -------
Balance, end of year $21,270 $19,331 $18,533
------- ------- -------
------- ------- -------
</TABLE>
Substantially all newly originated fixed rate residential mortgage loans with 20
and 30 year terms are sold in the secondary market. The net realized gains on
these sales were $443, $453 and $364 in 1998, 1997 and 1996, respectively.
Mortgage loans held for sale at December 31, 1997, had a cost basis of $679
which approximated
fair value.
NOTE F - PREMISES AND EQUIPMENT
Premises and equipment is comprised of the following at December 31:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Land $3,713 $3,880
Buildings and improvements 28,634 24,482
Furniture and equipment 24,747 22,628
------- -------
57,094 50,990
Accumulated depreciation and amortization (28,380) (25,672)
------- -------
TOTAL $28,714 $25,318
------- -------
------- -------
</TABLE>
NOTE G - DEPOSITS
The following table outlines balances at December 31, for interest bearing
accounts:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Money Market $326,102 $ 284,323
NOW 61,816 69,396
Savings 304,578 356,460
Time 473,274 523,739
---------- ----------
TOTAL $1,165,770 $1,233,918
---------- ----------
---------- ----------
</TABLE>
60
<PAGE>
At December 31, 1998 and 1997, certificates of deposit of $100 or more included
in time deposits totaled $125,613 and $110,291 respectively. The Company does
not accept brokered deposits. Interest expense on deposits was as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Savings accounts $11,470 $13,955 $14,316
Certificates of deposit ($100 or more) 7,557 5,392 4,341
Other time deposits 19,733 22,950 25,122
NOW accounts 825 944 1,077
Money market accounts 13,552 12,143 9,006
------- ------- -------
TOTAL $53,137 $55,384 $53,862
------- ------- -------
------- ------- -------
</TABLE>
The maturities of time deposits outstanding at December 31, 1998 and 1997 are
summarized for the periods indicated in the following table:
<TABLE>
<CAPTION>
1998 1997
---- ----
WEIGHTED WEIGHTED
AMOUNT AVERAGE RATE AMOUNT AVERAGE RATE
<S> <C> <C> <C> <C>
Balances outstanding at December 31, 1998, maturing in:
Three months or less $154,294 4.93% $153,248 5.15%
Three months through one year 232,317 4.87 229,792 5.34
One to two years 43,480 5.25 57,220 5.64
Two to three years 18,118 5.65 35,121 6.14
Three to five years 21,530 5.69 46,146 6.21
Over five years 3,535 5.59 2,558 5.92
-------- ---- -------- ----
Total $473,274 5.00% $523,739 5.45%
-------- ---- -------- ----
-------- ---- -------- ----
</TABLE>
In April 1996, Pawling completed the acquisition of two branch offices located
in Rockland County, New York and assumed deposit liabilities of approximately
$152.8 million. Assets recorded in the acquisition were principally cash and a
deposit purchase premium. The unamortized purchase premium of $5.9 million and
$7.3 million at December 31, 1998 and 1997, respectively, is included in
intangible assets in the consolidated balance sheets.
61
<PAGE>
NOTE H- EMPLOYEE BENEFIT PLANS
At the date of the Merger, all predecessor plans were carried forward to the
Company. The existing plans are described below. The Company is in the process
of implementing amended benefit plans to present uniform coverage. For purposes
of this note, employees of the predecessor companies continue to be described as
being employees of those entities.
THRIFT PLAN
The Premier National Bancorp, Inc. Retirement and Thrift Plan is a qualified
401(k) defined contribution plan covering substantially all full time employees
who have attained age 21 and have at least one year of service. Employee
contributions vest immediately, while plan contributions vest as follows: 40%
after 2 years, 60% after 3 years, 80% after 4 years and 100% after 5 years of
service. For the profit sharing component of the plan, Hudson Chartered Bancorp
determined, at the end of each fiscal year,an annual amount of profit sharing to
be funded. However, as a result of the utilization of the CASH BALANCE PLAN
described below, current profit sharing contributions have been suspended. For
the thrift component of the plan, the Company matched employee contributions
under deferred salary reduction agreements dollar for dollar up to 4% of
eligible compensation. As of the date of the merger, the plan was amended to
match two-thirds dollar for each dollar contributed under a salary reduction
agreement up to 6% of eligible compensation. Employees can contribute up to 10%
by way of such salary reduction agreements and, in addition, can voluntarily
contribute up to an additional 10% of their eligible compensation. {PBI also
maintained a qualified 401(k) defined contribution plan. Eligible employees
could elect to contribute up to 8% of their compensation. PBI made contributions
equal to 50% of the first 5% of a participant's contribution for non-highly
compensated employees, and 50% of the first 3% for highly-compensated employees.
Contributions to this plan were suspended as of the date of the merger.} Upon
completion of all required approvals, the PBI 401(k) plan is intended to be
merged into the Premier National Bancorp, Inc. Retirement and Thrift Plan.
Expense for these plans was $754, $768 and $869 for 1998, 1997 and 1996,
respectively.
CASH BALANCE PLAN
A retirement plan established by PBI covers substantially all employees of PBI
who meet certain age and length of service requirements. Prior to October 1,
1997, the plan was a defined benefit plan providing for benefits based on the
employees' years of accredited service and their average annual three years'
earnings, as defined by the plan. Plan benefits were funded through PBI
contributions at least equal to the amounts required by law. Effective October
1, 1997, the defined benefit plan was amended and restated as a "cash balance"
plan. The annual service credit under the cash balance plan equals 5% of annual
compensation (8% for those employees who were 50 years of age or older with at
least 10 years of service as of September 30, 1997), and the actual earnings
credit on employee balances is the rate on the 30 year Treasury bond prevailing
at the beginning of each plan year. After the merger, the former Hudson
Chartered Bancorp employees were included in this plan with benefits calculated
retroactively back to October 1, 1997, and vesting requirements were changed to
mirror the ongoing thrift plan.
62
<PAGE>
The following are reconciliations of the benefit obligations and the fair value
of plan assets of the Cash Balance plan plan, the amounts not recognized in the
statements of financial position, and the amounts recognized in the statement of
financial position as of December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
---- ----
Change in benefit obligation:
<S> <C> <C>
Benefit obligation at beginning of year $7,060 $ 6,921
Service cost 833 263
Interest cost 443 508
Actuarial loss 1,297 189
Annuity payments (442) (313)
Settlements (737) (66)
Plan amendments 0 (442)
------ -------
Benefit obligation at end of year 8,454 7,060
------ -------
Change in plan assets:
Fair value of plan assets at beginning of year 10,133 8,592
Actual return on plan assets 1,053 1,869
Employer contributions 51
Annuity payments (442) (313)
Settlements (737) (66)
------ -------
Fair value of plan assets at end of year 10,007 10,133
------ -------
Funded status 1,553 3,073
Unrecognized net actuarial gain (879) (1,950)
Unrecognized prior service cost (378) (567)
Unrecognized net transaction obligation 4 13
------ -------
Prepaid benefit expense included in other assets $300 $569
------ -------
------ -------
</TABLE>
The plan assets are primarily invested in a money market fund, stocks, and
bonds. Valuation of the pension plan as shown above were conducted as of
December 31, 1998 and October 1, 1997. Assumptions used by the Company in the
determination of pension plan information consisted of the following:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Weighted-average discount rate 5.0% 7.25% 7.75%
Rate of increase in compensation levels 4.0 5.0 5.5
Expected long-term rate of return on plan assets 8.0 8.0 8.0
</TABLE>
63
<PAGE>
The components of net periodic benefit cost consisted of the following for
the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Service cost $833 $263 $271
Interest cost 443 508 489
Expected return on plan assets (787) (676) (1,082)
Net amortization and deferral (219) (39) 472
---- ---- -----
Total $270 $56 $150
---- ---- -----
---- ---- -----
</TABLE>
OTHER RETIREMENT PLANS
Both HCB and PBI had certain employment arrangements which include supplemental
retirement benefits for certain key executives that offset the reduction in
benefits due to certain limitations imposed under the federal income tax laws.
These arrangements are unfunded and are a general liability of the Company. The
unfunded liability at December 31, 1998 was $391.
HCB also maintained an Executive Supplemental Income Plan ("ESI Plan"), a
nonqualified plan that provides certain employees with supplemental retirement
benefits. The ESI Plan utilizes life insurance contracts for indirect funding of
preretirement benefits. Related expense was $74, $117 and $103 in 1998, 1997 and
1996, respectively. These plans also provide that, in the event of a "change in
control", employees who have attained age 55 may retire and are immediately
eligible to receive benefits without prior board approval and without satisfying
any minimum years of service requirement. Other covered employees who are
terminated, without just cause, or who voluntarily terminate employment, after a
change in control, are entitled to receive their retirement benefits upon
reaching normal retirement age. This plan has not been offered by the Company
since 1994 and its provisions covers five remaining employees.
PBI also maintained a non-qualified, unfunded retirement and severance plan for
members of its Board of Directors of its banking subsidiary. Under this plan,
each member leaving the Board after at least five years of service is entitled
to a benefit consisting of the annual retainer fee at the time of departure
multiplied by the director's number of years of service, up to 15 years. The
annual cost of this plan was $113 for 1998, $80 for 1997 and $85 for 1996. Nine
of the present directors of the Company are currently covered by this plan. The
accumulated benefit obligation was $285 at December 31, 1998.
HCB also established a change in control plan for the directors of its banking
subsidiary which allows for payment in the event of a change in control of
one-twelfth of the current year's retainer for each year of service with a
minimum payment of one year's retainer for any director terminated in connection
with a change in control. Eight of the present directors of the Company are
currently covered by this plan. Such liability, if incurred, would not have a
significant impact on the financial condition of the Company.
The Company maintains a deferred compensation plan for directors and executive
officers that allows for the individual to defer compensation into a variety of
funded vehicles or phantom stock of the Company. The phantom stock component is
unfunded, and the Company has recorded a liability of $304 as of December 31,
1998.
64
<PAGE>
POSTRETIREMENT BENEFITS
PBI provided certain postretirement health care benefits. Substantially all PBI
employees became eligible for postretirement benefits if they meet certain age
and length of service requirements. PBI accrued the cost of these benefits as
they are earned by active employees. Effective with the merger, non-retiree
benefits were frozen at levels earned and such future benefit would only be paid
should the employee retire. As a result of this change, the Company recorded a
credit to compensation expense of $169. The liability for these non-retired
employees is accrued on an actuarial basis. The liability at December 31, 1998
is $228.
The following are reconciliations of the benefit obligation and the fair value
of plan assets, the funded status of the plan, the amounts not recognized in the
statement of financial position, and the amounts recognized in the statement of
financial position.
<TABLE>
<CAPTION>
1998 1997
---- ----
Change in benefit obligation:
<S> <C> <C>
Benefit obligation at beginning of year $ 1,392 $ 1,364
Service cost 26
Interest cost 80 96
Actuarial (gain) loss 108 (19)
Benefits paid (76) (75)
Settlements (172)
------- -------
Benefit obligation at end of year $ 1,332 $ 1,392
------- -------
Change in plan assets:
Contributions to the plan $ 76 $ 75
Benefits paid (76) (75)
------- -------
Fair value of plan assets at end of year 0 0
------- -------
Funded status $(1,332) $(1,392)
Unrecognized net actuarial gain (381) (461)
Unrecognized prior service cost (366)
------- -------
Accrued benefit cost $(1,713) $(2,219)
------- -------
------- -------
</TABLE>
Valuations of the post retirement health insurance plan as shown above were
conducted as of December 31, 1998 and October 1, 1997. Assumptions used by the
Company in the determination of pension plan information consisted of the
following:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Discount rate 6.5% 7.25% 7.75%
Current medical trend rate 6.5 7.0 9.5
Ultimate medical trend rate 5.0 5.0 5.5
</TABLE>
65
<PAGE>
The components of net periodic benefit cost consisted of the following for
the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Service cost $ 26 $ 58
Interest cost $ 80 96 100
Net amortization and deferral (73) (69) (60)
Settlements and curtailments (437)
----- ----- -----
Net periodic benefit cost (credit) $(430) $ 53 $ 98
----- ----- -----
----- ----- -----
</TABLE>
The accumulated postretirement benefit obligation was determined using discount
rates of 6.50%, 7.25% and 7.75% at December 31, 1998, 1997 and 1996,
respectively. At December 31, 1998, the assumed rate of increase in future
health care costs was 7.0% for 1999, gradually decreasing to 5.0% in the year
2002 and remaining at that level thereafter. Increasing the assumed health care
cost trend rate by 1.0% in each future year would increase the accumulated
benefit obligation as of December 31, 1998 by $137 and the aggregate of the
service and interest cost by $9 for the year then ended.
EMPLOYMENT AGREEMENTS
PNB has entered into [or assumed from its predecessor companies] employment and
change in control agreements with certain of their key executives. The
agreements range in period from one to three years, expiring from 1999 through
2001, and contain specified conditions for extension or expiration, either
annually or prior to expiration. In certain cases, conditions exist which allow
for lump sum payments in connection with defined changes in control, termination
without cause or failure to extend. The maximum liability under these contracts,
at December 31, 1998, if such payments were required for all executives, would
be approximately $3.6 million, of which $.5 million has been accrued.
SEVERANCE PLANS
The Company has adopted a change in control severance pay plan on behalf of
employees not covered by individual agreements. The plan provides employees with
certain rights and benefits upon termination following a change in control as
defined in the plan. Benefits range from a minimum of three weeks of salary to a
maximum of 104 weeks of salary depending on years of service and position. No
liability has been recorded under this plan.
In connection with the merger, the Company adopted the former PBI severance pay
plan for all employees employed by the Company prior to January 14, 1998. Those
employees terminated within two years of the merger date (July 17,1998) may be
eligible for severance benefits ranging eight weeks of salary to a maximum of
nine months of salary plus continuation of medical insurance for periods ranging
from six to nine months, depending on length of service and position. The
Company has recorded a liability of $831 in connection with the plan as of
December 31, 1998.
NOTE I - LEASES
Total rental expense for operating leases for 1998, 1997 and 1996 was $989, $857
and $894, respectively. Future minimum payments, under non-cancelable operating
leases with initial or remaining terms of one year or more, consisted of the
following at December 31, 1998:
<TABLE>
<CAPTION>
YEAR AMOUNT
<S> <C>
1999 $899
2000 785
2001 576
2002 494
2003 367
Thereafter 2,007
------
Total $5,128
------
------
</TABLE>
The Company leases a portion of its buildings to tenants for various terms with
varying renewal periods. Rental income received was $381, $348 and $369 in 1998,
1997 and 1996, respectively.
66
<PAGE>
NOTE J - INCOME TAXES
The following is a reconciliation between the effective income tax rate and the
statutory federal tax rate:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Income tax based on pretax income at statutory rate 35.0% 34.0% 34.0%
Charges (credits) resulting from:
State taxes, net of federal tax benefit 6.0 5.7 6.3
Income from tax-exempt securities (5.4) (3.7) (2.8)
Non-deductible merger expenses 2.8 .2
Favorable resolution of prior years' tax examinations (9.8)
Other, net (1.4)
---- ---- ----
Effective income tax rate 37.0% 36.2% 27.7%
---- ---- ----
---- ---- ----
</TABLE>
Federal and state tax benefits of $1.5 million and $.9 million, respectively,
were recognized in 1996 upon settlement with the tax authorities of audits of
certain prior years' tax returns.
The valuation allowance applicable to the Company's state deferred tax asset was
eliminated in 1998, resulting in a reduction in income taxes of $238.
The components of income tax expense (benefit) are as follows for the years
ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
Current:
<S> <C> <C> <C>
Federal $ 7,011 $ 7,666 $ 6,405
State 2,354 2,370 1,711
-------- -------- --------
9,365 10,036 8,116
Deferred (1,687) (39) (1,212)
-------- -------- --------
Total $ 7,678 $ 9,997 $ 6,904
-------- -------- --------
-------- -------- --------
</TABLE>
67
<PAGE>
Temporary differences arising from the recognition of income and expense in
different periods for tax and financial reporting purposes resulted in deferred
income tax (benefit) expense as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Provision for loan losses and OREO $ (980) $ (524) $(1,132)
Accelerated depreciation (151) 37 (200)
Deferred fee (expense) income (161) 237 253
Compensation (143) (240) (100)
Core deposit intangible (334) (305) (249)
Reduction in valuation allowance (238)
Other 320 834 216
--- --- ---
Deferred income tax benefit $(1,687) $ 39 $(1,212)
------- ------- -------
------- ------- -------
</TABLE>
The tax effects of temporary differences that give rise to portions of deferred
tax assets and deferred tax liabilities at December 31, are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
DEFERRED TAX ASSETS:
Allowance for loan losses and OREO $ 9,022 $ 8,042 $ 7,518
Compensation 1,597 1,454 1,214
Core deposit intangible 941 607 302
Deferred fee income 503 342 579
Other 133 450 1,243
-------- -------- --------
Gross deferred tax assets 12,196 10,895 $ 10,856
-------- -------- --------
DEFERRED TAX LIABILITIES:
Depreciation (345) (496) (533)
Unrealized holding gains on "available for (1,224) (1,156) (751)
sale" securities
Mortgage servicing (96) (31) (24)
Accretion on securities (68) (130) (101)
-------- -------- --------
Gross deferred tax liabilities (1,733) (1,813) (1,409)
-------- -------- --------
Net deferred tax assets before valuation allowance 10,463 9,082 9,447
Valuation allowance (238) (238)
-------- -------- --------
Net deferred tax asset $ 10,463 $ 8,844 $ 9,209
-------- -------- --------
-------- -------- --------
</TABLE>
Based on recent historical and anticipated future pre-tax earnings, management
believes it is more likely than not that the Company will realize its net
deferred tax assets.
As a thrift institution, Pawling was subject to special provisions in the
federal and New York State tax laws regarding its allowable tax bad debt
deductions and related tax bad debt reserves. These deductions historically were
determined using methods based on loss experience or a percentage of taxable
income. Tax bad debt reserves are maintained equal to the excess of allowable
deductions over actual bad debt losses and other reserve reductions. These
reserves consisted of a defined base-year amount, plus additional amounts
("excess reserves") accumulated after the base year. SFAS No. 109 requires
recognition of deferred tax liabilities with respect to such excess reserves, as
well as any portion of the base-year amount which is expected to become taxable
(or "recaptured") in the foreseeable future.
68
<PAGE>
Certain amendments to the federal and New York State tax laws regarding bad debt
deductions were enacted in July and August 1996. The federal amendments included
elimination of the percentage of taxable income method for tax years beginning
after December 31, 1995 and imposition of a requirement to recapture into
taxable income (over a six-year period) the bad debt reserves in excess of the
base-year amounts. Pawling established a deferred tax liability with respect to
such excess federal reserves. The New York State amendments redesignated all of
Pawling's state bad debt reserves as the base-year amount.
As a result of the merger described in Note A, the Company was required to
immediately recapture Pawling's state base-year reserve and recorded a net
expense of $752 under merger expenses to reflect its tax liability to the State
in the 1998 financial statements. Under the present tax laws, however, Pawling's
federal base-year reserve was not subject to immediate recapture.
In accordance with SFAS No. 109, the Company has not recognized deferred tax
liabilities with respect to Pawling's federal base-year tax bad debt reserves of
$8.8 million. The unrecognized deferred tax liability at December 31, 1998 with
respect to the federal base-year reserves was $3.0 million. This reserve could
be recognized as taxable income and create a current and/or deferred tax
liability using the income tax rates then in effect if one of the following
occur: (1) the Company's retained earnings represented by this reserve are used
for dividends or distributions in liquidation or for any other purpose other
than to absorb losses from bad debts., (2) the Company fails to qualify as a
Bank as provided by the Internal Revenue Code, or (3) there is a change in
federal tax law.
NOTE K - OTHER COMMITMENTS AND CONTINGENCIES
The financial statements do not reflect various commitments, contingent
liabilities and fiduciary liabilities for assets held in trust, which arise in
the normal course of business. Management does not anticipate any losses arising
from these transactions. Trust Department assets under administration total
approximately $264,550 at December 31, 1998.
The Bank regularly sells certain types of long-term fixed rate mortgages to a
United States agency which are under recourse arrangements for four months. As
of December 31, 1998, $482 of these sales are subject to such recourse.
The Bank is required to maintain an interest free deposit balance with the
Federal Reserve Bank, which averaged approximately $14.5 million during 1998;
the Bank does not earn interest or other income on such deposited funds.
The Bank is a party to various legal proceedings in the normal course of
business, the ultimate outcome of which, in management's opinion, will not have
a material adverse effect on the Company's consolidated financial position or
results of operations.
NOTE L - RELATED PARTY TRANSACTIONS
The Bank has granted loans to officers and directors of the Company and to their
associates. The following table summarizes activity associated with these loans.
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Balance, beginning of year $ 23,614 $ 23,698
New loans 1,443 3,651
Repayments/Deletions (15,034) (3,735)
------- ------
Balance, end of year $ 10,023 $ 23,614
-------- --------
-------- --------
</TABLE>
The Bank leases premises from an affiliate of a director which lease will expire
in December 1999. Payments made to this affiliate in 1998, 1997 and 1996 were
$112, $142 and $134, respectively. Entities in which directors have interests
provide automotive, insurance and legal services to the Company. The total cost
of such services aggregated $705, $713 and $887 in 1998, 1997 and 1996,
respectively.
69
<PAGE>
NOTE M - OTHER INTEREST BEARING LIABILITIES
Other interest bearing liabilities are summarized as follows, at December 31,:
1998 1997
---- ----
Federal Home Loan Bank advance $1,725 $1,725
------ ------
------ ------
The principal balance outstanding at December 31, 1998 matures in 1999.
From time to time, the Company has occasionally purchased federal funds. These
borrowings generally matured within one to four days of the transaction date.
There were no such borrowings at any time during 1998 or 1997.
The Bank maintains a line of credit with the Federal Home Loan Bank and, at
December 31, 1998, had immediate access to additional liquidity in the amount of
$100 million under FHLB's secured advance program, including the outstanding
advance. Additionally, the Bank maintains a federal funds line of credit in the
amount of $5 million with one of its correspondents. Other than the $1,725
advance maturing in 1999, there were no borrowings under these facilities in
1997 or 1998.
NOTE N - RESTRICTION ON SUBSIDIARY DIVIDENDS AND LOANS TO AFFILIATES
Dividends are paid by the Company from its liquid assets which are mainly
provided by dividends from the Bank. However, certain restrictions exist
regarding the ability of the Bank to transfer funds to the Company in the form
of cash dividends, loans or advances. The approval of the Office of the
Comptroller of the Currency is required to pay dividends in excess of earnings
retained in the current year plus retained net earnings for the preceding two
years. After December 31, 1998, $7,282 is available for distribution to the
Company as dividends without prior regulatory approval (in addition to the 1999
results of operations of the Bank).
Under Federal Reserve regulations, the Bank also is limited as to the amount it
may loan to its affiliates, including the Company, unless such loans are
collateralized by specific obligations. At December 31, 1998, the maximum amount
available for lending by the Bank to the Company or its affiliates in the form
of loans approximated 20% of consolidated net assets with a maximum per
affiliate limit of 10%. The parent company has a mortgage loan from the Bank at
December 31, 1998 of $859. Interest is payable at the prime rate plus one
percent (8.75% at December 31, 1998). Such amounts eliminate in consolidation.
NOTE O - STOCKHOLDERS' EQUITY
COMMON STOCK
In both December 1996 and 1998, the Board of Directors approved separate 10%
stock dividends, payable in January 1997 and 1999, respectively. The Board also
declared a three for two stock split in September 1997, payable October 1997 in
the form of a 50% stock dividend. Shares and share prices have been
retroactively adjusted to reflect the issuance of the stock dividends and the
stock splits for December 1996 ,September 1997 and December 1998 . The 1996 and
1998 financial statements reflect the capitalization of $11,309 and $24,435,
respectively, of retained earnings reflecting a market value of $15.91 and
$15.80 per adjusted share on the respective dates of declaration of the 10%
stock dividends. The 1997 financial statements reflect the capitalization of
1,875 of additional paid in capital at the par value of the 50% stock split on
the date of declaration of $.80 per share. In connection with the merger, the
equity accounts of PBI have been retroactively restated to reflect the 1.82
exchange ratio.
70
<PAGE>
Common stock has a par value of $0.80 per share. The following table summarizes
the number of shares at December 31:
<TABLE>
<CAPTION>
1998 1997(1)
---- -------
<S> <C> <C>
Total issued and outstanding shares 15,695,124 14,050,155
Other issued shares - Treasury shares 2,166 85,015
---------- ----------
Total issued shares 15,697,290 14,135,170
Reserved shares (not yet issued):
Dividend reinvestment and stock purchase plan 488,246 500,322
HCB 1995 Incentive Stock Option (Plan II) 936,365 918,088
Frozen plans:
HCB 1990 Incentive Stock Option (Plan I) 24,823 46,048
PBI Employees Stock Option Plan 456,883 975,783
187,971 266,721
PBI Directors Stock Option Plan
Other authorized but unissued shares 32,208,422 3,157,868
---------- ----------
Total authorized 50,000,000 20,000,000
---------- ----------
---------- ----------
</TABLE>
(1) Number of shares at December 31, 1997 have not been restated to reflect the
10% stock dividend declared December 1998.
Under its Certificate of Incorporation as amended and restated in the Merger,
Premier National Bancorp, Inc. is authorized to issue 50,000,000 shares of
common stock, par value $0.80 per share.
DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN
The Company has a Dividend Reinvestment and Stock Purchase Plan that allows
participating common stockholders to reinvest cash dividends in additional
shares of common stock (at market value) in lieu of cash dividends and gives
participants the right to elect to make optional cash payments to purchase up to
$5 per quarter of shares of common stock (at market value), subject to the terms
and limitations of the plan.
PREFERRED STOCK
The HCB cumulative convertible perpetual Preferred Stock, Series B, was
convertible at the option of the holder into shares of common stock at a
conversion price of $7.85 (as adjusted for stock dividends) per share of common
stock (equivalent to approximately 1.4012 shares of common stock for each share
of Series B). The conversion price was subject to adjustment upon the occurrence
of certain events. The Series B was redeemable at $10 per share (the original
issue and liquidation price) at HCB's option prior to January 1, 1998, if the
closing bid price of the Company's common stock had been at least 140% of the
conversion price for 20 consecutive trading days at any time during the period.
Having met this criteria, on March 12, 1996, HCB called all the outstanding
(571,301) shares of the Series B preferred stock for redemption, effective April
15, 1996. Of the 571,301 shares outstanding, 559,055 shares of Series B
preferred were converted into 78,333 shares of common stock of the Company and
12,246 shares were redeemed, for a total reduction of stockholders' equity
related to redemption of $123 which was paid from the Company's liquid assets.
Cumulative cash dividends were payable quarterly at the rate of 7.25% per year
on the original issue price of $10 per share. Dividends of $.18125 per share
were declared on Series B Preferred Stock in 1996.
The Company has authorized a total of 5,000,000 shares of preferred stock, $.01
par value, which the Board of Directors has the authority to divide into series
and to fix the dividends, rights and preferences of any series so established.
71
<PAGE>
TREASURY STOCK PURCHASE PROGRAM
From time to time, the Boards of Directors of both HCB and PBI authorized the
repurchase of shares of their common stock in the open market. HCB purchased
9,017, and 129,475 shares of common stock at a cost of $190, and $3,496 in 1998
and 1997, respectively, for funding its dividend reinvestment and purchase plan
and option exercises. PBI purchased 27,300 shares of common stock at a cost of
$362 in 1997. Such shares purchased by PBI were retired as a result of the
merger. On December 16, 1997, in conjunction with the approval of the Plan of
Merger (described in Note A) the Boards of Directors of HCB and PBI rescinded
their authorizations for open market purchases of their common stock under the
Repurchase Programs.
SUBSEQUENT EVENT
On February 25, 1999, the Board of Directors approved a stock repurchase program
and authorized management to purchase, over the next two years, up to 1,250,000
shares (approximately 7.9%) of the Company's Common stock from the market to
offset the effects of the Company's dividend reinvestment and purchase plan and
option exercises.
STOCK COMPENSATION PLANS
HCB INCENTIVE STOCK OPTION PLAN
Under the HCB 1990 Incentive Option Plan (Plan I), options to purchase shares of
common stock were granted to key personnel of a predecessor company based upon
their performance for terms up to 10 years at exercise prices not less than the
fair value of the shares at the date of grant. Such options vest and are
exercisable on a cumulative basis at 20% per year with a maximum exercise period
of 5 years from date of vesting. Stock purchased under the plan is subject to
certain resale restrictions and HCB retains the right to redeem outstanding
shares at book value for employees terminating prior to retirement. The plan was
not merged with the HCB 1995 Incentive Stock Plan (Plan II) and no new options
have been granted under this plan since 1994.
In 1995, HCB established the HCB 1995 Incentive Stock Plan (Plan II) as the
successor plan of a predecessor company. Incentive and nonqualified stock
options are utilized to assist in attracting, retaining and providing incentives
to key officers and employees. Grants under the plan may be in the form of
incentive stock options, nonqualified stock options, restricted stock or stock
appreciation rights. Stock options may be granted with the stock appreciation
rights or the stock appreciation rights may be issued separately. Options may
not be granted at less than 100% of the fair market value on the date of grant.
However, options or rights may be granted at greater than the fair market value
on the date of grant. Options vest no less than six months after the date they
were granted and expire no later than 10 years from the grant date. The
determination and grant of an incentive stock option, nonqualified stock option,
a stock appreciation right or restricted stock is determined solely at the
discretion of the Personnel and Compensation Committee of the Board of
Directors. The maximum number of shares of common stock with respect to which
options or rights may be outstanding to any eligible employee under the plan (or
any other HCB plans) is 142,918 shares. At December 31, 1998, shares available
for future grants totaled 323,186. In September 1998, options of 158,840 and
stock appreciation rights of 98,780 were granted at an exercise price of $19.34
which was $3.54 above the current market price at the date of grant.
PBI EMPLOYEES AND DIRECTORS STOCK OPTION PLANS
PBI established stock option plans for its employees and directors. Under the
plans, the option exercise price may not be less than the fair market value of
the common stock at the date of the grant. Options granted pursuant to the
employees' plan are generally exercisable any time within ten years of the date
of grant. Unexercised options generally expire either 90 days or one year
(options granted after 1996) after termination of an employee's continuous
employment by the Company, except in connection with severance arrangements
which provide employees up to nine months to exercise the options. Options
granted pursuant to the directors' non-qualified stock option plans have
ten-year terms, and vest and become fully exercisable six months after the date
of grant. The plans were not merged with the Hudson Chartered Bancorp 1995
Incentive Stock Plans and no new options will be granted under the plans.
In January 1998, options for an additional 113,613 shares were granted under the
employees' plan at an exercise price of $17.61.
72
<PAGE>
COMBINED OPTION PLAN INFORMATION
In connection with the merger of HCB and PBI, all of the outstanding PBI options
were converted into options to purchase common stock of the Company.
Consolidated transactions under the Company's Stock Option Plans, including
SAR's, for the years ended December 31, 1998, 1997 and 1996, are presented
below:
<TABLE>
<CAPTION>
STOCK OPTION PLAN
-----------------
Weighted Average
SHARES EXERCISE PRICE
--------- --------------
<S> <C> <C> <C>
Outstanding at January 1, 1996 1,086,487 $ 6.55
Granted 319,453 10.17
Exercised (293,827) 6.41
Forfeited (32,311) 8.36
---------
Outstanding at December 31, 1996 1,079,800 7.70
Granted 198,228 14.02
Exercised (169,493) 7.58
Forfeited (3,004) 8.76
---------
Outstanding at December 31, 1997 1,105,533 8.82
Granted 371,233 18.81
Exercised (189,906) 7.20
Forfeited (4,004) 11.61
---------
Outstanding at December 31, 1998 1,282,856 $ 11.65
--------- ---------
--------- ---------
Exercisable at December 31:
1996 945,203 $ 7.29
1997 1,021,168 8.15
1998 1,025,236 9.92
</TABLE>
73
<PAGE>
The following table summarizes information about the Company's stock options
outstanding and exercisable at December 31, 1998:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
EXERCISE PRICE NUMBER REMAINING LIFE (YEARS) EXERCISE PRICE
<S> <C> <C> <C> <C> <C>
$ 3.50 to $ 5.91 186,434 4.5 $4.75
6.26 to 7.87 162,660 10.8 6.84
8.24 to 11.61 475,516 8.0 9.91
14.82 to 17.61 200,626 8.5 17.23
Exercisable $ 3.50 to $17.61 1,025,236 7.9 $9.92
------ ------ --------- --- -----
Not Exercisable $19.34 257,620 8.9 $19.34
------ ------- --- ------
------ ------- --- ------
</TABLE>
The fair value of each option grant was estimated on the date of grant by HCB
and PBI, respectively, using the Black - Scholes option pricing model with
the following weighted average assumptions used for grants in 1998, 1997 and
1996.
<TABLE>
<CAPTION>
1998 1997 1996
-----------------------------------------
HCB/PNB PBI HCB PBI HCB-PBI
<S> <C> <C> <C> <C> <C> <C>
Dividend yield 2.27 - 2.94% 2.2 - 3.0% 3.0 - 4.1%
Expected volatility 25.9 - 40.8% 23.6 - 27.8% 25.0 - 44.5%
Risk free rate of return 4.95 - 5.11% 6.05 - 6.45% 5.25 - 5.95%
Expected life (years) 5.0 - 10.0 5.0 - 5.4 6.0 - 7.4
</TABLE>
The weighted average fair value of options granted in 1998, 1997 and 1996 were
$4.63, $5.48 and $4.70, respectively.
The Company maintains stock option plans as described above. The Company applies
APB No. 25 and related interpretations in accounting for its plans. Accordingly,
no compensation cost has been recognized for its fixed stock option plans. Had
compensation cost for the Company's stock option based compensation plans been
determined based on the fair value at the grant dates for awards under those
plans consistent with the method of SFAS No. 123 (Black-Scholes Model), the
Company's net income and earnings per share would have been reduced to the pro
forma amounts indicated below for the years ended December 31: [SAR's are not
included in this disclosure as compensation expense is recorded as incurred.]
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net income As reported $13,052 $17,640 $17,987
Pro forma 11,909 16,982 17,068
Basic earnings per share As reported $ .84 $ 1.14 $ 1.16
Pro forma .76 1.11 1.11
Diluted earnings per share As reported $ .82 $ 1.11 $ 1.13
Pro forma .75 1.07 1.07
</TABLE>
The effects of applying SFAS No. 123 for disclosing compensation cost under this
pronouncement may not be representative of the effects on reported net income
for future years.
74
<PAGE>
EMPLOYEE STOCK OWNERSHIP PLAN (ESOP)
The Company has established an ESOP covering all full-time employees who meet
certain service requirements. Discretionary contributions by the Company are
determined annually by the Board of Directors, up to the maximum amount
permitted under the Internal Revenue Code. The ESOP borrowed money from an
unrelated bank to purchase shares of common stock. The Company guaranteed the
ESOP's loan, which was paid in full in December 1997. Prior to the payoff, the
Company was obligated to contribute sufficient cash to the ESOP to service the
loans; therefore, the unpaid balance of the loan was reflected in the
accompanying balance sheets as long-term debt and the amount representing
unearned employee benefits was recorded as a reduction of the Company's
stockholders' equity. All full-time employees with one year of service are
eligible for this plan.
Both the loan obligation and the unearned benefit expense are reduced by the
amount of any loan repayments made by the ESOP. As of December 12, 1997, the
Company paid off the loan obligation and subsequently recorded a total
contribution expense related to the ESOP in 1997 of $129 compared to
compensation expense of $43 in 1996. The unallocated shares associated with the
ESOP loan were subsequently released to participant accounts. As of December 31,
1998, the ESOP owned 123,143 shares of the Company's common stock (all of which
were available to participants and considered in total issued and outstanding
shares).
CAPITAL ADEQUACY
Both Premier National Bancorp, Inc. and Premier National 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 their financial
statements. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, they must meet or exceed specific capital guidelines
that involve quantitative measures of their assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices.
Capital amounts and classification are also subject to qualitative judgments by
the regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank and its parent company to maintain or exceed minimum amounts
and ratios (set forth in the table below) of total and Tier 1 capital (as
defined in the regulations) to risk-weighted assets (as defined), and of Tier 1
capital (as defined) to average assets (as defined). Management believes, as of
December 31, 1998 and 1997, that both the Bank and its parent company meet all
capital adequacy requirements to which they are subject.
As of December 31, 1998, the most recent notification from the Bank's primary
regulator (the Office of the Comptroller of the Currency) as to Premier National
Bank categorized the Bank as "well capitalized" under the regulatory framework
for prompt corrective action. To be categorized as " well capitalized" a bank
must maintain or exceed minimum total risk-based, Tier I risk-based, and Tier I
leverage ratios as set forth in the table. There are no conditions or events
since those notifications that management believes have changed either
institution's category.
75
<PAGE>
CAPITAL RATIOS
THE FOLLOWING SUMMARIZES THE MINIMUM CAPITAL REQUIREMENTS AND THE ACTUAL CAPITAL
POSITION AT DECEMBER 31, 1997 AND 1998 ON A COMBINED BASIS AFTER GIVING EFFECT
TO THE MERGER DESCRIBED IN NOTE A:
<TABLE>
<CAPTION>
MINIMUM
TO BE WELL
MINIMUM CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES: ACTION PROVISIONS:
-------- ------------------ ------------------
BANK ONLY
AS OF DECEMBER 31, 1997: AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ------ ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
TOTAL CAPITAL
(TO RISK WEIGHTED ASSETS) $134,680 13.64%$ 78,995 8.0% $ 98,744 10.0%
TIER I CAPITAL
(TO RISK WEIGHTED ASSETS) 122,241 12.38 39,498 4.0 59,246 6.0
TIER I CAPITAL
(TO AVERAGE ASSETS) 122,241 7.68 63,662 4.0 79,578 5.0
AS OF DECEMBER 31, 1998:
TOTAL CAPITAL
(TO RISK WEIGHTED ASSETS) $134,412 12.61%$ 85,275 8.0% $106,594 10.0%
TIER I CAPITAL
(TO RISK WEIGHTED ASSETS) 121,593 11.41 42,638 4.0 63,956 6.0
TIER I CAPITAL
(TO AVERAGE ASSETS) 121,593 7.82 62,185 4.0 77,732 5.0
CONSOLIDATED
AS OF DECEMBER 31, 1997:
TOTAL CAPITAL
(TO RISK WEIGHTED ASSETS) $152,158 15.30%$ 79,583 8.0%
TIER I CAPITAL
(TO RISK WEIGHTED ASSETS) 139,638 14.04 39,791 4.0
TIER I CAPITAL
(TO AVERAGE ASSETS) 139,638 8.69 64,290 4.0
AS OF DECEMBER 31, 1998:
TOTAL CAPITAL
(TO RISK WEIGHTED ASSETS) $161,483 15.38%$ 84,012 8.0%
TIER I CAPITAL
(TO RISK WEIGHTED ASSETS) 148,333 14.12 42,006 4.0
TIER I CAPITAL
(TO AVERAGE ASSETS) 148,333 9.13 64,952 4.0
</TABLE>
76
<PAGE>
NOTE P - PARENT COMPANY ONLY FINANCIAL INFORMATION
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
---- ----
<S> <C> <C>
ASSETS
Cash (deposited in Bank) $ 7,790 $ 1,266
Federal funds sold 3,800
Securities available for sale, at fair value 6,388 7,815
Other securities 109 109
Investment in subsidiaries:
Bank 131,848 131,382
Other 319 376
Premises 4,840 4,976
Other assets 8,253 3,023
-------- --------
TOTAL ASSETS $159,547 $152,747
-------- --------
LIABILITIES
Notes payable - Bank subsidiary $ 859 $ 959
Other liabilities 2,534 2,951
STOCKHOLDERS' EQUITY 156,154 148,837
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $159,547 $152,747
-------- --------
-------- --------
</TABLE>
STATEMENTS OF INCOME AND EXPENSE
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Dividends from Bank $ 14,315 $ 11,105 $ 8,194
Other income 1,374 1,511 1,053
Merger related expenses (2,272) (541)
Other expenses (1,144) (1,306) (411)
-------- -------- --------
Income before income taxes and equity in undistributed net income 12,273 10,769 8,836
(loss) of subsidiaries
Income tax benefit (expense) 240 238 (94)
-------- -------- --------
Income before equity in undistributed net income (loss) of 12,513 11,007 8,742
subsidiaries
Equity in undistributed net income (loss) of subsidiaries:
Bank 596 6,686 9,260
Other (57) (53) (15)
-------- -------- --------
NET INCOME $ 13,052 $ 17,640 $ 17,987
-------- -------- --------
-------- -------- --------
</TABLE>
77
<PAGE>
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1997 1996
---- -- ------ -- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 13,052 $ 17,640 $ 17,987
Adjustments to reconcile net income to net cash provided by
Operating activities:
Equity in undistributed net income of subsidiaries (539) (6,633) (9,245)
Depreciation 136 208 141
Other, net (6,735) (945) 2,916
-------- -------- --------
Net cash provided by operating activities 5,914 10,270 11,799
INVESTING ACTIVITIES
Purchase of premises and equipment from Bank (2,500)
Sale of premises and equipment to Bank 1,700
Purchase of available for sale securities (1,654) (5,586)
Proceeds from sales of available for sale securities 3,055 400 250
-------- -------- --------
Net cash provided (used) by investing activities 1,401 (5,186) (550)
-------- -------- --------
FINANCING ACTIVITIES
Payments on borrowings (100) (100) (100)
Proceeds from issuance of stock 2,789 2,745 2,151
Repurchase of preferred stock (123)
Repurchase of common stock (190) (3,858) (5,250)
Cash dividends (7,090) (5,963) (4,929)
-------- -------- --------
Net cash used by financing activities (4,591) (7,176) (8,251)
-------- -------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,724 (2,092) 2,998
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 5,066 7,158 4,160
-------- -------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 7,790 $ 5,066 $ 7,158
-------- -------- --------
-------- -------- --------
</TABLE>
78
<PAGE>
NOTE Q - ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments", requires
that the Company disclose estimated fair values for certain financial
instruments. Estimated fair values are as of December 31, 1998 and December 31,
1997, respectively, and have been determined using available market information
and various valuation estimation methodologies. Considerable judgment is
required to interpret the effects on fair value of such items as future expected
loss experience, current economic condition, risk characteristics of various
financial instruments and other factors. The estimates presented herein are not
necessarily indicative of the amounts that the Company could realize in a
current market exchange. Also, the use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair
values.
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
(DOLLARS IN MILLIONS) CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
ASSETS
CASH AND CASH EQUIVALENTS $ 174.3 $ 174.3 $ 93.3 $ 93.3
SECURITIES 386.9 387.4 440.0 440.8
LOANS, NET 946.0 953.7 1,014.2 1,024.9
ACCRUED INCOME 8.9 8.9 11.2 11.2
LIABILITIES
DEPOSITS WITHOUT STATED MATURITIES 933.8 933.8 928.6 928.6
TIME DEPOSITS 473.3 473.9 523.7 524.3
ACCRUED INTEREST PAYABLE .5 .5 1.0 1.0
</TABLE>
THE FAIR VALUE ESTIMATES PRESENTED ABOVE ARE BASED ON PERTINENT INFORMATION
AVAILABLE TO MANAGEMENT AS OF DECEMBER 31, 1998 AND DECEMBER 31, 1997. ALTHOUGH
MANAGEMENT IS NOT AWARE OF ANY FACTORS THAT WOULD SIGNIFICANTLY AFFECT THE
ESTIMATED FAIR VALUE AMOUNTS, SUCH AMOUNTS HAVE NOT BEEN COMPREHENSIVELY
REVALUED SINCE DECEMBER 31, 1998 AND, THEREFORE, CURRENT ESTIMATES OF FAIR VALUE
MAY DIFFER SIGNIFICANTLY FROM THE AMOUNTS PRESENTED ABOVE.
FAIR VALUE METHODS AND ASSUMPTIONS ARE AS FOLLOWS:
CASH AND CASH EQUIVALENTS - THE ESTIMATED FAIR VALUE IS BASED ON CURRENT RATES
FOR SIMILAR ASSETS.
SECURITIES - THE FAIR VALUE OF SECURITIES IS ESTIMATED BASED ON QUOTED MARKET
PRICES OR DEALER QUOTES, OR IF NOT AVAILABLE, ESTIMATED USING QUOTED MARKET
PRICES FOR SIMILAR SECURITIES.
LOANS - THE FAIR VALUE OF FIXED RATE LOANS HAS BEEN ESTIMATED BY DISCOUNTING
PROJECTED CASH FLOWS USING CURRENT RATES FOR SIMILAR LOANS. FOR OTHER LOANS,
WHICH REPRICE FREQUENTLY TO MARKET RATES, THE CARRYING AMOUNT APPROXIMATES THE
ESTIMATED FAIR VALUE. THE FAIR VALUE OF NONACCRUAL LOANS HAVING A NET CARRYING
VALUE OF APPROXIMATELY $6,626 AND $8,034 IN 1998 AND 1997, RESPECTIVELY, ARE NOT
ESTIMATED BECAUSE IT WAS NOT PRACTICAL TO REASONABLY ASSESS THE TIMING OF THE
CASH FLOWS OR THE CREDIT ADJUSTMENT THAT WOULD BE APPLIED IN THE MARKET-PLACE
FOR SUCH LOANS. THE TOTAL AMOUNT OF LOANS INCLUDED HAS BEEN REDUCED BY THE
ALLOWANCE FOR LOAN LOSSES OF $19,028 AND $18,794 IN 1998 AND 1997, RESPECTIVELY.
DEPOSITS WITHOUT STATED MATURITIES - UNDER THE PROVISION OF SFAS NO. 107, THE
ESTIMATED FAIR VALUE OF DEPOSITS WITH NO STATED MATURITY, SUCH AS NON-INTEREST
BEARING DEMAND DEPOSITS, SAVINGS ACCOUNTS, NOW ACCOUNTS, MONEY MARKET AND
CHECKING ACCOUNTS, IS EQUAL TO THE AMOUNT PAYABLE ON DEMAND AS OF DECEMBER 31,
1998 AND DECEMBER 31, 1997.
TIME DEPOSITS - THE FAIR VALUE OF CERTIFICATES OF DEPOSITS IS BASED ON THE
DISCOUNTED VALUE OF CONTRACTUAL CASH FLOWS. THE DISCOUNT RATES USED ARE THE
RATES CURRENTLY OFFERED FOR DEPOSITS OF SIMILAR REMAINING MATURITIES. THE EXCESS
OF THE ESTIMATED FAIR VALUE OF TIME DEPOSITS OVER THEIR RECORDED AMOUNTS
REPRESENTS THE DISCOUNTED VALUE OF CONTRACTUAL RATES OVER RATES CURRENTLY BEING
OFFERED.
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK - AS DESCRIBED IN NOTE C, THE
COMPANY WAS A PARTY TO FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AT
DECEMBER 31, 1998 AND 1997. SUCH FINANCIAL INSTRUMENTS CONSIST OF COMMITMENTS TO
EXTEND PERMANENT FINANCING AND LETTERS OF CREDIT. IF THE OPTIONS ARE EXERCISED
BY THE PROSPECTIVE BORROWERS, THESE FINANCIAL INSTRUMENTS WILL BECOME
INTEREST-EARNING ASSETS OF THE COMPANY. IF THE OPTIONS EXPIRE, THE COMPANY
RETAINS ANY FEES PAID BY THE COUNTERPARTY IN ORDER TO OBTAIN THE COMMITMENT OR
GUARANTEE. THE FAIR VALUE OF COMMITMENTS IS ESTIMATED BASED UPON FEES CURRENTLY
CHARGED TO ENTER INTO SIMILAR AGREEMENTS, TAKING INTO ACCOUNT THE REMAINING
TERMS OF THE AGREEMENTS AND THE PRESENT CREDITWORTHINESS OF THE COUNTERPARTIES.
FOR FIXED-RATE COMMITMENTS, THE FAIR VALUE ESTIMATION TAKES INTO CONSIDERATION
AN INTEREST RATE RISK FACTOR. THE FAIR VALUE OF GUARANTEES AND LETTERS OF CREDIT
IS BASED ON FEES CURRENTLY CHARGED FOR SIMILAR AGREEMENTS. THE FAIR VALUE OF
THESE OFF-BALANCE SHEET ITEMS AT DECEMBER 31, 1998 AND 1997, RESPECTIVELY,
APPROXIMATES THE RECORDED AMOUNTS OF THE RELATED FEES, WHICH ARE NOT MATERIAL.
THE COMPANY HAS NOT ENGAGED IN HEDGE TRANSACTIONS SUCH AS INTEREST RATE FUTURES
CONTRACTS OR INTEREST RATE SWAPS.
79
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
PREMIER NATIONAL BANCORP, INC
BY:
/S/ T. JEFFERSON CUNNINGHAM III
CHAIRMAN OF THE BOARD
DATE: MARCH 25, 1999
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
IN THE CAPACITIES AND ON THE DATES INDICATED.
PRINCIPAL EXECUTIVE OFFICER:
/S/ T. JEFFERSON CUNNINGHAM III MARCH 25, 1999
CHAIRMAN OF THE BOARD
PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER:
/S/ PAUL A. MAISCH MARCH 25, 1999
TREASURER
DIRECTORS:
/S/ ELIZABEH P. ALLEN MARCH 25, 1999
/S/ THOMAS C. APOSPOROS MARCH 25, 1999
/S/ ROBERT M. BOWMAN MARCH 25, 1999
/S/ H. TODD BRINCKERHOFF MARCH 25, 1999
/S/ GEORGE M. COULTER MARCH 25, 1999
/S/ EDWARD VK. CUNNINGHAM JR. MARCH 25, 1999
/S/ T. JEFFERSON CUNNINGHAM III MARCH 25, 1999
/S/ THOMAS C. DEBENEDICTUS MARCH 25, 1999
/S/ R. ABEL GARRAGHAN MARCH 25, 1999
80
<PAGE>
DIRECTORS (CONTINUED)
/S/ WARREN R. MARCUS MARCH 25, 1999
/S/ RICHARD NOVIK MARCH 25, 1999
/S/ JOHN J. PAGE MARCH 25, 1999
/S/ LEWIS J. RUGE MARCH 25, 1999
/S/ ARCHIBALD A. SMITH III MARCH 25, 1999
/S/ ROGER W. SMITH MARCH 25, 1999
/S/ DAVID A. SWINDEN MARCH 25, 1999
/S/ PETER VAN KLEECK MARCH 25, 1999
/S/ JOHN C. VANWORMER MARCH 25, 1999
81
<PAGE>
SECOND AMENDED AND RESTATED EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
PREMIER NATIONAL BANCORP, INC.
(UNDER SECTION 807 OF THE BUSINESS CORPORATION LAW)
1. NAME. The name of the Corporation is Premier National
Bancorp, Inc. (hereinafter called the "Corporation").
2. PURPOSES. Subject to any limitation provided in the
Business Corporation Law of the State of New York (the "Business Corporation
Law") or any other statute of the State of New York, and except as otherwise
specifically provided in this Certificate of Incorporation, the purposes for
which the Corporation is formed are:
2.1 To act as a bank holding company, with all of the
rights, powers and privileges, and subject to all of the limitations,
specified in any applicable state or federal legislation from time to
time in effect; and
2.2 To engage in any other lawful act or activity for
which corporations may be organized under the Business Corporation
Law, provided that the Corporation shall not engage in any act or
activity requiring the consent or approval of any state official,
department, board, agency or other body without such consent or
approval first being, obtained.
3. OFFICE. The office of the Corporation is to be located in
the County of Dutchess, State of New York.
4. CAPITAL STOCK. The aggregated number of shares of all
classes of capital stock which the Corporation has authority to issue is
55,000,000 shares, of which 50,000,000 are to be shares of common stock, $.80
par value per share (the "Common Stock"), and 5,000,000 are to be shares of
serial preferred stock, $.01 par value per share (the "Preferred Stock". The
shares of capital stock may be issued by the Corporation from time to time as
approved by the Board of Directors of the Corporation without the approval of
the shareholders, except as otherwise provided in this Article 4, the Business
Corporation Law or, if applicable, the rules of a national securities exchange
on which the Corporation's capital stock is listed. The consideration for the
issuance of the shares of capital stock shall be paid to or received by the
Corporation in the form and manner permitted by the Business Corporation Law and
shall not be less than the par value per share of such shares.
Notwithstanding any other provision of this Certificate of
Incorporation, no holder of any shares of the Corporation's capital stock shall
have or be entitled to any preemptive, preferential or other right, under
Section 622 of the Business Corporation Law or otherwise, to subscribe for,
purchase or otherwise acquire any shares of any class of the Corporation's
capital stock or any series thereof, whether now or
<PAGE>
hereafter authorized, or other obligations or securities of the Corporation
convertible into or exchangeable for such shares, or carrying rights or options
to purchase shares of any class of the Corporation's capital stock or any series
thereof, including without limitation warrants, subscription rights or options
to subscribe for, purchase or otherwise acquire such shares or securities, or
any other instruments evidencing such rights or options.
Subject to the provisions of the Business Corporation Law, the
Corporation is authorized to make pro rata distributions of its authorized but
unissued shares of capital stock to holders of shares of the same or any other
class of the Corporation's capital stock or series thereof.
A description of the different classes and series (if any) of
the Corporation's capital stock, and a statement of the relative powers,
designations, preferences and rights of the shares of each class and series (if
any) of capital stock, and the qualifications, limitations or restrictions
thereof, are as follows:
A. COMMON STOCK. Subject to all of the powers, rights and
preferences of the holders of Preferred Stock provided by resolution
or resolutions of the Board of Directors pursuant to this Article 4
or by the Business Corporation Law, holders of shares of Common Stock
shall exclusively possess all voting power and shall be entitled to
one vote for each share held by such holders with respect to all
matters voted on by the shareholders of the Corporation.
Whenever there shall have been paid, or declared and
set aside for payment, to the holders of the outstanding shares of
any class of capital stock having preference over the Common Stock as
to the payment of dividends or other distributions the full amount of
dividends or such other distributions, and sinking fund or retirement
fund or other retirement payments, if any, to which such holders are
respectively entitled in preference to holders of the Common Stock,
then dividends or such other distributions, as the case may be, may
be paid on the Common Stock, and on any class or series of capital
stock entitled to participate therewith as to dividends or such other
dividends, as the case may be, to the holders thereof out of any
assets legally available for the payment of dividends or such other
distributions, but only when and as declared by the Board of
Directors of the Corporation.
In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation (none of
which for purposes of any provision of this Certificate of
Incorporation shall be deemed to include a consolidation or merger of
the Corporation, or the sale of all or substantially all of the
Corporation's assets), after there shall have been paid, or declared
and set aside for payment, to the holders of the outstanding shares
of any class of capital stock having preference over the Common Stock
as to distribution of assets of the Corporation in any such event the
full preferential amounts to which the holders of such shares are
respectively entitled, the holders of the Common Stock and of any
class or series of capital stock entitled to participate therewith,
- 2 -
<PAGE>
in whole or in part, as to distribution of the Corporation's assets, shall be
entitled, after payment or provision for payment of all debts and liabilities of
the Corporation, to receive the remaining assets of the Corporation available
for distribution, in cash or in kind, ratably in proportion to the number of
shares of Common Stock held by them.
Each share of Common Stock shall have the same relative powers,
preferences and rights as, and shall be identical in all respects with, all the
other shares of Common Stock.
B. PREFERRED STOCK. Subject to limitations prescribed by the Business
Corporation Law and the provisions of this Certificate of Incorporation, the
Board of Directors of the Corporation is authorized to provide from time to time
by resolution or resolutions for the issuance of one or more series of Preferred
Stock, and, by filing a certificate pursuant to the Business Corporation Law, to
establish from time to time the number of shares of Preferred Stock to be
included in each such series, and to fix and state the powers, designations,
preferences and relative, participating, optional or other special rights of the
shares of each such series, and the qualifications, limitations or restrictions
thereof, including, but not limited to determination of any of the following:
(1) the distinctive serial designation and the number
of shares constituting such series, which number the Board of
Directors may thereafter (except where otherwise provided in a
resolution designating a particular series) increase (but not
above the total number of authorized shares of the series) or
decrease (but not below the number of shares of such series
then outstanding);
(2) the dividend rates or the amount of dividends to
be paid on the shares of such series, the record and payment
date or dates for dividends, whether dividends shall be
cumulative and, if so, from which date or dates, and the
participating or other special rights, if any, including any
relative rights of priority of payment, with respect to
dividends to be paid on shares of such series;
(3) whether the shares of such series shall have
voting rights in addition to the voting rights provided by
law, and, if so, the terms and conditions of such voting
rights, including, but not limited to, the right of the
holders of such shares to vote as a separate class either
alone or with the holders of shares of one or more other
series of Preferred Stock and the right to have more than one
vote per share;
(4) whether the shares of such series shall be
redeemable and, if so, the times, prices and other terms and
conditions upon which such shares may be redeemed, including,
but not limited to the amount per share which shall be payable
upon such redemption, which
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amount may vary under different conditions and at different
redemption dates;
(5) the amount or amounts payable upon the shares of
such series in the event of voluntary or involuntary
liquidation, dissolution or winding up of the Corporation, and
the relative rights of priority, if any, of payment upon
shares of such series;
(6) whether the shares of such series shall be
entitled to the benefits of a sinking or retirement fund to be
applied to the purchase or redemption of such shares, and, if
so entitled, the terms and conditions of such fund, including,
but not limited to, the amount of such fund and the manner of
its application, including the price or prices at which such
shares may be redeemed or purchased through the application of
such funds;
(7) whether the shares of such series shall be
convertible into, or exchangeable for, shares of any other
class or classes of the Corporation's capital stock or any
series thereof and, if so convertible or exchangeable, the
conversion price or prices or the rate or rates of exchange,
and the adjustments thereof, if any, at which such conversion
or exchange may be made, and any other terms and conditions of
such conversion or exchange;
(8) the subscription or purchase price and form of
consideration for which the shares of such series shall be
issued;
(9) whether the shares of such series which are
redeemed, converted or exchanged shall have the status of
authorized but unissued shares of Preferred Stock and whether
such shares may be reissued as shares of the same or any other
series of Preferred Stock; and
(10) any other relative rights, preferences and
limitations of the shares of such series.
Each share of each series of Preferred Stock shall have the
same relative powers, preferences and rights as, and shall be identical
in all respects with, all the other shares of the same series of
Preferred Stock. Except as required by the Business Corporation Law,
the Board of Directors of the Corporation is authorized to amend this
Certificate of Incorporation to provide for one or more series of
Preferred Stock without obtaining the approval of the holders of any
class of capital stock of the Corporation.
5. DESIGNATION OF SECRETARY OF STATE; MAILING ADDRESS: REGISTERED
AGENT. The Secretary of State of the State of New York is designated as the
agent of the Corporation upon whom process in any action or proceeding against
the Corporation may be served,
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and the address to which the Secretary of State shall mail a copy of process in
any action or proceeding against the Corporation which may be served upon him
is:
Premier National Bancorp, Inc.
Route 55
LaGrangeville, New York 12540
Attention: Secretary.
In addition, the Secretary of the Corporation, whose business address is
Premier National Bancorp, Inc., Route 55, LaGrangeville, New York 12540, is
designated as the Corporation's registered agent in New York upon whom process
in any action or proceeding, against the Corporation may be served at such
address.
6. Duration. The duration of the Corporation is to be perpetual.
7. Cumulative Voting Rights. Cumulative voting rights shall not exist
with respect to the election of directors.
8. FACTORS TO BE CONSIDERED BY THE DIRECTORS. In connection with taking
any action, including, without limitation, action which may involve or relate
to any business combination or transaction, including, without limitation, any
merger, consolidation or sale of the Corporation's assets, or a proposal by
another Person or Persons to make a business combination or transaction or a
tender or other exchange offer (whether in cash or securities, or both) or any
other proposal relating to a change or potential change in the control of the
Corporation, and the exercise of its or their judgment in determining what is
in the best interest of the Corporation and its shareholders, the Board of
Directors, any Committee of the Board of Directors or any individual director
may, but shall not be required to, in addition to considering the long-term
and short-term interests of the Corporation and its shareholders, consider all
of the following factors and any other factors which it deems relevant: (i)
the social, legal, economic and other effects of the action or matter being or
to be considered on the Corporation and its subsidiaries, its and their
employees, depositors, customers and creditors and the communities in which
the Corporation and its subsidiaries operate or are located; and (ii) when
evaluating a business combination or transaction or a proposal by another
Person or Persons to make a business combination or transaction or a tender or
other exchange offer or any other proposal relating to a change or potential
change in control of the Corporation, (v) the business, reputation and
financial condition and earnings prospects of the acquiring Person or Persons
and the possible effects of such factors on the Corporation and its
subsidiaries, its and their employees, depositors, customers and creditors,
the future value of the Corporation's capital stock, and the communities in
which the Corporation and its subsidiaries operate or are located; (w) the
reputation, business practices, competence, experience and integrity of the
acquiring Person or Persons and its or their management and affiliates; (x)
the prospects for successful conclusion of the business combination,
transaction, offer or proposal; (y) whether the price or value of the
securities being offered in the business combination, transaction or offer is
acceptable based on the historical and present operating results and financial
condition of the Corporation and whether a more favorable price could be
obtained for the Corporation's securities or
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assets, whichever the case may be, in the future; and (z) any antitrust or other
legal or regulatory issues that are raised by the business combination,
transaction, offer or proposal. As used in this Article 8, the term "Person"
means any individual, partnership, firm, corporation, association, trust,
unincorporated organization or other entity; when two or more Persons act as a
partnership, limited partnership, syndicate, or other group acting in concert
for the purpose of acquiring, holding, voting, or disposing of securities of the
Corporation, such partnership, limited partnership, syndicate or group shall
also be deemed a "Person" for purposes of this Article 8.
If the Board of Directors determines that a business combination,
transaction, offer or proposal should not be recommended to the shareholders, it
may take any lawful action to accomplish its purpose of opposing or not
recommending such business combination, transaction, offer or proposal,
including, without limitation, any or all of the following advising shareholders
not to accept the business combination, transaction, offer or proposal;
soliciting proxies against the business combination, transaction, offer or
proposal; initiating or filing, in good faith, litigation or complaints with
governmental or regulatory authorities against the business combination,
transaction, offer or proposal; issuing the authorized but unissued securities
or treasury stock of the Corporation or granting options (either statutory or
nonstatutory, or both) with respect thereto in accordance with applicable law;
acquiring another entity or entities to create an antitrust or other regulatory
problem for the business combination, transaction, offer or proposal; and
obtaining a more favorable offer or proposal.
The provisions of this Article 8 shall be deemed solely to grant
discretionary authority to the directors and shall not be deemed to provide to
any constituency the right to be considered. In addition, the provisions of this
Articles 8 shall be supplemental to and in no way limiting of the powers and
authority granted to the directors by applicable law.
9. CLASSIFICATION OF DIRECTORS. The Board of Directors of the
Corporation shall be divided into three classes. The respective terms of office
of the members of each such class shall end in successive years. The number of
directors in each class shall be as specified in, or as determined pursuant to,
the Bylaws and shall be nearly as equal as possible. Except as provided in
Article 10 of this Certificate of Incorporation, the directors in each class
shall be elected to hold office until the third successive annual meeting of
shareholders after their election and until their successors shall have been
elected and qualified. At each annual meeting of shareholders the directors of
only one class shall be elected, except directors who may be elected to fill
vacancies. If the number of directors comprising the Board of Directors, is
changed, any increase or decrease shall be apportioned among the classes so as
to maintain or attain the number of directors in each class as nearly equal as
reasonably possible, but in no case shall a decrease in the number of directors
shorten the term of any incumbent director.
10. FILLING OF VACANCIES IN THE BOARD OF DIRECTORS. Any vacancies in
the Board of Directors for any reason, including, but not limited to, any
vacancy resulting by reason of the removal of a director with or, if permitted
by this Certificate of Incorporation, without cause, and any newly created
directorships resulting by reason of any increase in
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the number of directors may be filled only by the Board of Directors, acting by
a majority of the remaining directors then in office, although less than a
quorum, or by a sole remaining director. Any director so elected by the Board of
Directors to fill a vacancy shall hold office only until the next annual meeting
of shareholders and until his or her successor shall have been elected and
qualified, notwithstanding that the term of office of other directors in the
class of which he or she is a member does not expire at the time of each
meeting. The successor to any director elected by the Board to fill a vacancy
shall be elected by the shareholders to a term of office which shall expire at
the same time as the term of office of the other directors in the class to which
he or she is elected and until his or her successor is elected and qualified.
Notwithstanding any other provision of this Certificate of Incorporation, if the
holders of any class or classes of shares of the Corporation's capital stock,
other than the Common Stock, or any series thereof shall be entitled to elect
one or more directors pursuant to this Certificate of Incorporation, any vacancy
in the directors elected by such class or classes or series may be filled by a
majority of the directors elected by such class or classes or series then in
office, or, if no such director is then in office, by the Board of Directors as
otherwise provided in this Article 10.
11. INDEMNIFICATION.
11.1. RIGHT TO INDEMNIFICATION. Each person who was or is made a
party or is threatened to be made a party to or is otherwise involved
in any action, suit or proceeding, whether civil, criminal,
administrative or investigative (hereinafter a "proceeding"), by reason
of the fact:
(a) that he or she is or was a director or officer of the
Corporation, or
(b) that he or she, being at the time a director or officer
of the Corporation, is or was serving at the request of the
Corporation as a director, trustee, officer, employee or agent of
another corporation or of a partnership, joint venture, trust or
other enterprise, including service with respect to an employee
benefit plan (collectively, "another enterprise" or other
enterprise"),
whether either in case (a) or in case (b) the basis of such proceeding
is alleged action or inaction (x) in an official capacity as a director
or officer of the Corporation, or as a director, trustee, officer,
employee or agent of such other enterprise, or (y) in any other
capacity related to the Corporation or such other enterprise while so
serving, as a director, trustee, officer, employee or agent, shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the Business Corporation Law, as the same exists or may
hereafter be amended (but, in the case of any such amendment, with
respect to actions taken prior to such amendment, only to the extent
that such amendment does not prohibit the Corporation from providing
broader indemnification rights than permitted prior thereto), against
all expense, liability and loss (including, without limitation,
attorneys' fees, judgments, fines, ERISA excise taxes or penalties and.
amounts paid in settlement) reasonably incurred or suffered by such
person in.
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connection therewith. The persons indemnified by this Article 11 are
hereinafter referred to as "indemnitees." Such indemnification as to
such alleged action or inaction shall continue as to an indemnitee who
has after such alleged action or inaction ceased to be a director or
officer of the Corporation, or director, officer, employee or agent of
another enterprise; and shall inure to the benefit of the indemnitee's
heirs, executors and administrators. The right to indemnification
conferred in this Article 11: (i) shall be a contract right; (ii)
shall not be affected adversely as to any indemnitee by any amendment
of this Certificate of Incorporation with respect to any action or
inaction occurring prior to such amendment; and (iii) shall, subject
to any requirements imposed by law and the Bylaws, include the right
to be paid by the Corporation the expenses incurred in defending any
such proceeding in advance of its final disposition.
11.2. RELATIONSHIPS TO OTHER RIGHTS AND PROVISIONS CONCERNING
INDEMNIFICATION. The rights to indemnification and to the advancement
of expenses conferred in this Article 11 shall not be exclusive of any
other right which any person may have or hereafter acquire under any
statute, this Certificate of Incorporation, Bylaws, agreement
(including, any agreement between such person and any of the
Corporation's affiliates, predecessor or subsidiary corporations or
any constituent corporation absorbed by the Corporation in a
consolidation or merger), vote of shareholders or disinterested
directors or otherwise. The Bylaws may contain such other provisions
concerning indemnification, including, provisions specifying
reasonable procedures relating to and conditions to the receipt by
indemnitees of indemnification, provided that such provisions are not
inconsistent with the provisions of this Article 11.
11.3. AGENTS AND EMPLOYEES. The Corporation may, to the extent
authorized from time to time by the Board of Directors and to the
fullest extent authorized by the Business Corporation Law, as the same
exists or may hereafter be amended, grant rights to indemnification,
and to the advancement of expenses, to any employee or agent of the
Corporation (or any person, other than a director or officer of the
Corporation, serving at the Corporation's request as a director,
trustee, officer, employee or agent of another enterprise) or to
persons who are or were a director, officer, employee or agent of any
of the Corporation's affiliates, predecessor or subsidiary
corporations or of a constituent corporation absorbed by the
Corporation in a consolidation or merger or who is or was serving at
the request of such affiliate, predecessor or subsidiary corporation
or of such constituent corporation as a director, officer, employee or
agent of another enterprise, in each case as determined by the Board
of Directors to the fullest extent of the provisions of this Article
11 in cases of the indemnification and advancement of expenses of
directors and officers of the Corporation, or to any lesser extent (or
greater extent, if permitted by law) determined by the Board of
Directors. Nothing in this Article 11.3 shall limit the
indemnification provided in Article 11.1 hereof to any officer or
director of the Corporation who was or is made a party or is
threatened to be made a party to or is otherwise involved in any
proceeding by reason of the fact that he or she is or was serving
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at the request of the Corporation as a director, officer, trustee,
employee or agent of any subsidiary of the Corporation or any other
enterprise.
11.4. LIMITATIONS ON INDEMNIFICATION. Notwithstanding any other
provision of this Certificate of Incorporation or the Corporation's
Bylaws, (i) indemnification of any indemnitee or any person under any
provision of this Article 11 or any provision of the Corporation's
Bylaws shall be subject to the applicable rules, regulations and
interpretations of the Office of the Comptroller of the Currency, the
Federal Deposit Insurance Corporation and the Board of Governors of the
Federal Reserve System, as the same exist or may hereafter be amended
(but, in the case of any such amendment, with respect to actions taken
prior to such amendment, only to the extent that such amendment does
not prohibit the Corporation from providing broader indemnification
rights than permitted prior thereto), and (ii) indemnification of any
director, officer, employee or agent of any national bank subsidiary of
the Corporation under any provision of this Article 11 or any provision
of the Corporation's Bylaws shall be subject to the limitations, if
any, contained in such subsidiary's Articles of Association.
12. LIMITATION ON LIABILITY OF DIRECTORS. No director of the
Corporation shall be personally liable to the Corporation or its shareholders
for monetary damages for any breach of fiduciary duty by such director as a
director, except to the extent such exculpation is prohibited by the Business
Corporation Law. No amendment to or repeal of this Article 12 shall apply to or
have any effect on the liability or alleged liability of any director of the
Corporation for or with respect to any acts or omissions of such director
occurring prior to such amendment or repeal.
13. REMOVAL OF DIRECTORS. Any director may be removed from office at
any time for cause by (i) the affirmative vote of the holders of at least
sixty-six and two-thirds percent (66 2/3%) of the combined voting power of all
of the shares of capital stock of the Corporation then entitled to vote
generally in the election of directors or (ii) the affirmative vote of sixty-six
and two-thirds percent (66 2/3%) of the entire Board of Directors, other than
the director to be removed. Notwithstanding the immediately preceding sentence,
when the holders of any series of Preferred Stock are entitled to elect one or
more directors pursuant to a resolution or resolutions providing for any series
of Preferred Stock under Article 4 hereof, any director so elected by the
holders of such series may be removed only by the applicable vote of the holders
of the shares of such series as set forth in such resolution or resolutions.
Directors shall not be removed without cause. Cause is defined as any one or
more of the following,: the commission of any violation of law, rule or
regulation or of a cease and desist order which has become final; engaging or
participating in any unsafe or unsound practice in connection with the
Corporation or any of its subsidiaries regardless of whether actual harm or
damages result to the Corporation; the commission or omission of or engaging in
any act, or practice -which constitutes a material breach of a director's
fiduciary duty as director, involves personal dishonesty on the part of the
director or demonstrates a willful or continuing disregard for the best
interests of the Corporation; the adjudication that a director is of an unsound
mind; the adjudication that a director is bankrupt; the intentional destruction
of
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the Corporation's property; the breach or violation of any agreements with the
Corporation or any of its subsidiaries signed by the director, including, but
not limited to, confidentiality and nondisclosure agreements; or engaging in
dishonorable or disruptive behavior, practices or acts which would be reasonably
expected to harm or bring into disrepute the Corporation, its business or its
employees. The phrase "the entire Board of Directors" or "the entire Board," as
used in this Certificate of Incorporation shall refer to the total number of
directors which the Corporation would have if there were no vacancies.
14. LOANS TO DIRECTORS. The Corporation may lend money to or guarantee
the obligation of any director of the Corporation if the particular loan or
guarantee is approved by the shareholders of the Corporation pursuant to the
provisions of the Business Corporation Law or if the Board of Directors
determines that the particular loan or guarantee benefits the Corporation and
either approves the particular loan or guarantee or a general plan authorizing
such loans and guarantees.
15. CONSENT OF SHAREHOLDERS. Subject to applicable law and except as
other-wise expressly required by this Certificate of Incorporation, any action
required or permitted to be taken by the shareholders of the Corporation must be
effected or taken at a duly called annual or special meeting of such
shareholders and may not be effected or taken by any consent in writing by any
such shareholders.
16. AMENDMENT OF CERTIFICATE OF INCORPORATION. (a) The Corporation
hereby reserves the right to amend, alter, change or repeal any provision
contained in this Certificate of Incorporation, and all rights conferred upon
shareholders are granted subject to this reservation. Except as may be required
by applicable law or any other provision of this Certificate of Incorporation,
any such amendment, alteration, change or repeal of any provision of this
Certificate of Incorporation shall require the affirmative vote of both (a) a
majority of the Board of Directors and (b) a majority of the combined voting
power of all of the shares of capital stock of the Corporation then entitled to
vote generally in the election of directors.
(b) Notwithstanding anything contained in this Certificate of
Incorporation to the contrary the affirmative vote of a majority of the Board of
Directors and the holders of at least sixty-six and two-thirds percent (66 2/3%)
of the combined voting power of all of the shares of capital stock of the
Corporation then entitled to vote generally in the election of directors shall
be required to amend, repeal, alter, change or adopt any provision inconsistent
with Articles 8, 9, 10 and 13 hereof and this Section 16(b).
17. AMENDMENT OF BYLAWS. In furtherance and not in limitation of the
powers conferred by statute, the Board of Directors is expressly authorized to
adopt, make, amend, chan-e, alter or repeal the Bylaws of the Corporation.
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IN WITNESS WHEREOF, each the undersigned subscribes this Certificate
and affirms it as true under the penalties of perjury on this 14th day of
July, 1998.
s/s John C. VanWormer
----------------------------------
JOHN C. VanWORMER, President
HUDSON CHARTERED BANCORP, INC.
s/s Gerardina Mirtuono
----------------------------------
GERARDINA MIRTUONO, Asst. Secretary
HUDSON CHARTERED BANCORP, INC.
s/s Peter Van Kleeck
----------------------------------
PETER VAN KLEECK, President
PROGRESSIVE BANK, INC.
s/s Beatrice D. Parent
----------------------------------
BEATRICE D. PARENT, Corporate Secretary
PROGRESSIVE BANK, INC.
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EXHIBIT 3.2
BYLAWS
OF
PREMIER NATIONAL BANCORP, INC.
AS AMENDED AND RESTATED ON JULY 17, 1998
These Bylaws of Premier National Bancorp, Inc. (the "Corporation") are
supplemental to the New York Business Corporation Law (the "BCL") and other
applicable provisions of law, as the same shall from time to time be in effect.
ARTICLE I. MEETINGS OF SHAREHOLDERS
SECTION 101. PLACE OF MEETINGS. All meetings of the shareholders
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 shareholders
for the election of Directors and the transaction of such other business as may
properly come before the meeting shall be held on such date and at such time as
may be fixed by the Board of Directors. Only such business may be conducted at
the annual meeting as has been brought before the annual meeting by, or at the
direction of, the Board of Directors or by a shareholder who has given timely
written notice to the Secretary of the Corporation of such shareholder's
intention to bring such business before the meeting pursuant to these Bylaws.
Prior to the annual meeting, the Corporation shall furnish or caused to be
furnished to its shareholders an annual report pursuant to applicable law and
the rules of any national securities exchange on which the Corporation's capital
stock is listed.
SECTION 103. SPECIAL MEETINGS. Special meetings of the shareholders,
for any purpose or purposes, unless otherwise prescribed by law, may be called
at any time by the Chairman of the Board of Directors, the Chief Executive
Officer, the President or by the majority vote of the entire Board of Directors.
The only business which may be conducted at such a meeting, other than
procedural matters and matters relating to the conduct of the meeting, shall be
the matter or matters described in the notice of the meeting.
SECTION 104. NOTICE OF MEETINGS. Notice of meetings of shareholder
shall be given as required by applicable law not less than ten days nor more
than sixty days before such meeting (unless a different time is specified by
law) to every shareholder entitled by law to notice of such meeting. Notice of
any such meeting need not be given to any shareholder who shall, either before
or after the meeting, submit a signed waiver of notice or who shall attend such
meeting, except when he/she shall attend for the express purpose of objecting,
at the beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened.
<PAGE>
SECTION 105. LIST OF STOCKHOLDERS. A complete list of the
shareholders entitled to vote at any meeting of shareholders, certified by the
Secretary or by the transfer agent, showing the address of each shareholder and
the number of shares registered in the name of each shareholder, shall be
prepared by the Secretary and shall be open to the examination of any
shareholder upon request, for any purpose germane to the meeting, at the place
of the meeting during the whole time of the meeting.
SECTION 106. QUORUM. One-third (33-1/3%) of the voting power of the
outstanding shares of the Corporation entitled to vote on the matters at issue,
present in person or represented by proxy, shall constitute a quorum, except as
otherwise required by the BCL. When a quorum is once present to organize a
meeting of shareholders, it is not broken by the subsequent withdrawal of any
shareholder. The holders of a majority of the voting power of the outstanding
shares present in person or represented in proxy and entitled to vote at any
meeting of shareholders may adjourn such meeting from time to time without
notice other than an announcement at the meeting, whether or not a quorum is
present. At any such adjourned meeting at which there is a quorum, any business
may be transacted at the meeting originally called.
SECTION 107. CONDUCT OF SHAREHOLDERS' MEETINGS. The Chairman of the
Board of Directors shall preside at all shareholders' meetings. In the absence
of the Chairman of the Board of Directors, the Deputy Chairman of the Board of
Directors shall preside or, in his/her absence, the Chief Executive Officer
shall preside, or, in his/her absence, any other Officer designated by the Board
of Directors shall preside. The Secretary or, in his/her absence or inability to
act, the person appointed secretary of the meeting by the person presiding over
the meeting, shall act as secretary of the meeting and keep the minutes thereof.
The person presiding over the shareholders' 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.
Unless the Officer presiding over the Shareholders' meeting otherwise requires,
shareholders need not vote by ballot on any question.
SECTION 108. SHAREHOLDER NOMINATIONS AND PROPOSALS.
(a) No proposal for a shareholder vote shall be submitted by a
shareholder ( "Shareholder Proposal") to the Corporation's shareholders unless
the shareholder submitting such proposal (the "Proponent") shall have filed a
written notice setting forth with particular (i) the names and business
addresses of the Proponent and all Persons (as such term is defined in Section
3(a)(9) of the Securities Exchange Act of 1934, as amended through the date of
adoption of these Bylaws) acting in concert with the Proponent; (ii) the names
and address of the Proponent and the Persons identified in clause (i), as they
appear on the Corporation's books (if they so appear); (iii) the class and
number of shares of the Corporation beneficially owned by the Proponent and the
Persons identified in clause (i); (iv) a description of the Shareholder Proposal
containing all
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material information relating thereto; and (v) such other information as the
Board of Directors reasonably determines is necessary or appropriate to enable
the Board of Directors and shareholders of the Corporation to consider the
Shareholder Proposal. Upon receipt of the Shareholder Proposal and prior to the
shareholder meeting at which such Shareholder Proposal will be considered, if
the Board of Directors or a designated committee or the Officer who will preside
at the shareholder meeting determines that the information provided in a
Shareholder Proposal does not satisfy the informational requirements of these
Bylaws or is otherwise not in accordance with law, the Secretary of the
Corporation shall promptly notify such Proponent of the deficiency in the
notice. Such Proponent shall have an opportunity to cure the deficiency by
providing additional information to the Secretary within the period of time, not
to exceed five days from the date such deficiency notice is given to the
Proponent, determined by the Board of Directors, such committee or such Officer.
If the deficiency is not cured within such period, or if the Board of Directors,
such committee or such Officer determines that the additional information
provided by the Proponent, together with the information previously provided,
does not satisfy the requirements of this Section 108, then such proposal shall
not be presented for action at the meeting in question.
(b) Only persons who are selected and recommended by the Board of
Directors or the Nominating Committee thereof, or who are nominated by
shareholders in accordance with the procedures set forth in this Section 108,
shall be eligible for election, or qualified to serve, as directors. Nominations
of individuals for election to the Board of Directors of the Corporation at any
annual meeting or any special meeting of shareholders at which directors are to
be elected may be made by any shareholder of the Corporation entitled to vote
for the election of directors at that meeting by compliance with the procedures
set forth in this Section 108. Nominations by shareholder shall be made by
written notice (a "Nomination Notice"), which shall set forth (I) as to each
individual nominated, (A) the name, date of birth, business address and
residence address of such individual; (B) the business experience during the
past five years of such nominee, including his/her principal occupations and
employment during such period, the name and principal business of any
corporation or other organization in which such occupations and employment were
carried on and such other information as to the nature of his/her
responsibilities and level of professional competence as may be sufficient to
permit assessment of his/her prior business experience; (C) whether the nominee
is or has ever been at any time a director, officer or owner of 5% or more of
any class of capital stock, partnership interests or other equity interest of
any corporation, partnership or other entity; (D) any directorships held by such
nominee in any company with a class of securities registered pursuant to Section
12 of the securities Exchange Act of 1934, as amended, or subject to the
requirements of Section 15(d) of such Act or any company registered as an
investment company under the Investment Company Act of 1940, as amended; and (E)
whether, in the last five years, such nominee has been convicted in a criminal
proceeding or has been subject to a judgment, order, finding or decree of any
federal, state or other governmental entity, concerning any violation of
federal, state or other law, or any proceeding in bankruptcy; and (ii) as to the
Person submitting the Nomination
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Notice and any Person acting in concert with such Person, (x) the name and
business address of such Persons, (y) the name and address of such Persons and
as they appear on the Corporation's books (if they so appear) and (z) the class
and number of shares of the Corporation which are beneficially owned by such
Persons. A written consent to being named in a proxy statement as a nominee, and
to serve as a Director if elected, signed by the nominee, shall be filed with
any Nomination Notice. If the presiding Officer at any shareholder meeting
determines that a nomination was not made in accordance with the procedures
prescribed by these Bylaws, he/she shall so declare to the meeting and the
defective nomination shall be disregarded.
(c) Nomination Notices and Shareholder Proposals shall be
delivered to the Secretary at the principal executive office of the Corporation
during the time periods prior to the date of the meeting of shareholders if such
Nomination Notice or shareholder Proposal is to be submitted at an annual
shareholder meeting as required and specified in or pursuant to Rule 14a-8
promulgated under the Securities Exchange Act of 1934, as amended. Nomination
Notices and Shareholder Proposals shall be delivered to the Secretary at the
principal executive office of the Corporation no later than the close of
business on the tenth day following the day on which notice of the date of a
special meeting of shareholders was given if the Nomination Notice or
Shareholder Proposal is to be submitted at a special shareholder meeting.
SECTION 109. VOTING. Unless otherwise provided in the Corporation's
Certificate of Incorporation (the "Certificate of Incorporation") or the BCL,
every shareholder shall be entitled to one vote, in person or by written proxy,
for each share of capital stock held of record by such shareholder which is
entitled to vote generally in the election of Directors. If the Certificate of
Incorporation provides for more or less than one vote for any share, on any
matter, every reference in these Bylaws or the BCL to a majority or other
proportion of stock shall refer to such majority or other proportion of the
votes of such stock. The provisions of Sections 609 and 612 of the BCL shall
apply in determining whether any shares of capital may be voted and the persons,
if any, entitled to vote such shares, but the Corporation shall be protected in
treating the persons in whose names shares of capital stock stand on the record
of shareholder as owners thereof for all purposes. All elections for the Board
of Directors shall be decided by a plurality of the votes cast by the holders of
shares entitled to vote in the election of Directors and, except as otherwise
required by law, by the Certificate of Incorporation, or by a provision of these
Bylaws adopted by the shareholders, all other questions shall be decided by a
majority of the votes cast by the holders of shares entitled to vote thereon.
Abstentions shall not be considered to be votes cast. In voting on any question
on which a vote by ballot is required by law, by the Certificate of
Incorporation or by the Officer presiding over the meeting, or is demanded by
any shareholder entitled to vote, the voting shall be by written ballot. Each
ballot shall be signed by the shareholder voting or by his/her proxy, and shall
state the number of shares voted. On all other questions, the voting may be viva
voce. Every shareholder entitled to vote at a meeting of shareholders may
authorize another
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person or persons to act for him by proxy. The validity and enforceability of
any proxy shall be determined in accordance with applicable law.
SECTION 110. INSPECTORS. The Board of Directors, in advance of any
meeting of shareholders, shall appoint one or more inspectors to act at such
meeting or any adjournment thereof and to make a written report thereof. The
Board of Directors may designate one or more alternate inspectors to replace any
inspector who fails to appear; or act. If no inspectors or alternate inspectors
shall have been appointed or if the inspectors and alternate inspectors are
unable to act the person presiding over he meeting shall appoint one or more
inspectors to act at the meeting. Each inspector, before entering upon the
discharge of his/her duties, shall take and sign an oath faithfully to execute
the duties of inspector at such meeting with strict impartiality and according
to the best of his/her ability. The inspectors shall determine the number of
shares of capital stock of the Corporation outstanding and the voting power of
each, the number of shares represented at the meeting, the existence of a
quorum, the validity and effect of proxies, and shall receive votes, ballots or
consents, hear and determine all challenges and questions arising in connection
with the right to vote, count and tabulate all votes, ballots or consents,
determine the results, and do such acts as are proper to conduct the election or
vote with fairness to all shareholders. On request of the person presiding over
the meeting, the inspectors shall make a report in writing of any challenge,
request or matter determined by them and shall execute a certificate of any fact
found by them. No Director or candidate for the office of Director shall act as
an inspector of an election of Directors. Inspectors need not be shareholders.
ARTICLE II. DIRECTORS AND BOARD MEETINGS.
SECTION 201. MANAGEMENT BY BOARD OF DIRECTORS. The business and
affairs of the Corporation shall be managed by, or under the direction of, 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 Certificate of Incorporation or these Bylaws directed or
required to be exercised or done by the shareholders.
SECTION 202. ELIGIBILITY AND MANDATORY RECREMENT. Each Director shall
be at least eighteen years of age. Each Director must be shareholder of the
Corporation and shall own in his/her own right 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 Director vacated. Directors
need not be residents of the State of New York. No person shall be eligible to
be newly elected or pointed as a Director if he/she shall have attained the age
of seventy(70) years on or prior to the date of his/her election. Any Director
of this Corporation who attains the age of seventy (70) 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 shareholders' meeting at which Directors are
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to be elected regardless of whether or not his/her term as a Director would
otherwise expire at such shareholders' meeting.
SECTION 203. NUMBER OF DIRECTORS. The Board of Directors shall
consist of not less than five (5) nor more than twenty-five (25) persons, as
fixed by a majority of the entire Board of Directors; provided, however, that
the number of Directors shall not be increased by fifty percent (50%) or more in
any twelve-month period without the approval by at least sixty-six and
two-thirds percent (66-2/3%) of the entire Board of Directors. No reduction in
the number of Directors shall have the effect of shortening the term of any
Director in office at the time such reduction becomes effective.
SECTION 204. CLASSIFICATION OF DIRECTORS. The Directors shall be
divided into three (3) classes, as nearly equal in number as possible, known as
Class 1, Class 2 and Class 3. At each annual meeting of the shareholders the
members of one class of Directors shall be elected to serve until the third
succeeding annual meeting of the shareholders following their election and until
their successors shall be elected and shall qualify or until their earlier
death, removal or resignation in the manner provided in the Certificate of
Incorporation or herein.
SECTION 205. COMPENSATION OF DIRECTORS. Directors, and members of any
committee of the Board of Directors, shall be entitled to receive such
reasonable compensation, including fees and reimbursement of expenses, for their
services as the Board of Directors may determine. Any Director may serve the
Corporation in any other capacity and receive compensation therefor.
SECTION 206. PLACE OF MEETINGS. Meetings of the Board of Directors
shall be held at such place or places, within or without the State of New York,
as the Board of Directors my from time to time determine or as shall be
specified in the notice of any such meeting.
SECTION 207. 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. Notice need not
be given of regular meetings of the Board of Directors except as otherwise
required by applicable law or these Bylaws. 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, shall be
given pursuant to Section 209 of these Bylaws.
SECTION 208. ANNUAL MEETING. The Board of Directors shall meet for
the purpose of organization, the election of officers and the transaction of
other business, as soon as practicable after each annual meeting of
shareholders, on the same day and at the same place where such annual meeting of
shareholders shall be held. Notice of such Board meeting need not be given. In
the event such annual meeting of shareholders is not so held, the annual meeting
of the Board of Directors may be held at such other time or place (within or
without the State
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of New York) as shall be specified thereof given as hereinafter provided in
Section 209 hereof.
SECTION 209. NOTICE OF MEETINGS. Notice of each special meeting of
the Board of Directors (and of each regular meeting for which notice shall be
required) shall be given by the Secretary as hereinafter provided in this
Section 209, in which notice shall be stated the time and place of the meeting.
Notice of a special meeting shall state the general purpose of the meeting, but
other routine business may be conducted at a special meeting without such matter
being stated in the notice. Notice of each such meeting shall be (I) mailed,
postage prepaid, to each Director at his/her designated address at least seven
days before the day on which such meeting is to be held, (ii) sent by overnight
courier to each Director at his/her designated address at least two days before
the day on which such meeting is to be held (with delivery scheduled to occur no
later than the day before the meeting), or (iii) given orally by telephone or
other means, or by facsimile, telegraph, cable, telex, telecopier or other
similar means, to each Director at his/her designated address at least
twenty-four hours before the time at which such meeting is to be held. Notice of
any such meeting need not be given to any Director who shall, either before or
after the meeting, submit a signed waiver of notice or who shall attend such
meeting, except when he/she shall attend for he express purpose of objecting, at
the beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened.
SECTION 210. ORGANIZATION. The Board of Directors, at the annual
meeting (or at a special meeting called for that purpose), shall elect, by the
affirmative vote of a majority of the Directors present, one Director as
Chairman of the Board of Directors and, may elect, by the same percentage vote,
one Director as Deputy Chairman of the Board of Directors, each to serve at the
pleasure of the Board of Directors. The Chairman of the Board of Directors shall
preside at all meetings of the Board of Directors at which he/she is present,
shall be an ex-officio member of all Committees of the Board of Directors (other
than the Audit Committee) and shall perform such other duties and possess such
powers as are usually vested in the office of the Chairman of the Board and as
may be determined and required of him/her by the Board of Directors or these
Bylaws. The Chairman of the Board of Directors is authorized to execute on
behalf of the Corporation all documents and instruments requiring such execution
and to affix or cause to be affixed a seal to such documents and instruments,
except to the extent that execution thereof shall have been delegated to some
other Officer or agent of the Corporation by he Board of Directors. In the
absence of the Chairman of the Board of Directors, the Deputy Chairman of the
Board of Directors, and in his/her absence the Chief Executive Officer, shall
preside at meetings of the Board of Directors, and in his/her absence, such
other Director as selected by the Directors present at such meeting shall
preside at the meeting. The Deputy Chairman of the Board of Directors, and in
his/her absence the Chef Executive Officer, shall, in the absence or disability
of; the Chairman of the Board of Directors, perform the duties and exercise the
powers of the Chairman of the Board of Directors and shall perform such other
duties as may be determined and required of him/her by the Board of Directors.
At each
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meeting of the Board of Directors, the Secretary, or in his/her absence, any
person appointed by the Director presiding over the meeting, shall act as
secretary of the meeting and keep the minutes thereof.
SECTION 211. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by the Chairman of the Board of Directors, the Deputy
Chairman of the Board of Directors, the Chief Executive Officer, the President
or at the request of a majority of the Directors. A special meeting of the Board
of Directors shall be deemed to be any meeting other than the regular meeting of
the Board of Directors. Notice of the time and place of every special meeting
shall be given pursuant to Section 209 of these Bylaws.
SECTION 212. QUORUM. A majority of the entire Board of directors
shall constitute a quorum for the transaction of business. If at any meeting of
the Board of Directors a quorum is not present, a majority of the Directors in
attendance may adjourn the meeting from time to time until a quorum is obtained.
Notice of the time and place of any such adjourned meeting shall be given to all
of the Directors unless such time and place were announced at the meeting at
which the adjournment was taken, in which case such notice shall only be given
to the Directors who were not present thereat. At any adjourned meeting at which
a quorum is present, any business may be transacted which might have been
transacted at the meeting as originally called.
SECTION 213. VOTING REQUIREMENTS. Except as otherwise required by the
BCL, the Certificate of Incorporation or these Bylaws, a majority of those
Directors present 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 214. REPORTS AND RECORDS. The reports of Officers 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.
SECTION 215. RESIGNATIONS. Any Director of the Corporation may resign
at any time by giving written notice of his/her resignation to the Chairman of
the Board, the Deputy Chairman of the Board, the Chief Executive Officer or the
Secretary. Any such resignation shall take effect at the time specified therein
or, if the time when it shall become effective shall not be specified therein,
immediately upon its receipt. Unless otherwise specified therein or required by
applicable law, the acceptance of such resignation shall not necessary to make
it effective.
SECTION 216. ACTION BY CONSENT. Unless restricted by the Certificate
of Incorporation or these Bylaws, any action required or permitted to be taken
by the Board of Directors or any committee thereof may be taken without a
meeting
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if all members of the Board of Directors or of such committee, as the case may
be, consent thereto in writing, and the writing or writings are filed with the
minutes of the proceedings of the Board of Directors or such committee, as the
case may be.
SECTION 217. TELEPHONIC MEETING. Unless restricted by the Certificate
of Incorporation or these Bylaws, any one or more members of the Board of
Directors or any committee thereof may participate in a meeting of the Board of
Directors or such committee by means of a conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other. Participation by such means shall constitute
presence in person at meeting.
ARTICLE III. COMMITTEES.
SECTION 301. COMMITTEES.
(a) Subject to the provisions of Section 712 of the BCL, the Board
of Directors may, by resolutions passed by a majority of the entire Board of
Directors, designate members of the Board of Directors to constitute committees
of the Board of Directors, which shall in each case consist of such number of
directors and have and may execute such powers and authority as may be
determined and specified by these Bylaws or in the respective resolutions
appointing them. each such committee shall serve at the pleasure of the Board of
Directors.
(b) The following Committees of the Board of Directors shall be
established by the Board of Directors in addition to any other Committee the
Board of Directors may in its discretion establish: Executive Committee, Audit
Committee, Investment Committee, Personnel and Compensation Committee and
Nominating Committee.
SECTION 302. EXECUTIVE COMMITTEE. The Executive Committee shall
consist of the Chairman of the Board, the Deputy Chairman of the Board, the
Chief Executive Officer and, if he/she is also a Director, the President, and at
least four (4) other Directors who are not also Officers of the Corporation as
may be elected by the Board of directors to serve on the Executive Committee.
The Executive Committee shall be chaired by the Chairman of the Board of
Directors and, in his/her absence, the Deputy Chairman of the Board of Directors
or the Chief Executive Officer. A majority of the members of the Executive
Committee shall constitute a quorum, and actions of a majority of those present
at a meeting at which a quorum is present shall be actions of the Executive
Committee. Meetings of the Executive Committee may be called at any time by the
Chairman of the Executive Committee, and shall be called whenever two (2) or
more members of the Executive Committee so request in writing. The Executive
Committee shall have and exercise the authority of the Board of Directors in the
management of the business of the Corporation between the dates of regular
meetings of the Board.
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SECTION 303. AUDIT COMMITTEE.
(a) There shall be a standing committee of the Corporation known
as the Audit Committee, the members of which shall be appointed annually by the
Board of Directors. Each member of the Audit Committee shall serve until his/her
successor is appointed. The Audit Committee shall consist of not less than four
(4) members of the Board of Directors, none of whom shall be an officer or
employee of the Corporation or of any subsidiary of the Corporation, and one of
whom shall be appointed chairman of the Audit Committee. The duties of this
Committee shall be (I) to review the systems of internal control and the
internal and external audit functions to ensure the integrity of all financial
statements and other audit-related public disclosures, (ii) to monitor
compliance with legal and regulatory requirements, and (iii) perform such other
duties as shall be delegated to the Audit Committee by the Board of Directors
from time to time.
(b) The Corporation's internal auditor shall serve as the
principal staff for the Audit Committee. The Audit Committee shall review,
evaluate, and discuss the findings and performance of the internal auditor;
approve the scope and reporting mechanisms of the annual internal audit program;
review, adopt, and ensure appropriate follow-up on all audit reports; and
monitor the audit department in complying with its audit program and reporting
schedule.
(c) The Audit Committee, upon its own recommendation and with the
approval of the Board of Directors, shall employ a qualified firm of Certified
Public Accountants to make an examination and audit of the Corporation at least
once a year. The Audit Committee shall annually approve the scope of the
external audit engagement after assuring itself that the engagement addresses
the applicable requirements of 12 CFR Part 363 and other audit-related
regulations; review with the external auditor significant accounting policies
and generally accepted accounting principles and their effect on the
Corporation; review, evaluate, and discuss the findings and performance of the
external auditor; review any reports issued under 12 CFR Part 363 and the basis
for these reports; review with management and the external auditor the
Corporation's compliance with laws and regulations and their assessments of the
adequacy of internal controls; and oversee and evaluate management's
effectiveness at implementing policies with respect to internal controls.
(d) All meetings of the Audit Committee shall be recorded in
writing and reported to the Board of Directors for ratification at the next
meeting of the Board of Directors. At the conclusion of each meeting of the
Audit Committee, management may be excused to provide the opportunity for the
Audit Committee to discuss issues privately with the internal auditor and/or the
external auditors.
SECTION 304. INVESTMENT COMMITTEE. There shall be a standing
committee known as the Investment Committee of the Board of Directors, the
members of which shall be appointed annually by the Board of Directors and shall
serve until their successors are appointed. The Investment Committee shall
consist of at least three (3) Directors, a majority of whom are not active
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officers or employees of the Corporation or of any subsidiary of the
Corporation, and one of whom shall be appointed Chairman of the Investment
Committee. The Investment Committee shall be empowered to act with regard to
asset and liability management policies of the Corporation, capital structure,
planning and financing for the Corporation and mergers, acquisitions and similar
transactions involving the Corporation. All meetings of the Investment Committee
shall be recorded in writing and reported to the Board of Directors for
ratification at its next meeting of the Board of Directors.
SECTION 305. PERSONNEL AND COMPENSATION COMMITTEE. There shall be a
standing committee known as the Personnel and Compensation Committee, the
members of which shall be appointed annually by the Board of Directors and shall
serve until their successors are appointed. The Personnel and Compensation
Committee shall consist of at least three (3) members of the Board of Directors,
none of whom shall be an active Officer or employee of the Corporation or of any
subsidiary of the Corporation. This Personnel and Compensation Committee is
empowered to set and maintain employment policies and procedures, a performance
appraisal system, to fix compensation levels for all executive or similar senior
officers of the Corporation and to perform such other duties with respect to
compensation and compensation plan as shall be delegated to the Personnel and
Compensation Committee by the Board of Directors from time to time. All meetings
of the Personnel and Compensation Committee shall be recorded in writing and
reported to the Board of Directors for ratification at its next meeting of the
Board of Directors.
SECTION 306. NOMINATING COMMITTEE. There shall be a standing
committee known as the Nominating Committee, the members of which shall be
appointed annually by the Board of Directors and shall serve until their
successors are appointed. The Nominating Committee shall consist of at least
five (5) Directors. The Nominating Committee shall select nominees for election
as Directors and perform such other duties in connection with the nomination of
persons for election as Directors and the election of Directors as shall be
delegated to the Nominating Committee by the Board of Directors from time to
time.
SECTION 307. APPOINTMENT OF COMMITTEE MEMBERS. The Board of
Directors shall elect the members of the Committees and, except as otherwise
provided herein, the chairman and vice chairman of each such Committee, if
any, to serve at the pleasure of the Board until the next annual meeting of
shareholders. The Board of Directors shall have the power to change the
membership of any Committee, fill vacancies in any Committee or remove any
members of any Committee, either with or without cause, at any time.
SECTION 308. 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 of such
Committee if appointed by the Board, 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 Bylaws. Except as
otherwise set forth in this Section 308 and unless the Board of Directors shall
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otherwise by resolution provide, each Committee may fix its rules of procedure,
determine its manner of acting and fix the time and place, whether within or
without the State of New York, of its meetings and specify what notice thereof,
if any, shall be given. Unless otherwise provided by the Board of Directors or a
Committee, quorum, voting and other procedures shall be the same as those
applicable to actions taken by the Board of Directors.
ARTICLE IV. OFFICERS.
SECTION 401. OFFICERS. The Officers of the Corporation shall be
elected by the Board of Directors and shall include the Chairman of the Board,
whose duties and powers are as set forth in Section 210 of these Bylaws, Chief
Executive Officer, President, one (1) or more Vice Presidents, Secretary,
Treasurer, and such other Officers and Assistant Officers as the Board of
Directors may from time to time deem advisable. The same individual may hold any
two (2) or more offices. Officers and Assistant Officers of the Corporation may,
but need not, also be members of the Board. At its first meeting after each
annual meeting of the shareholders, the Board of Directors shall elect the
Officers. The election or appointment of an Officer shall not of itself create
contract rights. 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/her
office for the period for which he/she was elected or appointed by the Board and
until his/her successor has been elected or appointed and qualified, unless
he/she shall resign, become disqualified, die, or be removed at the pleasure of
the Board of Directors. Any Officer of the Corporation may resign at any time by
giving written notice of his/her resignation to the Chairman of the Board, the
Chief Executive Officer, or the Secretary. Any such resignation shall take
effect at the time specified therein or, if the time when it shall become
effective shall not be specified therein, immediately upon its receipt. Unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective. Should any vacancy occur among the Officers, the
position shall be filled for the unexpired portion of the term by appointment
made by the Board. The duties of the Officers of the Corporation shall be such
as are set forth within these Bylaws and, from time to time, prescribed by the
Board of Directors.
SECTION 402. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer
shall be the chief executive officer of the Corporation and, subject to the
control of the Board of Directors, shall have and exercise general supervision
and control of the business of the Corporation and shall be responsible for
carrying out the policies adopted by the Board of Directors and having all
orders and resolutions of the Board of Directors carried into effect, and shall
report directly to the Chairman of the Board of Directors or, if the Chief
Executive Officer is the Chairman of the Board, to the Board of Directors. The
Chief Executive Officer shall be an ex-officio member of all Committees of the
Board of Directors except for the Audit Committee. All Officers and Assistant
Officers of the Corporation, other than those directed by these Bylaws or the
Board of Directors to report to the Chairman of the Board, shall report directly
or
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indirectly to the Chief Executive Officer. The Chief Executive Officer shall
execute on behalf of the Corporation and may affix or cause to be affixed a seal
to all 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
Chairman of the Board of Directors, the Chief Executive Officer or the
President. In the event of the death, incapacity, resignation or extended
absence of the Chief Executive Officer, the Chairman of the Board of Directors
shall perform the duties of the Chief Executive Officer.
SECTION 403. PRESIDENT. The President shall have such powers and
perform such duties as may be provided for herein and as may be assigned from
time to time by the Board of Directors, the Chairman of the Board of Directors,
or the Chief Executive Officer. The President shall execute on behalf of the
Corporation and may affix or cause to be affixed a seal to all 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, the Chairman of the Board of
Directors or the Chief Executive Officer.
SECTION 404. EXECUTIVE AND OTHER VICE PRESIDENTS. The Vice
Presidents, if any, in such gradations as the Board of Directors may determine,
shall perform such duties, do such acts and be subject to such supervision as
may be prescribed by the Board of Directors, the Chairman of the Board of
Directors, the Chief Executive Officer or the President. In the event of the
absence or disability of the President or his/her refusal to act, the Vice
Presidents, in the order of their rank, and within the same rank in the order of
their authority, shall perform the duties and have the powers and authorities of
the President, except to the extent inconsistent with applicable law.
SECTION 405. SECRETARY. The Secretary shall act under the supervision
of the Chairman of the Board of Directors or such other Officers as the Board of
Directors may designate. Unless a designation to the contrary is made at a
meeting, the Secretary shall attend all meetings of the Board of Directors and
all meetings of the shareholders, 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 Committees when required by these Bylaws or otherwise. The Secretary
shall give, or cause to be given, notice of all meetings of the shareholders and
of the Board of Directors. The Secretary shall keep a seal of the Corporation,
and, when authorized by the Board of Directors, the Chairman of the Board of
Directors, or the Chief Executive Officer, 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, the Chairman of the Board
of Directors, or such other Officer as the Chairman of the Board of Directors
may designate.
SECTION 406. TREASURER. The Treasurer shall act under the supervision
of the Chairman of the Board of Directors or such other Officer as the Board of
Directors may designate. The Treasurer shall have custody of the
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Corporation's funds, keep the fiscal accounts of the Corporation, deposit all
moneys and other valuable effects in the name and to the credit of the
Corporation in such depositories as may be designated by the Board or any
Officer authorized to so designate, disburse the funds of the Corporation as may
be ordered by the Board or any Officer authorized to so order, render, when so
requested, accounts of the financial transactions and condition of the
Corporation to the Chairman of the Board, the Chief Executive Officer and the
Board of Directors, and perform such other duties as may be prescribed by the
Board of Directors, the Chairman of the Board of Directors or such other Officer
as the Chairman of the Board of Directors may designate.
SECTION 407. ASSISTANT OFFICERS. Unless otherwise provided by the
Board of Directors, each Assistant Officer shall perform such duties as shall be
prescribed by the Board of Directors, the Chairman, the Chief Executive Officer,
the President or the Officer to whom he/she is an Assistant. In the event of the
absence or disability of an Officer or his/her refusal to act, his/her Assistant
Officer shall, in the order of their rank, and within the same rank in the order
of their seniority, have the powers and authorities of such Officer.
SECTION 408. COMPENSATION. The salaries and compensation of all
Officers appointed or elected by the Board of Directors shall be fixed by or in
the manner designated by the Board of Directors.
SECTION 409. EXECUTION OF INSTRUMENTS; MECHANICAL ENDORSEMENTS.
Checks, notes, drafts, other commercial instruments, assignments, guarantees of
signatures and contracts (except as otherwise provided herein or by law) shall
be executed by the Chairman, the Chief Executive Officer, the President, any
Vice President or such Officers or employees or agents of the Corporation as the
Board of Directors or any of such designated officers may direct. Such
designated Officers or the Secretary may authorize any endorsement on behalf of
the Corporation to be made by such mechanical means or stamps as any of such
Officers may seem appropriate.
SECTION 410. 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. INDEMNIFICATION PROVISIONS IN CERTIFICATE OF
INCORPORATION. The provisions of this Article V are intended to supplement
Article 11 of the Certificate of Incorporation pursuant to Section 11.2 of the
Certificate of Incorporation. To the extent that this Article V contains any
provisions inconsistent with said Article 11 shall have he same meaning in this
Article V.
SECTION 502. UNDERTAKINGS FOR ADVANCES OF EXPENSES. If and to the
extent the BCL or the Board of Directors requires, an advancement by the
Corporation of expenses incurred by an indemnitee pursuant to clause (iii) of
the
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<PAGE>
last sentence of Section 11.1 of the Certificate of Incorporation (hereinafter
an "advancement of expenses") shall be made only upon delivery to the
Corporation of an undertaking (hereinafter an "undertaking"), by or on behalf of
such indemnitee, to repay all amounts so advanced if it shall ultimately be
determined by final judicial decision from which there no further right to
appeal (hereinafter a "final adjudication") that such indemnitee is not entitled
to be indemnified for such expenses under Article 11 of the Certificate of
Incorporation or otherwise.
SECTION 503. CLAIMS FOR INDEMNIFICATION. If a claim for
indemnification under this Article V is not paid in full by the Corporation
within sixty (60) days after it has been received in writing by the Corporation,
except in the case of a claim for an advancement of expenses in which case the
applicable period shall be twenty (20) days, the indemnitee may at any time
thereafter bring suit against the Corporation to recover the unpaid amount of
the claim. If successful in whole or in part in any such suit, or in a suit
brought by the Corporation to recover an advancement of expenses pursuant to the
terms of an undertaking, the indemnitee shall be entitled to be paid also the
expense of prosecuting or defending such suit. In any suit brought by the
indemnitee to enforce a right to indemnification hereunder (but not in a suit
brought by the indemnitee to enforce a right to an advancement of expenses) it
shall be a defense that, and in any suit by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the Corporation
shall be entitled to recover such expenses only upon a final adjudication that,
the indemnitee has not met the applicable standard of conduct set forth in the
BCL. Neither the failure of the Corporation (including the Board of Directors,
independent legal counsel or its shareholders) to have made a determination
prior to the commencement of such suit that indemnification of the indemnitee is
proper in the circumstances because the indemnitee has met the applicable
standard of conduct set forth in the BCL, nor an actual determination by the
Corporation (including the Board of Directors, independent legal counsel, or its
shareholder) that the indemnitee has not met such applicable standard of
conduct, shall create a presumption that the indemnitee has not met the
applicable standard of conduct or, in the case of such a suit brought by the
indemnitee, be a defense to such suit. In any suit brought by the indemnitee to
enforce a right to indemnification or to an advancement of expenses hereunder,
or by the Corporation to recover an advancement of expenses pursuant to the
terms of an undertaking, the burden of proving that the indemnitee is not
entitled to be indemnified, or to have or retain such advancement of expenses,
under Article 11 of the Certificate of Incorporation or this Article V or
otherwise, shall be on the Corporation.
SECTION 504. INSURANCE. The Board of Directors in its discretion
shall have the power to purchase and maintain insurance in accordance with, and
subject to, the provisions of Section 726 of the BCL or any successor provision
thereto.
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ARTICLE VI. SHARES OF CAPITAL STOCK.
SECTION 601. STOCK CERTIFICATES. Every share certificate of the
Corporation shall be in such form (consistent with applicable law and, if
applicable, the rules of a national securities exchange on which the
Corporation's capital stock is listed) as shall be determined by the Board,
signed by the Chairman of the Board or the President and the Secretary or
Assistant Secretary or the Treasurer of Assistant Treasurer. Certificates may be
signed by a facsimile signature if the certificate is countersigned by a
transfer agent or registered by a registrar other than the Corporation or its
employees. All certificates for shares shall be consecutively numbered or
otherwise identified. The name and address of the person to whom the shares
represented thereby are issued, with the number of shares and date of issue,
shall be entered on the stock transfer books of the Corporation. All
certificates surrendered to the Corporation for transfer shall be canceled and
no new certificate shall be issued until the former certificate for a like
number of shares shall have been surrendered and canceled. Notwithstanding any
other provision of these Bylaws and subject to the requirements of the BCL, the
shares of the Corporation's capital stock may be uncertificated shares.
SECTION 602. REGISTERED STOCKHOLDERS. a record of the name and
address of the holder of each certificate, the number of shares represented
thereby and the date of issue thereof shall be made on the Corporation's books.
The Corporation shall be entitled to recognize the exclusive right of a person
registered on its records as the owner of shares of stock to receive dividends
and to vote as such owner, shall be entitled to hold liable for calls and
assessments a person registered on its records as the owner of shares of stock,
and shall not be bound to recognize any equitable or other claim to or interest
in such share or shares of stock on the part of any other person, whether or not
it shall have express or other notice thereof, except as otherwise provided by
the laws of the State of New York.
SECTION 603. TRANSFERS OF STOCK. Transfer of shares of stock of the
Corporation shall be made in accordance with the BCL. Transfers of stock shall
be made on the books of the Corporation only by direction of the person named in
the stock certificate or such person's attorney, lawfully constituted in
writing, and only upon the surrender of the certificate therefor accompanied by
a written assignment of the shares evidenced thereby, which certificate shall be
canceled before any new certificate is issued.
SECTION 604. TRANSFER AGENTS AND REGISTRARS. The Board of Directors
may appoint, or authorize any Officer or Officers to appoint, one or more
transfer agents and one or more registrars. In case any Officer, transfer agent
or registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such Officer, transfer agent or registrar
before such certificate is issued, it may be issued by the Corporation with the
same effect as if such person were such Officer, transfer agent or registrar at
the date of issue.
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SECTION 605. REGULATIONS. The Board of Directors may make such
additional rules and regulations, not inconsistent with the Certificate of
Incorporation, these Bylaws or the BCL, as it may deem expedient concerning the
issue, transfer and registration of certificates for shares of stock of the
Corporation or pertaining to uncertificated shares of stock of the Corporation.
SECTION 606. LOST OR DESTROYED CERTIFICATES. Any person claiming a
share certificate to be lost, destroyed or wrongfully 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, the
Chairman of the Board of Directors or the Secretary with an indemnity agreement
satisfactory in form and substance to the Board of Directors; and (c) satisfied
any other reasonable requirements (including providing an affidavit and a surety
bond) fixed by the Board of Directors, the Chairman of the Board of Directors 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 a record
date for the determination of the shareholders entitled to notice of, or to vote
at any meeting of shareholders or any adjournment thereof, or to express consent
to or dissent from any proposal without a meeting, or for the purpose of
determining shareholders entitled to receive payment of any dividend,
distribution or the allotment of any rights, or to exercise rights in respect to
any change, conversion or exchange of shares, or for the purpose of any other
action; provided, that such date shall be a permitted record date under the BCL
and the rules of any national securities exchange on which the Corporation's
capital stock is listed.
SECTION 703. EMERGENCY BYLAWS. In the event of any emergency
resulting from a nuclear or other attack or any similar disaster or catastrophe
or other similar emergency condition as a result of which a quorum of the Board
of Directors or a standing Committee thereof cannot readily be convened for
action, and during the continuance of such emergency, the following Emergency
Bylaw provisions shall be in effect, notwithstanding any other provisions of the
Bylaws:
(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 Directors in attendance at the meeting of the Board of
Directors or of any Committee thereof shall constitute a quorum; but in no event
shall there be a quorum unless at least two (2) Directors are present; and
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(c) These Bylaws 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 Bylaws is
illegal or unenforceable as such, such illegality or unenforceability shall not
affect any other provision of these Bylaws and such other provisions shall
continue in full force and effect.
SECTION 705. VOTING OF STOCK OWNED BY THE CORPORATION. Powers of
attorney, proxies, waivers of notice of meeting, consents and other instruments
relating to securities owned by the Corporation may be executed in the name or
and on behalf of the Corporation by the Chairman of the Board or, in the absence
of the Chairman of the Board, the Chief Executive Officer or such other officers
or employees or agents as the Board of Directors or any of such designated
officers may direct. Any such officer may, in the name of and on behalf of the
Corporation, take all such action as any such officer may deem advisable to vote
in person or by proxy at any meeting of security holders of any corporation in
which the Corporation may own securities and at any such meeting shall possess
and may exercise any and all rights and powers incident to the ownership of such
securities and which, as the owner thereof, the Corporation might have exercised
and possessed if present. The Board of Directors may from time to time confer
like powers upon any other person or persons.
SECTION 706. SEAL. The seal of the Corporation shall be in such form
as shall be approved by the Board of Directors.
SECTION 707. DIVIDENDS. Subject to the provisions of the Certificate
of Incorporation and the BCL, dividends may be declared by the Board of
Directors at any regular or special meeting and may be paid in cash, in shares
of the Corporation's capital stock or its bonds or other property. Before
payment of any dividend, there may be set aside out of any funds of the
Corporation legally available for the payment of dividends such sums or sums as
the Board of Directors from time to time, in its absolute discretion, determines
are proper as a reserve fund to meet contingencies, or for equalizing dividends,
or for such other purpose as the Board of Directors shall determine conducive to
the interests of the Corporation, and the Board of Directors may modify or
abolish any such reserve in the manner in which it was created.
SECTION 708. LOANS. No loans and no renewals of loans shall be
contracted on behalf of the Corporation except as authorized by the Board of
Directors. Such authority may be general or confined to specific instances, or
otherwise limited, and if the Board so provides may be delegated by the person
so authorized. When authorized, any Officer or agent of the Corporation may
obtain loans and advances for the Corporation from any firm, corporation or
individual, and for such loans and advances, may make, execute and deliver
promissory notes, bonds or other evidences of indebtedness of the Corporation.
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SECTION 709. OFFICES AND RECORDS. The Corporation may have offices at
such places both within or without the State of New York as the Board of
Directors may from time to time determine or the business of the Corporation may
require. Subject to applicable law, the books and records of the Corporation may
be kept outside the State of New York at such place or places as may be designed
from time to time by the Board of Directors. The Corporation shall keep correct
and complete books and records of account, minutes of the proceedings of the
shareholders, Board of Directors and any committees thereof, a current list of
the Directors and Officers and any other records required pursuant to applicable
law.
ARTICLE VIII. AMENDMENT OR REPEAL.
SECTION 801. AMENDMENT OR REPEAL BY THE BOARD OF DIRECTORS. These
Bylaws may be amended or repealed, in whole or in part, by a majority vote of
the entire 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. The
phrase "the entire Board of Directors" or "the entire Board," as used in these
Bylaws shall refer to the total number of Directors which the Corporation would
have if there were no vacancies.
SECTION 802. RECORDING AMENDMENTS AND REPEALS. The text of all
amendments and repeals to these Bylaws shall be attached to the Bylaws with a
notation of the date and vote of such amendment or repeal.
<TABLE>
<CAPTION>
Date Amended
Section Involved or Repealed Approved By
---------------- ------------ -----------
<S> <C> <C>
</TABLE>
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EXHIBIT 10.5
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement"), made as of July 11, 1998
(the "Effective Date"), is by and between Premier National Bancorp, Inc. (the
"Company"), Route 55, LaGrangeville, New York 12540 and T. Jefferson Cunningham
III, residing at 7 East Hook Road, Hopewell Junction, New York 12533 (the
"Executive").
RECITALS
WHEREAS, the Company, through its Board of Directors (the "Board"),
considers the maintenance of competent and experienced executive officers to be
essential to its long-term success;
WHEREAS, in this regard, the Company has determined that it is in its
best interests that the Executive serve as Chairman of the Company, pursuant to
a written employment agreement;
NOW, THEREFORE, in furtherance of the interests described above and in
consideration of the respective covenants and agreements herein contained, the
parties hereto agree as follows:
1. CERTAIN DEFINED TERMS. As used in this Agreement, the following
terms shall have the following meanings:
(a) "Applicable Interest" means interest at the rate provided in
Section 1274(b)(2)(B) of the Code.
(b) "Cause" means the occurrence of any of the following:
(i) the Willful and continued failure of the Executive to
substantially perform the Executive's duties with the Company (other than any
such failure resulting from incapacity due to physical or mental illness), after
a written demand for substantial performance is delivered to the Executive by
the Board which specifically identifies the manner in which the Board believes
that the Executive has not substantially performed the Executive's duties;
(ii) the Willful engaging by the Executive in illegal
conduct (excluding traffic violations, minor misdemeanors or similar offenses)
or gross misconduct that, in the Board's reasonable opinion, may reflect
adversely on the business or reputation of the Company;
<PAGE>
(iii) the removal and/or permanent prohibition of the
Executive from participation in the conduct of the affairs of the Company or any
of its subsidiary banks by an order issued under Section 8(e)(4) or 8(g)(1) of
the Federal Deposit Insurance Act, 12 U.S.C. Section 1818(e)(4) or 1818(g)(1);
(iv) the issuance by any court having appropriate
jurisdiction of an order under Section 21(d)(2) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), 15 U.S.C. Section 78u(d)(2),
prohibiting the Executive from acting as an officer or director of the
Company; or
(v) the conviction of the Executive for commission of a
felony.
(c) "Change in Control" means the occurrence of any of the
following events:
(i) there shall be consummated any consolidation, merger,
stock-for-stock exchange or similar transaction (collectively, "Merger
Transactions") involving securities of the Company in which the holders of
voting securities of the Company immediately prior to such consummation own, as
a group, immediately after such consummation, voting securities of the Company
(or, if the Company does not survive the Merger Transaction, voting securities
of the corporation surviving such transaction) having less than 50% of the total
voting power in an election of directors of the Company (or such other surviving
corporation), excluding securities received by any members of such group which
represent disproportionate percentage increases in their shareholdings vis-a-vis
the other members of such group;
(ii) any individual, corporation (other than the Company),
partnership, trust, association, pool, syndicate, or any other entity or any
group or persons acting in concert (other than an employee benefit plan of the
Company or one of its affiliates) becomes the beneficial owner (as that concept
is defined in Rule 13d-3 promulgated by the Securities and Exchange Commission
under the Exchange Act) as a result of any one or more securities transactions,
including gifts and stock repurchases but excluding any Merger Transactions, of
securities of the Company possessing one-third or more of the voting power for
the election of directors of the Company;
(iii) during any period of twenty-four consecutive months
after the date hereof, individuals who at the beginning of such period
constituted the Board (including for this purpose any new director 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 still in office who were
directors at the beginning of such period) cease for any reason to constitute at
least a majority of the Board (excluding any Board seat that is vacant or
otherwise unoccupied); or
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(iv) there shall be consummated any sale, lease, exchange
or other transfer (in one transaction or a series of related transactions,
excluding any Merger Transactions), of all, or substantially all, of the assets
of the Company to a party which is not controlled by or under common control
with the Company.
Notwithstanding the foregoing, the Merger shall not be treated as a "Change in
Control" for purposes of this Agreement.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
(e) "Company Bonus Plan" means any bonus, stock option,
profit-sharing or other cash-based or equity-based incentive plan offered by the
Company.
(f) "Company Benefit Plan" means any pension, thrift, deferred
compensation, stock purchase, life insurance, medical, dental, education,
accident, disability, welfare, retirement or other employee benefit plan offered
by the Company other than a Company Bonus Plan.
(g) "Designated Office" means Route 55, LaGrangeville, New York
12540, or such other office of the Company designated by the Board from time to
time other than in anticipation of, or following, a Change in Control.
(h) "Merger" means the merger of Progressive Bank, Inc. into
Hudson Chartered Bancorp, Inc.
(i) "Triggering Event" means the occurrence of any of the
following events:
(i) the termination by the Company of the employment of
the Executive for any reason other than Cause;
(ii) the assignment to the Executive without his consent of
any duties inconsistent in any material respect with the Executive's position
(including status, offices, titles and reporting requirements), authority,
duties or responsibilities, or any other action by the Company which results in
a diminution in any material respect in such position, authority, duties or
responsibilities, excluding for this purpose an isolated, insubstantial and
inadvertent action not taken in bad faith that is remedied by the Company
promptly after receipt of notice thereof given by the Executive;
(iii) in anticipation of, or following a Change in Control,
the requirement by the Company that the Executive be based at any office or
location that is more than 50 miles from the Designated Office;
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(iv) after the Effective Date, the failure without the
consent of the Executive, to nominate the Executive for election as a member of
the Board, or if nominated, the failure of shareholders to elect the Executive
as a member of the Board;
(v) after the Effective Date, the failure of the Company
without the Executive's consent to:
(A) continue in effect any Company Bonus Plan in which
the Executive participates that is material to the Executive's total
compensation, unless a substantially equivalent arrangement, embodied in an
ongoing substitute or alternative plan, has been established;
(B) continue the Executive's participation in any
Company Bonus Plan and eligibility for bonuses or other compensation thereunder,
or in any substitute or alternative plan, on a basis at least as favorable as
that existing at the date hereof, both in terms of the amount of benefits
provided and the level of the Executive's participation relative to other
participants;
(C) continue to provide the Executive with benefits
comparable to those received by the Executive under any Company Benefit Plan in
which the Executive was participating as of the date hereof, at participation
costs substantially similar to those paid by the Executive; provided, however,
that it shall not be deemed a Triggering Event if the Company, for bona fide
business purposes and not in anticipation of or following a Change in Control,
modifies the terms or conditions of any Company Bonus Plan or Company Benefit
Plan, so long as such modifications have or would have a substantially similar
effect upon all executive employees or all employees of the Company who
participate or who are eligible to participate in the plan;
(vi) the Company shall have materially breached any
provision of this Agreement and such breach shall not have been cured within 15
days after delivery of written notice thereof to the Board by the Executive,
identifying the breach with reasonable particularity;
(vii) a reduction by the Company in the Executive's annual
base salary as in effect on the date hereof, as the same may be increased from
time to time as provided for in this Agreement; or
(viii) the Company issues a Non-Renewal Notice to the
Executive as provided in Section 2 of this Agreement.
(j) "Willful" means that an action, conduct or deed 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 the instructions or prior
approval of the Board 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.
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<PAGE>
2. EMPLOYMENT TERM. The initial term of employment under this
Agreement shall be for a period of three years commencing on the Effective Date.
Each year, prior to the anniversary date of the Effective Date, the Board shall
formally extend, or decline to extend, this Agreement for one additional year.
If the Board formally decides not to extend this Agreement, it shall provide
written notice (a "Non-Renewal Notice") to the Executive informing him of such
decision. The Executive shall promptly notify the Board if he declines to agree
to any one-year extension of the Agreement. References herein to the term of
this Agreement shall refer both to such initial term and such successive terms.
3. EMPLOYMENT; BOARD MEMBERSHIP . During the term of employment
provided for in this Agreement, the Company agrees to employ the Executive in
the office or position set forth in the second Recital of this Agreement, and
the Executive agrees to serve in such office or position and to perform the
duties and discharge the responsibilities associated therewith or such other
duties and responsibilities as may reasonably be assigned to the Executive from
time to time by the Board. The Executive shall not undertake executive
responsibilities with any other corporation, partnership, association or other
entity and shall devote the necessary and customary time and attention to the
business and affairs of the Company and its subsidiaries, provided, however,
that the Executive may, with the approval of the Board, serve as a director or
officer of any non-competing business or engage in any other activity, including
without limitation charitable or community activity, to the extent that it does
not inhibit the performance of his duties hereunder. Subject to applicable
fiduciary duties, the Executive shall be nominated for membership on the Board
and the board of directors of the Company's bank subsidiary.
4. OFFICE AND SERVICES. In connection with the Executive's employment
hereunder, the Executive shall be based at the Designated Office, except for
required travel on the Company's business. The Company shall furnish the
Executive with office space, secretarial assistance, and such other facilities
and services as shall be suitable to the Executive's position and adequate for
the performance of his duties hereunder.
5. COMPENSATION. The regular compensation and benefits payable to the
Executive under this Agreement with respect to his period of employment shall
include the following:
(a) SALARY. The Company shall pay the Executive an annual base
salary hereunder of not less than $ 250,000, payable in equal semimonthly
installments or at such other intervals as shall be agreed upon by the parties.
The Executive's annual base salary may be increased from time to time as
determined by the Board and, if so increased, such annual base salary shall not
thereafter during the Executive's employment under this Agreement be decreased
and the obligation of the Company hereunder to pay the Executive's annual base
salary shall thereafter relate to such increased annual base salary.
(b) BOARD COMPENSATION. The Executive shall be entitled to
receive any fees or additional payments for serving as a member of the Board or
as a
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<PAGE>
member of any board of directors (or the equivalent thereof) of any subsidiary
of the Company to the extent provided to other directors of the Company or
applicable subsidiary; provided, however, that the Executive shall not be
entitled to fees for serving on any committee or subcommittee of the Board or
board of directors (or the equivalent thereof) of any subsidiary.
(c) DISCRETIONARY BONUSES. During the term of this Agreement, the
Executive shall be eligible to participate in an equitable manner with other
executive employees of the Company and its subsidiaries in any Company Bonus
Plan or in other discretionary bonuses authorized and declared by the Board, the
board of directors (or the equivalent thereof) of the Company's subsidiaries, or
by their respective delegees.
(d) PARTICIPATION IN BENEFIT PLANS. In addition to any
compensation and benefits provided for in this Agreement, the Executive shall be
eligible to participate in any Company Benefit Plan or any other employee fringe
benefits offered by the Company or its subsidiaries for the benefit of executive
employees or all employees generally in which the Executive is eligible to
participate. The Executive's participation in any such Company Benefit Plan
shall be subject to all generally applicable eligibility requirements thereof
and shall not in any way limit or reduce the obligation of the Company to pay
the Executive's annual base salary hereunder (except pursuant to, in accordance
with, or as required by the generally applicable terms of participation of any
such Company Benefit Plan).
(e) VACATION. The Executive shall be entitled to annual paid
vacation during the term of this Agreement of not less than four weeks per year.
(f) REIMBURSEMENT OF BUSINESS EXPENSES. The Company shall
promptly reimburse the Executive for all reasonable travel and other business
expenses incurred by him in the performance of his duties and responsibilities,
subject to such reasonable requirements with respect to substantiation and
documentation as may be specified by the Company.
(g) AUTOMOBILE. The Company shall provide the Executive with the
full time use of an automobile and shall bear the cost of maintenance of such
vehicle.
(h) DEFERRED COMPENSATION. The Company shall maintain a
nonqualified deferred compensation plan that will allow the Executive the right
to defer the payment to him of such portion of his annual base salary and cash
bonus as the Executive shall elect.
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<PAGE>
(i) SUPPLEMENTAL RETIREMENT BENEFITS. The Executive shall be
entitled to earn and accrue, for the term of employment, benefits under a
supplemental retirement benefit plan that provides benefits that are at least
equal to those provided under the plan or arrangement that covered the Executive
prior to the Merger.
(j) CLUB MEMBERSHIP. The Company shall pay the dues, assessments
and bond obligations for the Executive's and his wife's membership in one
country club.
6. TERMINATION PROCEDURES.
(a) TERMINATION NOTICE. If the Executive's employment by the
Company is terminated for any reason during the term of this Agreement (other
than by reason of the Executive's death or as a result of a consensual
termination as provided in Section 8(c) of this Agreement), the terminating
party shall provide the other party with written notice (the "Termination
Notice") specifying: (i) the effective date of the termination (the "Termination
Date"), (ii) the specific provisions of this Agreement upon which the
termination is based and that are applicable to the termination, and (iii) a
reasonably detailed description of the facts and circumstances providing the
basis for the termination under the specified provisions of this Agreement.
(b) TERMINATION DATE. If the Executive's employment is terminated
by the Executive, the Termination Date shall not be less than thirty days after
the date the Termination Notice is tendered to the Company. If the Executive's
employment is terminated by the Company, the Termination Date shall not be less
than 30 days after the date the Termination Notice is tendered to the Executive.
Termination of the Executive's employment shall occur on the Termination Date
even if there is a dispute between the parties relating to the provisions of
this Agreement applicable to such termination (a "Termination Dispute").
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<PAGE>
(c) TERMINATION DISPUTE. If, prior to the Termination Date, the
party receiving the Termination Notice provides written notice to the other
party of the existence of a Termination Dispute (which notice shall provide a
reasonably detailed description of the nature of the dispute, including the
specific provisions of this Agreement that the disputing party believes are
applicable to the termination), the Termination Dispute shall be resolved by:
(i) mutual written agreement of the parties hereto or (ii) a final judgment,
order or decree of a court of competent jurisdiction or arbitrator (which is not
appealable or with respect to which the time for appeal therefrom has expired
and no appeal has been perfected). The parties hereto shall pursue the
resolution of any Termination Dispute with reasonable diligence.
(d) TERMINATION PAYMENTS. If there is no Termination Dispute, any
amount owed by the Company to the Executive as a result of the termination of
the Executive's employment under this Agreement shall be payable in immediately
available funds on the Termination Date. If there is a Termination Dispute, any
amount owed by the Company to the Executive as a result of the termination of
the Executive's employment under this Agreement that is not in dispute shall be
paid on the Termination Date, and all other amounts shall be paid within five
business days of the resolution of the Termination Dispute as provided for in
Section 7(c) hereto, together with Applicable Interest.
7. TERMINATION DUE TO A TRIGGERING EVENT.
(a) If, during the term of this Agreement, the Executive's
employment by the Company is terminated (whether by the Company or by the
Executive) upon the occurrence of, or within 90 days after, a Triggering Event:
(i) the Company shall make a lump sum cash payment to the Executive in an amount
equal to 299% of the sum of (A) the Executive's annual base salary at the time
the Triggering Event occurs, and (B) the amount of any discretionary bonuses
paid by the Company to the Executive within the 12 months immediately preceding
the occurrence of the Triggering Event; (ii) the Company shall continue to
provide to the Executive for a three-year period the Executive's then-existing
coverage under the Company's health, dental and life insurance plans or, if
continued coverage under such plans cannot be provided, substantially equivalent
coverage under alternative arrangements; and (iii) any restrictions remaining on
any restricted shares issued to the Executive under the Company's restricted
stock plans shall immediately lapse, any performance shares issued to the
Executive under the Company Bonus Plans shall immediately vest and any stock
options granted to the Executive shall become immediately exercisable.
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(b) In the event that the Executive becomes entitled to receive
any benefit or payment in connection with a Triggering Event or the Company's
termination of the Executive's employment, whether pursuant to the terms of this
Agreement or otherwise (collectively, the "Total Benefits"), and any of the
Total Benefits will be subject to any excise tax (the "Excise Tax") imposed
under Section 4999 of the Code, the Company shall pay to the Executive an
additional amount (the "Gross-Up Payment") such that the net amount retained by
the Executive from the Gross-Up Payment, after deduction of any federal, state
and local income taxes, Excise Tax, and FICA and Medicare withholding taxes on
the Gross-Up Payment, shall be equal to the Excise Tax on the Total Benefits.
For purposes of determining the amount of such Excise Tax on the Total Benefits,
the amount of the Total Benefits that shall be treated as subject to the Excise
Tax shall be equal to (i) the Total Benefits, minus (ii) the amount of such
Total Benefits that, in the opinion of tax counsel selected by the Company and
reasonably acceptable to the Executive ("Tax Counsel"), are not excess parachute
payments (within the meaning of Section 280G(b)(1) of the Code).
(c) For purposes of Section 7(b), the Executive shall be deemed
to pay federal income taxes at the highest marginal rate of federal income
taxation in the calendar year in which the Excise Tax is payable and state and
local income taxes at the highest marginal rate of taxation in the state and
locality of the Executive's residence on the effective date of his termination,
net of the reduction in federal income taxes which could be obtained from
deduction of such state and local taxes (calculated by assuming that any
reduction under Section 68 of the Code in the amount of itemized deductions
allowable to the Executive applies first to reduce the amount of such state and
local income taxes that would otherwise be deductible by the Executive). Except
as otherwise provided herein, all determinations required to be made under this
Section 7 shall be made by Tax Counsel, which determinations shall be conclusive
and binding on the Executive and the Company absent manifest error.
(d) In the event that the Excise Tax on the Total Benefits is
subsequently determined to be less than the amount taken into account hereunder
at the time of termination of the Executive's employment, the Executive shall
repay to the Company, at the time that the amount of such reduction in Excise
Tax is finally determined, the portion of the Gross-Up Payment attributable to
such reduction (plus that portion of the Gross-Up Payment attributable to the
Excise Tax, federal, state and local income taxes and FICA and Medicare
withholding taxes imposed on the Gross-Up Payment being repaid by the Executive
to the extent that such repayment results in a reduction in any such taxes
and/or a federal, state or local income tax deduction) plus Applicable Interest.
In the event that the Excise Tax on the Total Benefits is finally determined to
exceed the amount taken into account hereunder at the time of the termination of
the Executive's employment (including by reason of any payment the existence or
amount of which cannot be determined at the time of the Gross-Up Payment), the
Company shall make an additional Gross-Up Payment, which shall be calculated by
Tax Counsel in the same manner and using the same assumptions as set forth in
Sections 7(b) and 7(c), to the Executive in respect of such excess (plus any
interest, penalties or additions payable by the Executive to the Internal
Revenue Service
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or any other federal, state, local or foreign taxing authority with respect to
such excess or with respect to the additional Gross-Up Payment) at the time that
the amount of such additional Excise Tax is finally determined.
(e) Following the occurrence of a Triggering Event, if the
Company or the Executive brings any action, suit or proceeding for the
enforcement, performance or construction of this Agreement, the Company agrees
to reimburse the Executive for all reasonable costs and expenses incurred by him
in such action, suit or proceeding, including reasonable attorneys' and
accountants' fees and expenses.
8. OTHER TERMINATION. Notwithstanding any other provision of this
Agreement, the Executive's employment hereunder shall terminate under the
following circumstances with the following consequences:
(a) TERMINATION BY COMPANY FOR CAUSE. The Company may terminate
the Executive's employment under this Agreement for Cause. The termination of
the Executive's employment under this Agreement shall not be deemed for Cause
unless and until (i) the Company, through the Board delivers reasonable notice
to the Executive that it intends to terminate the Executive for Cause, (ii) the
Executive is given an opportunity, together with counsel, to be heard before the
Board, (iii) the Executive's termination is approved by the affirmative vote of
at least two-thirds of the Board, and (4) the Company provides the Executive
with a copy of the resolutions duly adopted by the Board finding that, in the
good faith opinion of the Board, the Executive should be terminated for Cause
and specifying the particulars thereof in detail. Upon termination for Cause,
the Executive will not be entitled to any further compensation for any period
subsequent to the effective date of such termination, except for pay or
benefits, if any, in accordance with the then existing severance policies of the
Company and the severance terms of the Company Bonus Plans and Company Benefit
Plans.
(b) TERMINATION BY COMPANY FOR DISABILITY. If, as a result of the
Executive's incapacity due to physical or mental illness, the Executive shall
not have performed his duties hereunder on a full-time basis for six consecutive
months, the Executive's employment under this Agreement may be terminated by the
Company upon written notice. Such termination for disability shall require the
affirmative vote of a majority of the entire Board. The Executive's compensation
during any period of disability prior to the effective date of such termination
shall be the amounts normally payable to him in accordance with his then current
annual base salary, reduced by the amounts of disability pay, if any, paid to
the Executive under any Company Benefit Plan that provides disability benefits.
The Executive shall not be entitled to any further compensation from the Company
or its subsidiaries for any period subsequent to the effective date of such
termination, except for pay or benefits, if any, in accordance with then
existing severance policies of the Company or its subsidiaries and the severance
terms of the Company Bonus Plans and Company Benefit Plans. The Company agrees
to continue to maintain in effect, during the Executive's term of employment
hereunder, the Company Benefit Plan that currently provides long-term
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disability coverage to the Executive (or a substitute plan or arrangement that
provides long-term disability benefits that are at least substantially
equivalent).
(c) CONSENSUAL TERMINATION. The parties hereto may agree at any
time to terminate both this Agreement and the Executive's employment hereunder
upon such terms and conditions as the parties may mutually agree.
(d) TERMINATION BY EXECUTIVE. If the Executive terminates his
employment with the Company for any reason other than the occurrence of a
Triggering Event as provided for in Section 7 hereof or a consensual termination
as provided for in Section 8(c) hereof, the Executive will not be entitled to
any further compensation for any period subsequent to the effective date of such
termination, except for pay or benefits, if any, in accordance with the then
existing severance policies of the Company and the severance terms of the
Company Bonus Plans and the Company Benefit Plans.
9. SUPERVISORY SUSPENSION. In the event the Executive is suspended
from office and/or temporarily prohibited from participating in the conduct of
the affairs of the Company or any of its subsidiary banks by a notice served
under Section 8(e)(3) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C.
ss. 1818(e)(3) or 1818(g)(1), the Company's obligations under this Agreement
shall be suspended effective as of the service date of the notice of suspension
or temporary prohibition, unless stayed by appropriate proceedings. If the
charges in the notice are dismissed, the Company shall (a) pay the Executive all
compensation withheld while its obligations under this Agreement were suspended,
together with Applicable Interest and (b) reinstate all obligations under this
Agreement that were suspended.
10. CONFIDENTIAL INFORMATION. During the Executive's employment with
the Company and thereafter, the Executive shall not disclose or use in any way
any confidential business or technical information or any trade secret acquired
in the course of such employment, other than (a) information that is generally
known in the Company's industry or acquired from public sources, (b) as required
in the course of such employment, (c) as required by any court, supervisory
authority, administrative agency or applicable law, or (d) with the prior
written consent of the Company. This Section 10 shall survive termination of
this Agreement.
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11. NO-RAID. The Executive agrees that, in the event that the
Executive's employment with the Company is terminated other than upon the
occurrence of, or within 90 days after, a Triggering Event and as a result of
such termination the Executive is entitled to receive compensation, benefits or
payments hereunder or under the Company's then existing severance policies that,
in the aggregate, equal or exceed 100% of the Executive's annual base salary at
the time of termination plus the amount of any discretionary bonuses paid by the
Company to the Executive within the 12 months immediately preceding the
termination, the Executive shall not, for a period of one year (or such lesser
period as may be determined by the Board and disclosed to the Executive in
writing) after the effective date of the Executive's termination of employment,
solicit, actively interfere with the Company's or any Company affiliate's
relationship with, or attempt to divert or entice away, any officer of the
Company or its affiliates.
12. PAYMENT OBLIGATION ABSOLUTE. The obligation of the Company to pay
the Executive the compensation, benefits or payments provided herein during the
term hereof shall be absolute and unconditional and shall not be affected by any
circumstances, including without limitation any set-off, counterclaim,
recoupment, defense or other right which the Company may have against the
Executive. All amounts payable by the Company hereunder shall be paid without
notice or demand. Each and every payment made hereunder by the Company shall be
final and the Company will not seek to recover all or any part of such payment
from the Executive, or from whosoever may be entitled thereto, for any reason
whatsoever except as provided in Section 8(d) hereof. The Executive shall not be
obligated to seek other employment in mitigation of the amounts payable under
any provision of this Agreement and the obtaining of any such other employment
shall in no event limit or reduce the obligations of the Company to make the
payments required to be made under this Agreement.
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13. NO RIGHT TO CONTINUED EMPLOYMENT. Nothing in this Agreement shall
be deemed to give the Executive the right to be retained in the employ or
service of the Company, or to interfere with the right of the Company to
discharge the Executive at any time, subject in all cases to the terms of this
Agreement.
14. WITHHOLDING. Any payments provided for hereunder shall be paid net
of any applicable withholding required under federal, state or local law and any
additional withholding to which the Executive has agreed.
15. SUCCESSORS AND ASSIGNS. This Agreement is a personal services
contract which may not be assigned by the Company, or assumed from the Company
by, any other party without the prior written consent of the Executive. Subject
to the foregoing limitation, all rights hereunder shall inure to the benefit of
the parties hereto, their personal or legal representatives, heirs, successors
and assigns. The Company will require any successor (whether direct or indirect,
by purchase, assignment, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company expressly to
assume this Agreement and to agree to perform hereunder in the same manner and
to the same extent that the Company would be required to perform if no such
succession had taken place. References herein to the Company will be understood
to refer to the successor or successors of the Company, respectively.
16. NOTICES. Any notice required or desired to be given hereunder
shall be in writing and shall be deemed given when delivered personally or sent
by certified or registered mail, postage prepaid, to the address of the other
party set forth in the first paragraph of this Agreement, provided that any
notice to the Company shall be directed to the Chairman of the Board's Personnel
and Compensation Committee.
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17. WAIVER OF BREACH. Waiver by any party of a breach of any provision
shall not operate as or be construed a waiver by such party of any subsequent
breach hereof.
18. ENTIRE AGREEMENT; EFFECT ON PRIOR AGREEMENT. This agreement
contains the entire agreement among the parties concerning the employment of the
Executive by the Company, and supersedes any employment or change in control
agreements between the Executive and the Company or any of its predecessors,
subsidiaries or predecessors of subsidiaries. Executive agrees that, for
purposes of the Employment Agreement entered into between Hudson Chartered
Bancorp, Inc. and the Executive, dated as of July 1, 1995, the Merger will not
constitute a "change in control" for purposes of such agreement and that the
Executive waives all change in control benefits under such agreement that are
associated with the Merger.
19. WRITTEN MODIFICATION, AMENDMENT OR WAIVER. No modification,
amendment or waiver of any provision hereof shall be effective unless in writing
specifically referring hereto and signed by the party against whom such
provision as modified or amended or such waiver is sought to be enforced.
20. COUNTERPARTS. This Agreement may be executed in counterparts, all
of which shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each party hereto and delivered
to the other party, it being understood that all parties need not sign the same
counterpart.
21. GOVERNING LAW. This Agreement is governed by and is to be
construed and enforced in accordance with the laws of the State of New York
applicable to contracts made and to be performed entirely therein.
22. CONSENT TO JURISDICTION. Each party hereto irrevocably consents to
the exclusive jurisdiction of the courts of the State of New York and the
federal courts situated in the State of New York in connection with any action
to enforce the provisions of this Agreement, to recover damages or other relief
for breach or default under this Agreement, to enforce any decision or award of
any arbitrators, or otherwise arising under or by reason of this Agreement.
23. CONSTRUCTION.
(a) The section headings of this Agreement have been inserted for
convenience of reference only and shall not be deemed to be a part of this
Agreement.
(b) All personal pronouns used in this Agreement, whether used in
the masculine, feminine or neuter gender, shall include all other genders where
the context so requires.
(c) The singular shall include the plural, and vice versa, where
the context so requires.
(d) All references to sections of, or regulations promulgated
under, the Exchange Act, the Code or other statutes shall be deemed also to
refer to such sections or regulations as amended from time to time and to any
successor provisions to such sections or regulations. All references to employee
benefit plans of the Company shall be deemed also to refer to such plans as
amended from time to time and to any successor plans thereto.
24. SEVERABILITY. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
affecting the validity or enforceability of any other term or provision hereof
in that or any other jurisdiction. If any provision of this Agreement is so
broad as to be unenforceable, the provision shall be interpreted so as to be
enforceable.
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25. AUTHORIZATION. The Company represents and warrants that the
execution of this Agreement has been duly authorized by resolution of the Board.
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IN WITNESS WHEREOF, the parties have executed or caused to be executed
this Agreement as of the date first above written.
PREMIER NATIONAL BANCORP
/s/ T. Jefferson Cunningham III
Chariman of Premier
/s/ Thomas Aposporos
Chairman Personnel & Compensation
Committee
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EXHBIT 10.7
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement"), made as of July 11, 1998
(the "Effective Date"), is by and between Premier National Bancorp, Inc. (the
"Company"), Route 55, LaGrangeville, New York 12540 and Peter Van Kleeck,
residing at 99 New Hackensack Rd. Poughkeepsie, New York 12603 (the
"Executive").
RECITALS
WHEREAS, the Company, through its Board of Directors (the "Board"),
considers the maintenance of competent and experienced executive officers to be
essential to its long-term success;
WHEREAS, in this regard, the Company has determined that it is in its
best interests that the Executive serve as President and Chief Executive Officer
of the Company, pursuant to a written employment agreement;
NOW, THEREFORE, in furtherance of the interests described above and in
consideration of the respective covenants and agreements herein contained, the
parties hereto agree as follows:
1. CERTAIN DEFINED TERMS. As used in this Agreement, the following
terms shall have the following meanings:
(a) "Applicable Interest" means interest at the rate provided in
Section 1274(b)(2)(B) of the Code.
(b) "Cause" means the occurrence of any of the following:
(i) the Willful and continued failure of the Executive to
substantially perform the Executive's duties with the Company (other than any
such failure resulting from incapacity due to physical or mental illness), after
a written demand for substantial performance is delivered to the Executive by
the Board which specifically identifies the manner in which the Board believes
that the Executive has not substantially performed the Executive's duties;
(ii) the Willful engaging by the Executive in illegal
conduct (excluding traffic violations, minor misdemeanors or similar offenses)
or gross misconduct that, in the Board's reasonable opinion, may reflect
adversely on the business or reputation of the Company;
<PAGE>
(iii) the removal and/or permanent prohibition of the
Executive from participation in the conduct of the affairs of the Company or any
of its subsidiary banks by an order issued under Section 8(e)(4) or 8(g)(1) of
the Federal Deposit Insurance Act, 12 U.S.C. Section 1818(e)(4) or 1818(g)(1);
(iv) the issuance by any court having appropriate
jurisdiction of an order under Section 21(d)(2) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), 15 U.S.C. Section 78u(d)(2),
prohibiting the Executive from acting as an officer or director of the
Company; or
(v) the conviction of the Executive for commission of a
felony.
(c) "Change in Control" means the occurrence of any of the
following events:
(i) there shall be consummated any consolidation, merger,
stock-for-stock exchange or similar transaction (collectively, "Merger
Transactions") involving securities of the Company in which the holders of
voting securities of the Company immediately prior to such consummation own, as
a group, immediately after such consummation, voting securities of the Company
(or, if the Company does not survive the Merger Transaction, voting securities
of the corporation surviving such transaction) having less than 50% of the total
voting power in an election of directors of the Company (or such other surviving
corporation), excluding securities received by any members of such group which
represent disproportionate percentage increases in their shareholdings vis-a-vis
the other members of such group;
(ii) any individual, corporation (other than the Company),
partnership, trust, association, pool, syndicate, or any other entity or any
group or persons acting in concert (other than an employee benefit plan of the
Company or one of its affiliates) becomes the beneficial owner (as that concept
is defined in Rule 13d-3 promulgated by the Securities and Exchange Commission
under the Exchange Act) as a result of any one or more securities transactions,
including gifts and stock repurchases but excluding any Merger Transactions, of
securities of the Company possessing one-third or more of the voting power for
the election of directors of the Company;
(iii) during any period of twenty-four consecutive months
after the date hereof, individuals who at the beginning of such period
constituted the Board (including for this purpose any new director 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 still in office who were
directors at the beginning of such period) cease for any reason to constitute at
least a majority of the Board (excluding any Board seat that is vacant or
otherwise unoccupied); or
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(iv) there shall be consummated any sale, lease, exchange
or other transfer (in one transaction or a series of related transactions,
excluding any Merger Transactions), of all, or substantially all, of the assets
of the Company to a party which is not controlled by or under common control
with the Company.
Notwithstanding the foregoing, the Merger shall not be treated as a "Change in
Control" for purposes of this Agreement.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
(e) "Company Bonus Plan" means any bonus, stock option,
profit-sharing or other cash-based or equity-based incentive plan offered by the
Company.
(f) "Company Benefit Plan" means any pension, thrift, deferred
compensation, stock purchase, life insurance, medical, dental, education,
accident, disability, welfare, retirement or other employee benefit plan offered
by the Company other than a Company Bonus Plan.
(g) "Designated Office" means Route 55, LaGrangeville, New York
12540, or such other office of the Company designated by the Board from time to
time other than in anticipation of, or following, a Change in Control.
(h) "Merger" means the merger of Progressive Bank, Inc. into
Hudson Chartered Bancorp, Inc.
(i) "Triggering Event" means the occurrence of any of the
following events:
(i) the termination by the Company of the employment of
the Executive for any reason other than Cause;
(ii) the assignment to the Executive without his consent of
any duties inconsistent in any material respect with the Executive's position
(including status, offices, titles and reporting requirements), authority,
duties or responsibilities, or any other action by the Company which results in
a diminution in any material respect in such position, authority, duties or
responsibilities, excluding for this purpose an isolated, insubstantial and
inadvertent action not taken in bad faith that is remedied by the Company
promptly after receipt of notice thereof given by the Executive;
(iii) in anticipation of, or following a Change in Control,
the requirement by the Company that the Executive be based at any office or
location that is more than 50 miles from the Designated Office;
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(iv) after the Effective Date, the failure without the
consent of the Executive, to nominate the Executive for election as a member of
the Board, or if nominated, the failure of shareholders to elect the Executive
as a member of the Board;
(v) after the Effective Date, the failure of the Company
without the Executive's consent to:
(A) continue in effect any Company Bonus Plan in which
the Executive participates that is material to the Executive's total
compensation, unless a substantially equivalent arrangement, embodied in an
ongoing substitute or alternative plan, has been established;
(B) continue the Executive's participation in any
Company Bonus Plan and eligibility for bonuses or other compensation thereunder,
or in any substitute or alternative plan, on a basis at least as favorable as
that existing at the date hereof, both in terms of the amount of benefits
provided and the level of the Executive's participation relative to other
participants;
(C) continue to provide the Executive with benefits
comparable to those received by the Executive under any Company Benefit Plan in
which the Executive was participating as of the date hereof, at participation
costs substantially similar to those paid by the Executive;
provided, however, that it shall not be deemed a Triggering Event if the
Company, for bona fide business purposes and not in anticipation of or following
a Change in Control, modifies the terms or conditions of any Company Bonus Plan
or Company Benefit Plan, so long as such modifications have or would have a
substantially similar effect upon all executive employees or all employees of
the Company who participate or who are eligible to participate in the plan;
(vi) the Company shall have materially breached any
provision of this Agreement and such breach shall not have been cured within 15
days after delivery of written notice thereof to the Board by the Executive,
identifying the breach with reasonable particularity; or
(vii) a reduction by the Company in the Executive's annual
base salary as in effect on the date hereof, as the same may be increased from
time to time as provided for in this Agreement.
(j) "Willful" means that an action, conduct or deed 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 the instructions or prior
approval of the Board 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.
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2. EMPLOYMENT TERM. The initial term of employment under this
Agreement shall be for a period of three years commencing on the Effective Date.
This Agreement shall be extended automatically for one additional year on each
annual anniversary date of the Effective Date unless either the Company, through
the Board, or the Executive gives contrary written notice (a "Non-Renewal
Notice") to the other not less than three months in advance of such anniversary
date. References herein to the term of this Agreement shall refer both to such
initial term and such successive terms.
3. EMPLOYMENT; BOARD MEMBERSHIP. During the term of employment
provided for in this Agreement, the Company agrees to employ the Executive in
the office or position set forth in the second Recital of this Agreement, and
the Executive agrees to serve in such office or position and to perform the
duties and discharge the responsibilities associated therewith or such other
duties and responsibilities as may reasonably be assigned to the Executive from
time to time by the Board. The Executive shall not undertake executive
responsibilities with any other corporation, partnership, association or other
entity and shall devote the necessary and customary time and attention to the
business and affairs of the Company and its subsidiaries, provided, however,
that the Executive may, with the approval of the Board, serve as a director or
officer of any non-competing business or engage in any other activity, including
without limitation charitable or community activity, to the extent that it does
not inhibit the performance of his duties hereunder. Subject to applicable
fiduciary duties, the Executive shall be nominated for membership on the Board
and the board of directors of the Company's bank subsidiary.
4. OFFICE AND SERVICES. In connection with the Executive's employment
hereunder, the Executive shall be based at the Designated Office, except for
required travel on the Company's business. The Company shall furnish the
Executive with office space, secretarial assistance, and such other facilities
and services as shall be suitable to the Executive's position and adequate for
the performance of his duties hereunder.
5. COMPENSATION. The regular compensation and benefits payable to the
Executive under this Agreement with respect to his period of employment shall
include the following:
(a) SALARY. The Company shall pay the Executive an annual base
salary hereunder of not less than $ 272,160, payable in equal semimonthly
installments or at such other intervals as shall be agreed upon by the parties.
The Executive's annual base salary may be increased from time to time as
determined by the Board and, if so increased, such annual base salary shall not
thereafter during the Executive's employment under this Agreement be decreased
and the obligation of the Company hereunder to pay the Executive's annual base
salary shall thereafter relate to such increased annual base salary.
(b) BOARD COMPENSATION. The Executive shall be entitled to
receive any fees or additional payments for serving as a member of the Board or
as a
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member of any board of directors (or the equivalent thereof) of any subsidiary
of the Company to the extent provided to other directors of the Company or
applicable subsidiary; provided, however, that the Executive shall not be
entitled to fees for serving on any committee or subcommittee of the Board or
board of directors (or the equivalent thereof) of any subsidiary.
(c) DISCRETIONARY BONUSES. During the term of this Agreement, the
Executive shall be eligible to participate in an equitable manner with other
executive employees of the Company and its subsidiaries in any Company Bonus
Plan or in other discretionary bonuses authorized and declared by the Board, the
board of directors (or the equivalent thereof) of the Company's subsidiaries, or
by their respective delegees.
(d) PARTICIPATION IN BENEFIT PLANS. In addition to any
compensation and benefits provided for in this Agreement, the Executive shall be
eligible to participate in any Company Benefit Plan or any other employee fringe
benefits offered by the Company or its subsidiaries for the benefit of executive
employees or all employees generally in which the Executive is eligible to
participate. The Executive's participation in any such Company Benefit Plan
shall be subject to all generally applicable eligibility requirements thereof
and shall not in any way limit or reduce the obligation of the Company to pay
the Executive's annual base salary hereunder (except pursuant to, in accordance
with, or as required by the generally applicable terms of participation of any
such Company Benefit Plan).
(e) VACATION. The Executive shall be entitled to annual paid
vacation during the term of this Agreement of not less than four weeks per year.
(f) REIMBURSEMENT OF BUSINESS EXPENSES. The Company shall
promptly reimburse the Executive for all reasonable travel and other business
expenses incurred by him in the performance of his duties and responsibilities,
subject to such reasonable requirements with respect to substantiation and
documentation as may be specified by the Company.
(g) AUTOMOBILE. The Company shall provide the Executive with the
full time use of an automobile and shall bear the cost of maintenance of such
vehicle.
(h) DEFERRED COMPENSATION. (i) The Company shall maintain a
nonqualified deferred compensation plan that will allow the Executive the right
to defer the payment to him of such portion of his annual base salary and cash
bonus as the Executive shall elect. Any such deferred amounts that the Executive
elects to have hypothetically invested in one or more mutual funds shall be
transferred to a "rabbi trust" (the "Trust") and invested in such manner as
shall be provided by the Trust. Amounts deferred by the Executive shall be paid
to the Executive upon his retirement or other termination of employment, in a
lump sum or in such installments, as elected by the Executive prior to
retirement or termination in accordance with the terms of the plan. The
Executive acknowledges that, in the event of the insolvency of the Company, the
Trust's assets would be subject to the claims of the Company's creditors and in
such event
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the Executive would have the status of an unsecured creditor with respect to
deferred amounts.
(ii) The Company agrees that it shall fund the Trust for a
period of up to two calendar years following the onset of a period of long-term
disability of the Executive in an amount equal to the amount deferred by the
Executive in the year period prior to the onset of the period of long-term
disability. If the period of long-term disability ends prior to the commencement
of the second calendar year following the onset of such long-term disability
period, no payment shall be made by the Company for such year unless the
Executive elects deferral of salary for such year pursuant to Section 5(h)(i)
above.
(i) SUPPLEMENTAL RETIREMENT BENEFITS. The Executive shall be
entitled to earn and accrue, for the term of employment, benefits under a
supplemental retirement benefit plan that provides benefits that are at least
equal to those provided under the plan or arrangement that covered the Executive
prior to the Merger.
(j) CLUB MEMBERSHIP. The Company shall pay the dues, assessments
and bond obligations for the Executive's and his wife's membership in one
country club.
(k) SUPPLEMENTAL LONG-TERM DISABILITY BENEFITS. The Company shall
pay such additional amounts to the Executive from time-to-time that are
sufficient, on an after-tax basis, to pay the premiums on a long-term disability
policy previously transferred to the Executive.
6. TERMINATION PROCEDURES.
(a) TERMINATION NOTICE. If the Executive's employment by the
Company is terminated for any reason during the term of this Agreement (other
than by reason of the Executive's death or as a result of a consensual
termination as provided in Section 8(c) of this Agreement), the terminating
party shall provide the other party with written notice (the "Termination
Notice") specifying: (i) the effective date of the termination (the "Termination
Date"), (ii) the specific provisions of this Agreement upon which the
termination is based and that are applicable to the termination, and (iii) a
reasonably detailed description of the facts and circumstances providing the
basis for the termination under the specified provisions of this Agreement.
(b) TERMINATION DATE. If the Executive's employment is terminated
by the Executive, the Termination Date shall not be less than thirty days after
the date the Termination Notice is tendered to the Company. If the Executive's
employment is terminated by the Company, the Termination Date shall not be less
than 30 days after the date the Termination Notice is tendered to the Executive.
Termination of the Executive's employment shall occur on the Termination Date
even if there is a dispute between the parties relating to the provisions of
this Agreement applicable to such termination (a "Termination Dispute").
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(c) TERMINATION DISPUTE. If, prior to the Termination Date, the
party receiving the Termination Notice provides written notice to the other
party of the existence of a Termination Dispute (which notice shall provide a
reasonably detailed description of the nature of the dispute, including the
specific provisions of this Agreement that the disputing party believes are
applicable to the termination), the Termination Dispute shall be resolved by:
(i) mutual written agreement of the parties hereto or (ii) a final judgment,
order or decree of a court of competent jurisdiction or arbitrator (which is not
appealable or with respect to which the time for appeal therefrom has expired
and no appeal has been perfected). The parties hereto shall pursue the
resolution of any Termination Dispute with reasonable diligence.
(d) TERMINATION PAYMENTS. If there is no Termination Dispute, any
amount owed by the Company to the Executive as a result of the termination of
the Executive's employment under this Agreement shall be payable in immediately
available funds on the Termination Date. If there is a Termination Dispute, any
amount owed by the Company to the Executive as a result of the termination of
the Executive's employment under this Agreement that is not in dispute shall be
paid on the Termination Date, and all other amounts shall be paid within five
business days of the resolution of the Termination Dispute as provided for in
Section 7(c) hereto, together with Applicable Interest.
7. TERMINATION DUE TO A TRIGGERING EVENT.
(a) If, during the term of this Agreement, the Executive's
employment by the Company is terminated (whether by the Company or by the
Executive) upon the occurrence of, or within 90 days after, a Triggering Event:
(i) the Company shall make a lump sum cash payment to the Executive in an amount
equal to 299% of the sum of (A) the Executive's annual base salary at the time
the Triggering Event occurs, and (B) the amount of any discretionary bonuses
paid by the Company to the Executive within the 12 months immediately preceding
the occurrence of the Triggering Event; (ii) the Company shall continue to
provide to the Executive for a three-year period the Executive's then-existing
coverage under the Company's health, dental and life insurance plans or, if
continued coverage under such plans cannot be provided, substantially equivalent
coverage under alternative arrangements; (iii) any restrictions remaining on any
restricted shares issued to the Executive under the Company's restricted stock
plans shall immediately lapse, any performance shares issued to the Executive
under the Company Bonus Plans shall immediately vest and any stock options
granted to the Executive shall become immediately exercisable, and (iv) the
Executive may exercise any such option that is not intended to be an incentive
stock option (within the meaning of Section 422 of the Code) until the later of
(i) the earlier of the expiration of the original term of the option or one year
after the effective date of the Executive's termination or (ii) such later date
as may be provided for under the terms of the option or applicable plan.
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(b) In the event that the Executive becomes entitled to receive
any benefit or payment in connection with a Triggering Event or the Company's
termination of the Executive's employment, whether pursuant to the terms of this
Agreement or otherwise (collectively, the "Total Benefits"), and any of the
Total Benefits will be subject to any excise tax (the "Excise Tax") imposed
under Section 4999 of the Code, the Company shall pay to the Executive an
additional amount (the "Gross-Up Payment") such that the net amount retained by
the Executive from the Gross-Up Payment, after deduction of any federal, state
and local income taxes, Excise Tax, and FICA and Medicare withholding taxes on
the Gross-Up Payment, shall be equal to the Excise Tax on the Total Benefits.
For purposes of determining the amount of such Excise Tax on the Total Benefits,
the amount of the Total Benefits that shall be treated as subject to the Excise
Tax shall be equal to (i) the Total Benefits, minus (ii) the amount of such
Total Benefits that, in the opinion of tax counsel selected by the Company and
reasonably acceptable to the Executive ("Tax Counsel"), are not excess parachute
payments (within the meaning of Section 280G(b)(1) of the Code).
(c) For purposes of Section 7(b), the Executive shall be deemed
to pay federal income taxes at the highest marginal rate of federal income
taxation in the calendar year in which the Excise Tax is payable and state and
local income taxes at the highest marginal rate of taxation in the state and
locality of the Executive's residence on the effective date of his termination,
net of the reduction in federal income taxes which could be obtained from
deduction of such state and local taxes (calculated by assuming that any
reduction under Section 68 of the Code in the amount of itemized deductions
allowable to the Executive applies first to reduce the amount of such state and
local income taxes that would otherwise be deductible by the Executive). Except
as otherwise provided herein, all determinations required to be made under this
Section 7 shall be made by Tax Counsel, which determinations shall be conclusive
and binding on the Executive and the Company absent manifest error.
(d) In the event that the Excise Tax on the Total Benefits is
subsequently determined to be less than the amount taken into account hereunder
at the time of termination of the Executive's employment, the Executive shall
repay to the Company, at the time that the amount of such reduction in Excise
Tax is finally determined, the portion of the Gross-Up Payment attributable to
such reduction (plus that portion of the Gross-Up Payment attributable to the
Excise Tax, federal, state and local income taxes and FICA and Medicare
withholding taxes imposed on the Gross-Up Payment being repaid by the Executive
to the extent that such repayment results in a reduction in any such taxes
and/or a federal, state or local income tax deduction) plus Applicable Interest.
In the event that the Excise Tax on the Total Benefits is finally determined to
exceed the amount taken into account hereunder at the time of the termination of
the Executive's employment (including by reason of any payment the existence or
amount of which cannot be determined at the time of the Gross-Up Payment), the
Company shall make an additional Gross-Up Payment, which shall be calculated by
Tax Counsel in the same manner and using the same assumptions as set forth in
Sections 7(b) and 7(c), to the Executive in respect of such excess (plus any
interest, penalties or additions payable by the Executive to the Internal
Revenue Service
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or any other federal, state, local or foreign taxing authority with respect to
such excess or with respect to the additional Gross-Up Payment) at the time that
the amount of such additional Excise Tax is finally determined.
(e) Following the occurrence of a Triggering Event, if the
Company or the Executive brings any action, suit or proceeding for the
enforcement, performance or construction of this Agreement, the Company agrees
to reimburse the Executive for all reasonable costs and expenses incurred by him
in such action, suit or proceeding, including reasonable attorneys' and
accountants' fees and expenses.
8. OTHER TERMINATION. Notwithstanding any other provision of this
Agreement, the Executive's employment hereunder shall terminate under the
following circumstances with the following consequences:
(a) TERMINATION BY COMPANY FOR CAUSE. The Company may terminate
the Executive's employment under this Agreement for Cause. The termination of
the Executive's employment under this Agreement shall not be deemed for Cause
unless and until (i) the Company, through the Board delivers reasonable notice
to the Executive that it intends to terminate the Executive for Cause, (ii) the
Executive is given an opportunity, together with counsel, to be heard before the
Board, (iii) the Executive's termination is approved by the affirmative vote of
at least two-thirds of the Board, and (4) the Company provides the Executive
with a copy of the resolutions duly adopted by the Board finding that, in the
good faith opinion of the Board, the Executive should be terminated for Cause
and specifying the particulars thereof in detail. Upon termination for Cause,
the Executive will not be entitled to any further compensation for any period
subsequent to the effective date of such termination, except for pay or
benefits, if any, in accordance with the then existing severance policies of the
Company and the severance terms of the Company Bonus Plans and Company Benefit
Plans.
(b) TERMINATION BY COMPANY FOR DISABILITY. If, as a result of the
Executive's incapacity due to physical or mental illness, the Executive shall
not have performed his duties hereunder on a full-time basis for six consecutive
months, the Executive's employment under this Agreement may be terminated by the
Company upon written notice. Such termination for disability shall require the
affirmative vote of a majority of the entire Board. The Executive's compensation
during any period of disability prior to the effective date of such termination
shall be the amounts normally payable to him in accordance with his then current
annual base salary, reduced by the amounts of disability pay, if any, paid to
the Executive under any Company Benefit Plan that provides disability benefits.
The Executive shall not be entitled to any further compensation from the Company
or its subsidiaries for any period subsequent to the effective date of such
termination, except for pay or benefits, if any, in accordance with then
existing severance policies of the Company or its subsidiaries and the severance
terms of the Company Bonus Plans and Company Benefit Plans and Section 5(h)
hereof. The Company agrees to continue to maintain in effect, during the
Executive's term of employment hereunder, the Company Benefit Plan that
currently provides long-term
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disability coverage to the Executive (or a substitute plan or arrangement that
provides long-term disability benefits that are at least substantially
equivalent).
(c) CONSENSUAL TERMINATION. The parties hereto may agree at any
time to terminate both this Agreement and the Executive's employment hereunder
upon such terms and conditions as the parties may mutually agree.
(d) TERMINATION BY EXECUTIVE. (i) If the Executive terminates his
employment with the Company for any reason other than the occurrence of a
Triggering Event as provided for in Section 7 hereof or a consensual termination
as provided for in Section 8(c) hereof, the Executive will not be entitled to
any further compensation for any period subsequent to the effective date of such
termination, except for pay or benefits, if any, in accordance with the then
existing severance policies of the Company and the severance terms of the
Company Bonus Plans and the Company Benefit Plans.
(ii) The Executive may voluntarily resign as President and
Chief Executive Officer of the Company only after serving in such capacity for a
period of at least one year; provided, however, that the Executive may resign
prior to the expiration of such one-year period by reason of the occurrence of a
Triggering Event or the Executive's illness or disability. If the Executive
receives a Non-Renewal Notice, he may voluntarily resign as President and Chief
Executive Officer and continue to receive his annual base salary (as in effect
as of the date of his resignation) for the remaining term of his employment
period under the Agreement. If the Executive voluntarily resigns as President
and Chief Executive Officer of the Company prior to serving in such capacity for
at least one year and other than due to a Triggering Event, the Executive shall
forfeit all of his rights with respect to the receipt of compensation and
benefits under this Agreement.
9. SUPERVISORY SUSPENSION. In the event the Executive is suspended
from office and/or temporarily prohibited from participating in the conduct of
the affairs of the Company or any of its subsidiary banks by a notice served
under Section 8(e)(3) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C.
Sections 1818(e)(3) or 1818(g)(1), the Company's obligations under this
Agreement shall be suspended effective as of the service date of the notice
of suspension or temporary prohibition, unless stayed by appropriate
proceedings. If the charges in the notice are dismissed, the Company shall
(a) pay the Executive all compensation withheld while its obligations under
this Agreement were suspended, together with Applicable Interest and (b)
reinstate all obligations under this Agreement that were suspended.
10. CONSULTING SERVICES. Upon termination of the Executive's service
as President and Chief Executive Officer of the Company (unless (a) such
termination shall have been upon the occurrence of or within 90 days after a
Triggering Event or by the Company for Cause, or (b) the Executive shall have
voluntarily resigned (other than by reason of illness/disability or the issuance
of a Non-Renewal Notice) prior to serving as President and Chief Executive
Officer of the Company for at least one year), the Executive shall be entitled
to serve as a consultant to the Company for a period of five
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years and shall be available to render such advisory or consulting services as
and when the Company may reasonably request of him from time to time. The
Executive shall perform consulting services hereunder as an independent
contractor and the provisions of this Agreement relating to the Executive's
employment by the Company, including by not limited to Section 5 hereof, shall
only apply and be effective for the period hereunder that the Executive serves
as President and Chief Executive Officer of the Company. In consideration for
the Executive's consulting services, the Company shall pay to the Executive an
annual consulting fee equal to $100,000, reduced by the amount of Board fees
paid to the Executive for service on the Board, other than fees paid to all
directors; provided, however, that no fee for consulting services shall be
payable to the Executive with respect to any period during which the Executive
is receiving his base salary pursuant to Section 8(d)(ii) hereof. Such annual
consulting fee shall be paid in substantially equal monthly installments. In the
event that the Executive is unable to perform the consulting services
contemplated by this Section 10 (whether such inability occurs before or after
the commencement of consulting services) by reason of the Executive's death or
disability at any time prior to the end of the five-year consulting period
provided for by this Section 10, the Executive (or in the event of his death,
his spouse or, if he has no spouse at such time, his estate) shall nonetheless
be entitled to receive the annual $100,000 consulting fee, in monthly
installments, for the remaining term of the five-year consulting period. If,
after a Change in Control, the Executive's consulting services are involuntarily
terminated prior to the expiration of the 5-year consulting period provided for
herein, the Company shall make a lump sum cash payment to the Executive in the
amount of $300,000. During the period that the Executive serves as a consultant
to the Company, he shall not engage in any Competitive Activity. "Competitive
Activity" shall mean any participation in, employment by, ownership of any
equity interest exceeding 1% in, or promotion or organization of, any person,
partnership, corporation, firm, association or other business organization,
entity or enterprise that is engaged in a business that is substantially similar
to some or all of the businesses of the Company whether the Executive is acting
as agent, consultant, employee, officer, director, investor, partner,
shareholder, proprietor or in any other individual or representative capacity
therein.
11. CONFIDENTIAL INFORMATION. During the Executive's employment with
the Company and thereafter, the Executive shall not disclose or use in any way
any confidential business or technical information or any trade secret acquired
in the course of such employment, other than (a) information that is generally
known in the Company's industry or acquired from public sources, (b) as required
in the course of such employment, (c) as required by any court, supervisory
authority, administrative agency or applicable law, or (d) with the prior
written consent of the Company. This Section 11 shall survive termination of
this Agreement.
12. NO-RAID. The Executive agrees that, in the event that (a) the
Executive's employment with the Company is terminated other than upon the
occurrence of, or within 90 days after, a Triggering Event and as a result of
such termination the Executive is entitled to receive compensation, benefits or
payments hereunder or under the Company's then existing severance policies that,
in the aggregate, equal or exceed
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100% of the Executive's annual base salary at the time of termination plus the
amount of any discretionary bonuses paid by the Company to the Executive within
the 12 months immediately preceding the termination, or (b) the Executive
becomes entitled to the $300,000 payment described in Section 10 hereof, the
Executive shall not, for a period of one year (or such lesser period as may be
determined by the Board and disclosed to the Executive in writing) after the
effective date of the Executive's termination of employment or service as a
consultant, solicit, actively interfere with the Company's or any Company
affiliate's relationship with, or attempt to divert or entice away, any officer
of the Company or its affiliates.
13. PAYMENT OBLIGATION ABSOLUTE. The obligation of the Company to pay
the Executive the compensation, benefits or payments provided herein during the
term hereof shall be absolute and unconditional and shall not be affected by any
circumstances, including without limitation any set-off, counterclaim,
recoupment, defense or other right which the Company may have against the
Executive. All amounts payable by the Company hereunder shall be paid without
notice or demand. Each and every payment made hereunder by the Company shall be
final and the Company will not seek to recover all or any part of such payment
from the Executive, or from whosoever may be entitled thereto, for any reason
whatsoever except as provided in Section 8(d) hereof. The Executive shall not be
obligated to seek other employment in mitigation of the amounts payable under
any provision of this Agreement and the obtaining of any such other employment
shall in no event limit or reduce the obligations of the Company to make the
payments required to be made under this Agreement.
14. NO RIGHT TO CONTINUED EMPLOYMENT. Nothing in this Agreement shall
be deemed to give the Executive the right to be retained in the employ or
service of the Company, or to interfere with the right of the Company to
discharge the Executive at any time, subject in all cases to the terms of this
Agreement.
15. WITHHOLDING. Any payments provided for hereunder shall be paid net
of any applicable withholding required under federal, state or local law and any
additional withholding to which the Executive has agreed.
16. SUCCESSORS AND ASSIGNS. This Agreement is a personal services
contract which may not be assigned by the Company, or assumed from the Company
by, any other party without the prior written consent of the Executive. Subject
to the foregoing limitation, all rights hereunder shall inure to the benefit of
the parties hereto, their personal or legal representatives, heirs, successors
and assigns. The Company will require any successor (whether direct or indirect,
by purchase, assignment, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company expressly to
assume this Agreement and to agree to perform hereunder in the same manner and
to the same extent that the Company would be required to perform if no such
succession had taken place. References herein to the Company will be understood
to refer to the successor or successors of the Company, respectively.
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17. NOTICES. Any notice required or desired to be given hereunder
shall be in writing and shall be deemed given when delivered personally or sent
by certified or registered mail, postage prepaid, to the address of the other
party set forth in the first paragraph of this Agreement, provided that any
notice to the Company shall be directed to the Chairman of the Board.
18. WAIVER OF BREACH. Waiver by any party of a breach of any provision
shall not operate as or be construed a waiver by such party of any subsequent
breach hereof.
19. ENTIRE AGREEMENT; EFFECT ON PRIOR AGREEMENT. This agreement
contains the entire agreement among the parties concerning the employment of the
Executive by the Company, and supersedes any employment or change in control
agreements between the Executive and the Company or any of its predecessors,
subsidiaries or predecessors of subsidiaries. Executive agrees that, for
purposes of the Employment Agreement entered into between Progressive Bank, Inc.
and the Executive, dated as of December 1, 1994, the Merger will not constitute
a "change of control" for purposes of such agreement and that the Executive
waives all change of control benefits under such agreement that are associated
with the Merger.
20. WRITTEN MODIFICATION, AMENDMENT OR WAIVER. No modification,
amendment or waiver of any provision hereof shall be effective unless in writing
specifically referring hereto and signed by the party against whom such
provision as modified or amended or such waiver is sought to be enforced.
21. COUNTERPARTS. This Agreement may be executed in counterparts, all
of which shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each party hereto and delivered
to the other party, it being understood that all parties need not sign the same
counterpart.
22. GOVERNING LAW. This Agreement is governed by and is to be
construed and enforced in accordance with the laws of the State of New York
applicable to contracts made and to be performed entirely therein.
23. CONSENT TO JURISDICTION. Each party hereto irrevocably consents to
the exclusive jurisdiction of the courts of the State of New York and the
federal courts situated in the State of New York in connection with any action
to enforce the provisions of this Agreement, to recover damages or other relief
for breach or default under this Agreement, to enforce any decision or award of
any arbitrators, or otherwise arising under or by reason of this Agreement.
24. CONSTRUCTION.
(a) The section headings of this Agreement have been inserted for
convenience of reference only and shall not be deemed to be a part of this
Agreement.
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(b) All personal pronouns used in this Agreement, whether used in
the masculine, feminine or neuter gender, shall include all other genders where
the context so requires.
(c) The singular shall include the plural, and vice versa, where
the context so requires.
(d) All references to sections of, or regulations promulgated
under, the Exchange Act, the Code or other statutes shall be deemed also to
refer to such sections or regulations as amended from time to time and to any
successor provisions to such sections or regulations. All references to employee
benefit plans of the Company shall be deemed also to refer to such plans as
amended from time to time and to any successor plans thereto.
25. SEVERABILITY. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
affecting the validity or enforceability of any other term or provision hereof
in that or any other jurisdiction. If any provision of this Agreement is so
broad as to be unenforceable, the provision shall be interpreted so as to be
enforceable.
26. AUTHORIZATION. The Company represents and warrants that the
execution of this Agreement has been duly authorized by resolution of the Board.
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IN WITNESS WHEREOF, the parties have executed or caused to be executed
this Agreement as of the date first above written.
PREMIER NATIONAL BANCORP
/s/Peter Van Kleek
President & CEO
/s/T. Jefferson Cunningham III
Chairman of Premier
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EXHIBIT 10.8
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement"), made as of APRIL 1, 1999,
is by and between Premier National Bank, a national banking association having
its principal place of business at Route 55, LaGrangeville, New York 12540 (the
"Company"), and PAUL A. MAISCH, residing at 7 LORENE DRIVE, LAGRANGE, NY 12540
(the "Executive").
W I T N E S S E T H:
WHEREAS, the Company, a wholly-owned subsidiary of Premier (as
hereinafter defined), has determined that it is in its best interests to employ
the Executive as a Executive Vice President, Chief Financial Officer pursuant to
a written employment agreement, as hereinafter provided; and
WHEREAS, the Executive desires to accept such employment, upon the
terms and conditions hereinafter set forth;
NOW, THEREFORE, in furtherance of the interests described above and in
consideration of the respective covenants and agreements contained herein, the
parties hereto agree as follows:
1. AGREEMENT OF EMPLOYMENT. During the term of employment provided
for in this Agreement, the Company agrees to employ the Executive, and the
Executive agrees to accept employment and to serve the Company, as Executive
Vice President, Chief Financial Officer, all upon the terms and conditions
hereinafter set forth.
2. TERM.
(a) EFFECTIVE DATE. This Agreement and the employment of the
Executive under this Agreement shall become effective as of APRIL 1, 1999 (the
"Effective Date").
(b) DURATION OF AGREEMENT. This Agreement shall terminate on the
TWELVE (12) month anniversary of the Effective Date (the "Initial Term"), but
shall be extended automatically for additional one year periods (each, a
"Renewal Term") unless the Company or the Executive gives written notice to the
other party that the Agreement shall not be so extended at least twelve (12)
months prior to the expiration of the Initial Term or any Renewal Term (a
"Failure to Renew"), in which case this Agreement shall terminate on the
expiration of such Initial Term or such Renewal Term; PROVIDED, HOWEVER, that
after a Change in Control (as hereinafter defined) no termination of this
Agreement pursuant to a Failure to Renew by the Company shall be effective prior
to the expiration of TWENTY-FOUR (24) months after such Change in Control (such
period being
<PAGE>
referred to herein as the "CIC Coverage Period"). Notwithstanding any other
provision of this Agreement, nothing contained in this Agreement shall prohibit
or prevent the continued employment of the Executive by the Company, as
Executive Vice President, Chief Financial Officer or in any other capacity,
after the termination of this Agreement as a result of a Failure to Renew.
Except as specifically set forth herein, the terms and provisions of this
Agreement shall not govern, control or be applied to any such continued
employment of the Executive by the Company in any capacity after the termination
of this Agreement as a result of a Failure to Renew. Notwithstanding any other
provision of this Agreement, nothing contained in this Agreement shall be deemed
to create any obligation on the part of the Company or the Executive to extend
this Agreement beyond the Initial Term or any Renewal Term.
(c) DURATION OF EMPLOYMENT PURSUANT TO THIS AGREEMENT.
Notwithstanding any Failure to Renew this Agreement, the employment of the
Executive under this Agreement shall be terminated only pursuant to, and in
compliance with, the terms and conditions set forth in Section 6 herein. A
Failure to Renew this Agreement in and of itself shall not (i) constitute
termination of the employment of the Executive under this Agreement pursuant to,
or for purposes of, any provision of Section 6 herein or (ii) give rise to any
obligation on the part of the Company to make, or any right on the part of the
Executive to receive, any payments or other benefits provided for pursuant to
Section 6 herein.
3. DUTIES. The Executive shall perform the duties and discharge the
responsibilities of Executive Vice President, Chief Financial Officer of the
Company, and shall perform all other duties and responsibilities as may
reasonably be assigned from time to time by the Chief Executive Officer of the
Company. The Executive agrees to devote substantially all of his business time
to the Company's business and affairs and the performance of the services
provided for herein.
4. COMPENSATION. For the services rendered by the Executive to the
Company under this Agreement, the Company shall compensate the Executive as
follows:
(a) SALARY. The Company shall pay the Executive for services an
annual salary of $136,000.00 (the "Annual Base Salary"), payable in accordance
with the payroll practices of the Company applicable to all employees and
subject to periodic review and increase in accordance with the Company's salary
administration program and policies as may be in effect from time to time.
(b) BONUS AND EXECUTIVE BENEFITS. The Executive shall be entitled
to participate, on an equitable basis with other executive personnel of the
Company, in such bonus programs as the Company may extend from time to time to
its executive personnel. The Executive shall be entitled to receive, on the same
basis as other executive personnel of the Company, group employee benefits such
as sick leave, group disability and health, life and accident insurance and
similar benefits as the Company may extend from time to time to its employees.
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(c) OTHER BENEFITS. The Executive shall be entitled to receive
such additional benefits as are set forth in SCHEDULE 1 hereto on the terms and
conditions set forth in such schedule.
5. REIMBURSEMENT OF BUSINESS EXPENSES. The Company shall promptly
reimburse the Executive for all reasonable travel and other business expenses
incurred by him in the performance of his duties and responsibilities hereunder,
subject to such reasonable requirements with respect to substantiation and
documentation as may be specified by the Company.
6. TERMINATION.
(a) TERMINATION FOR CAUSE. The Company may terminate the
employment of the Executive hereunder if the Executive (i) commits any violation
of any law, rule or regulation or of a cease and desist order with respect to
Premier, the Company or any of their subsidiaries (each hereinafter referred to
as a "Subsidiary") which has become final, (ii) engages or participates in any
unsafe or unsound practice in connection with Premier, the Company or any
Subsidiary regardless of whether actual harm or damages result to Premier, the
Company or any Subsidiary, (iii) commits or engages, or fails to commit or
engage, in any act or practice, which action or practice or the failure to
engage in such action or practice involves personal dishonesty on the part of
the Executive or demonstrates a willful or continuing disregard for the best
interests of Premier, the Company, or any Subsidiary, (iv) is adjudicated to be
of an unsound mind, (v) is adjudicated to be bankrupt, (vi) intentionally
destroys the property of Premier, the Company or any Subsidiary, (vii) breaches
or violates in any material respect any agreement with Premier, the Company or
any Subsidiary signed by the Executive, including, but not limited to, this
Agreement and any other confidentiality and nondisclosure agreements, (viii)
engages in dishonorable or disruptive behavior, practices or acts that would be
reasonably expected to harm or bring into disrepute Premier, the Company or any
Subsidiary, or any of their businesses or employees, (ix) is convicted of a
felony, or (x) continually fails to substantially perform his duties under
Section 3 hereof for a period of thirty (30) days (other than as a result of a
disability pursuant to Section 6(g) hereof) after delivery by the Company to the
Executive of a written demand for substantial performance, stating with
reasonable detail the nature of such failure and affording the Executive an
opportunity, as soon as practicable, to correct the acts or omissions specified.
Termination pursuant to this Section 6(a) shall be referred to herein as a
"Termination for Cause." A Termination for Cause shall be effective immediately
upon written notification thereof by the Company unless otherwise specified in
the written notice. Upon a Termination for Cause, whether such Termination for
Cause occurs prior or subsequent to a Change in Control (as hereinafter
defined), the Company shall have no further obligation to pay the Executive's
Annual Base Salary or to provide any employee or other benefits hereunder except
for any Annual Base Salary or other such benefits that have fully accrued and
vested but not been paid as of the effective date of such termination.
(b) TERMINATION WITHOUT CAUSE. At any time after the Effective
Date, the Company may terminate the employment of the Executive hereunder
without cause for
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any reason. Such termination shall be effective by the Company providing the
Executive with a written notice of termination at least thirty (30) days prior
to the effective date of such termination. Termination pursuant to this Section
6(b) shall be referred to herein as "Termination Without Cause."
(c) TERMINATION BY THE EXECUTIVE FOR GOOD REASON. At any time
after the Effective Date, the Executive may terminate his employment hereunder
if any one or more of the following occurs without the written consent of the
Executive: (i) a reduction by the Company in the Executive's Annual Base Salary
as in effect on the Effective Date or as the same may be increased from time to
time; (ii) the failure by the Company to pay to the Executive any portion of the
Executive's then-current compensation, or to pay to the Executive any portion of
an installment of deferred compensation under any deferred compensation program
of the Company, in each case within seven (7) days of the date such compensation
is due; (iii) any failure by the Company to comply with and satisfy Section
10(b) hereof; (iv) any material breach by the Company of this Agreement if such
breach is not cured within a period of thirty (30) days after delivery by the
Executive to the Company of a written notice stating with reasonable detail the
nature of such breach and affording the Company an opportunity, as soon as
practicable, to cure such breach; (v) the Executive is required by the Company
to occupy a position or positions in the Company, the function or functions of
which is or are materially inconsistent with the Executive's skills and
experience at that time; (vi) after or in connection with any Change in Control
(as hereinafter defined), the Executive is required to be based at any office or
location that is more than fifty (50) miles from the nearer of (A) the
Executive's residence or (B) the Company's administrative headquarters
immediately prior to the Change in Control. Termination pursuant to this Section
6(c) shall be referred to herein as a "Termination for Good Reason." A
Termination for Good Reason shall be effective immediately upon written
notification thereof by the Executive.
(d) BENEFITS IN THE EVENT OF A TERMINATION WITHOUT CAUSE OR A
TERMINATION FOR GOOD REASON. In the event of a Termination Without Cause or a
Termination for Good Reason the Executive shall be entitled to the following:
If a Termination Without Cause or a Termination for Good
Reason occurs at any time other than during the CIC Coverage
Period, the Company shall be obligated to make an undiscounted
lump sum payment to the Executive equal to the Executive's Annual
Base Salary as in effect on the effective date of such termination
(without giving effect to any reduction in Annual Base Salary
described in Section 6(c)(i) hereof), such payment to be made
within ten (10) business days of the effective date of such
Termination Without Cause or Termination for Good Reason, as the
case may be.
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If a Termination Without Cause or a Termination for Good
Reason occurs during the CIC Coverage Period, the Executive shall
be entitled to an undiscounted lump sum payment equal to the
product of (A) the Executive's Annual Base Salary as in effect on
the effective date of such termination (without giving effect to
any reduction in Annual Base Salary described in Section 6(c)(i)
hereof) and (B) two (2) years.
(e) TERMINATION BY THE EXECUTIVE WITHOUT GOOD REASON. The
Executive may voluntarily terminate his employment hereunder without cause for
any reason other than the occurrence of any event set forth in Section 6(c)
hereof by providing the Company with a written notice of termination at least
forty-five (45) days prior to the effective date of such termination.
Termination pursuant to this Section 6(e) shall be referred to herein as a
"Termination Without Good Reason." Upon a Termination Without Good Reason,
whether such Termination Without Good Reason occurs prior or subsequent to a
Change in Control (as hereinafter defined), the Company shall have no further
obligation to pay the Executive's Annual Base Salary or to provide any other
employee or other benefits hereunder except for any Annual Base Salary or other
such benefits that have fully accrued and vested but not been paid as of the
effective date of such termination.
(f) DEATH. The employment of the Executive hereunder shall
terminate automatically effective as of the death of the Executive, in which
case the Company shall have no further obligation to pay the Executive's Annual
Base Salary or to provide any other employee or other benefits hereunder except
for any Annual Base Salary or other such benefits that have fully accrued and
vested but not been paid as of the effective date of such termination.
(g) DISABILITY. If, during the Initial Term or any Renewal Term,
the Executive suffers an illness or incapacity of such a character as to prevent
or preclude him from devoting substantially full working time to his employment
hereunder or otherwise from carrying out any substantial portion of the normal
and usual duties of his employment hereunder for 180 days (whether or not
consecutive) during any twelve-month period, then the employment of the
Executive hereunder may be terminated by the Company (a "Disability
Termination" upon thirty (30) days' prior written notice to the Executive, such
Disability Termination to be effective as of the expiration date of such thirty
(30) days' notice. During the period of the Executive's disability and until the
expiration date of such thirty (30) days' notice, the Executive shall continue
to earn all compensation provided herein as if he had not been disabled, such
compensation to be paid at the time, in the amounts, and in the manner provided
for herein. Upon the effectiveness of any Disability Termination, whether such
Disability Termination occurs prior or subsequent to a Change in Control (as
hereinafter defined), the Company shall have no further obligation to pay the
Executive's Annual Base Salary or to provide any other employee or other
benefits hereunder except for any Annual Base Salary or other such benefits that
have fully accrued and vested but not been paid as of the effective date of such
termination.
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(h) CHANGE IN CONTROL. As used in this Agreement, "Change in
Control" shall mean a change in control of Premier National Bancorp, Inc., a New
York corporation, or any successor thereto ("Premier", of a nature that would
be required to be reported in response to Item 6(e) of Schedule 14A of
Regulation 14A (or in response to any similar item on any similar schedule or
form) promulgated under the Securities Exchange Act of 1934, as amended from
time to time, whether or not Premier is then subject to such reporting
requirement; provided, however, that without limitation, a Change in Control
shall be deemed to have occurred if:
(i) Premier consummates a merger, consolidation, share
exchange, division or other reorganization or transaction of
Premier (a "Fundamental Transaction" with any other corporation,
other than a Fundamental Transaction that the Board of Directors
of Premier declares a "Merger of Equals" or that results in the
voting securities of Premier outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity) at
least fifty-one percent (51%) of the combined voting power
immediately after such Fundamental Transaction of (i) Premier's
outstanding securities, (ii) the surviving entity's outstanding
securities, or (iii) in the case of a division, the outstanding
securities of each entity resulting from the division;
(ii) the shareholders of Premier approve a plan of complete
liquidation or winding-up of Premier or an agreement for the sale
or disposition (in one transaction or a series of transactions) of
all or substantially all of Premier's assets;
(iii) as a result of a proxy contest, individuals who, prior
to the conclusion thereof, constituted the Board of Directors of
Premier (including for this purpose any new director whose
election or nomination for election by Premier's shareholders in
connection with such proxy contest was approved by a vote of at
least two-thirds (2/3) of the directors then still in office who
were directors prior to such proxy contest) cease to constitute at
least a majority of the Board of Directors of Premier (excluding
any Board of Directors seat that is vacant or otherwise
unoccupied); or
(iv) the Board of Directors of Premier determines that a
Change in Control has occurred.
(i) CONTINUED BENEFITS. After any Termination Without Cause
pursuant to Section 6(b) or any Termination for Good Reason pursuant to Section
6(c), whether prior or subsequent to a Change in Control, the Company shall
provide the Executive with health insurance benefits substantially similar to
those which the Executive is receiving immediately prior to the effective date
of such Termination Without Cause or Termination for Good Reason (such effective
date being referred to as the "Date of Termination", as the case may be, for
(i) with respect to any such termination that occurs at any time other
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than during the CIC Coverage Period, a twelve-month period beginning on the Date
of Termination, and (ii) with respect to any such termination that occurs during
the CIC Coverage Period, a twenty-four (24) month period beginning on the Date
of Termination (the applicable period described in the preceding clause (i) or
(ii) being referred to as the "Benefits Period". Benefits otherwise receivable
by the Executive pursuant to this Section 6(i) shall be reduced to the extent
comparable benefits are actually received by or made available to the Executive
by any other employer(s) during the Benefits Period at a cost to the Executive
that is commensurate with the cost incurred by the Executive immediately prior
to the Date of Termination; provided, however, that if the Executive becomes
employed by a new employer which maintains a medical plan that either (A) does
not cover the Executive or a family member or dependent with respect to a
preexisting condition which was covered under the applicable Company medical
plan, or (B) does not cover the Executive or a family member or dependent for a
designated waiting period, the Executive's coverage under the applicable Company
medical plan shall continue until the earlier of the end of the applicable
period of noncoverage under the new employer's plan or the end of the applicable
period as set forth in this Section 6(i). If health insurance benefits are
provided or made available to the Executive by any other employer(s) of the
Executive during the Benefits Period at a cost that is not commensurate with the
cost incurred by the Executive immediately prior to the Executive's Date of
Termination, the Company may, at its election, make periodic cash payments to
the Executive that are sufficient to reimburse the Executive, in advance and on
a before-tax basis, for the additional cost incurred by the Executive for such
health insurance benefits. During any period with respect to which the Company
makes such reimbursement payments to the Executive, the Executive shall be
treated herein as receiving such health insurance benefits at a cost that is
commensurate with the cost incurred by the Executive immediately prior to the
Executive's Date of Termination. The Executive shall be entitled to elect to
change his level of coverage and/or his choice of coverage options (such as
Executive only or family medical coverage) with respect to the benefits to be
provided by the Company to the Executive to the same extent that active
employees of the Company are permitted to make such changes; provided, however,
that in the event of any such change the Executive shall pay the amount of any
cost increase that would actually be paid by an active employee of the Company
by reason of making the same change in his level of coverage or coverage
options. Any such benefits actually received by or made available to the
Executive from such other employer(s) shall be reported to the Company by the
Executive.
(j) LIMITATION ON CERTAIN BENEFITS. Notwithstanding any other
provision of this Agreement, in the event that any payment or benefit received
or to be received by the Executive in connection with a Change in Control or the
termination of the Executive's employment pursuant to Section 6 hereof (whether
under the terms of this Agreement or any other plan, arrangement or agreement)
(all such payments and benefits, including the payments and benefits provided
for hereunder, being hereinafter called "Total Payments") would not be
deductible (in whole or part) by the Company, an affiliate or other person or
entity making such payment or providing such benefit as a result of section 280G
of the Internal Revenue Code of 1986, as amended (the "Code", then, to the
extent necessary to make such portion of the Total Payments deductible, (A) any
cash payments provided for by Section 6 hereof shall first be reduced (if
necessary, to zero), and (B) any non-cash
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benefits provided for by Section 6 hereof shall next be reduced. For purposes of
this limitation, no portion of the Total Payments the receipt or enjoyment of
which the Executive shall have waived by written notice to the Company prior to
the date of any cash payment provided for by Section 6 hereof shall be taken
into account. All determinations required to be made under the provisions of
this Section 6(j) shall be made by tax counsel selected by the Company's or
Premier's independent auditors and reasonably acceptable to the Executive.
(k) SURVIVAL. Notwithstanding any other provision herein, the
Company's obligations to make payments and provide benefits pursuant to the
terms and conditions set forth in this Section 6 shall survive termination of
employment under this Agreement pursuant to this Section 6 hereof and/or
termination of this Agreement by reason of a Failure to Renew pursuant to
Section 2(b) hereof.
7. CONFIDENTIALITY. The Company and the Executive acknowledge that
each of Premier and the Company competes in a highly competitive industry and in
competitive markets and that, as an executive officer of the Company, the
Executive may have access to proprietary and confidential information, technical
information and trade secrets of Premier, the Company and/or a Subsidiary.
During the term of the Executive's employment hereunder and thereafter, the
Executive agrees that he will not, without the written consent of the Company,
disclose or permit any person under his control to disclose to any person or
entity not properly entitled to the information or use in any way for his own
benefit or the benefit of any other person or entity other than Premier, the
Company or any Subsidiary any confidential or proprietary information or
technical information or any trade secret of or relating to Premier, the Company
or any Subsidiary other than (a) information that is publicly disseminated or
(b) as required by any court, supervisory authority, administrative agency or
applicable law. Notwithstanding any other provision herein, the provisions of
this Section 7 shall survive termination of employment under this Agreement
pursuant to Section 6 hereof and/or termination of this Agreement by reason of a
Failure to Renew pursuant to Section 2(b) hereof.
8. COMPETITION.
(a) NONCOMPETE AGREEMENT. In consideration of the Company's
agreement to employ the Executive hereunder, the Executive hereby agrees that
during the Noncompete Period (as hereinafter defined), without the prior written
approval of the Company, the Executive shall not, directly or indirectly, enter
into or in any manner take part in any business, either individually or as an
officer, director, employee, agent, consultant, partner, investor (excluding
passive investments in publicly traded securities not aggregating more than 1%
of any such entity's total outstanding voting securities), principal or
otherwise, which is in competition with the business of Premier, the Company or
any Subsidiary in any business in which Premier, the Company or any Subsidiary
is materially engaged on the date of termination in any state or territorial
jurisdiction (including the District of Columbia) in which Premier, the Company
or any Subsidiary is so materially engaged on the date of termination. The
Executive further agrees that during the Noncompete Period he shall not,
directly or indirectly, acting either alone or in concert with others, seek to
(i) influence any employee of Premier, the Company or any
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Subsidiary to leave or otherwise terminate his or her employment with such
entity or (ii) solicit business from or otherwise do business or deal with any
person or entity who is, on the date of termination, a customer of Premier, the
Company or any Subsidiary, in connection with any product or service similar to
or competitive with any product or service offered or provided by Premier, the
Company or any such Subsidiary (to such customer or otherwise) on the date of
termination.
(b) CERTAIN DEFINITIONS.
(i) As used herein, "Noncompete Period" shall mean the
period commencing on the Effective Date and ending on (i) in the
case of any Termination Without Cause or Termination for Good
Reason occurring subsequent to a Change in Control, the effective
date of such termination pursuant to Section 6, or (ii) in the
case of any other termination of employment pursuant to Section 6
hereof, the first anniversary of the effective date of such
termination pursuant to Section 6.
(ii) As used herein, the phrase "a customer of Premier, the
Company or any Subsidiary"shall mean any person or entity who
has, at the time, an effective contract with Premier, the Company
or a Subsidiary, as the case may be, under which Premier, the
Company or such Subsidiary provides products, services or a loan.
In the case of any customer which is a subsidiary, division or
other business unit, or a department, agency, authority or other
political subdivision or instrumentality of a municipal, state or
federal government (in each case, a "Unit"), the phrase "a
customer of Premier, the Company or any Subsidiary" shall mean
only such Unit, and not any affiliated or related business unit or
any other department, agency or subdivision of such government
(unless such other unit, department, agency or subdivision is
itself a customer of Premier, the Company or a Subsidiary).
(c) EXECUTIVE'S ACKNOWLEDGMENT. The Executive acknowledges that
he has carefully read and considered all of the terms of this Agreement,
including particularly the terms of this Section 8 and the preceding Section 7,
that each of Premier and the Company has made a substantial investment in
Premier's and the Company's business and that the restrictions provided in this
Section 8 and the preceding Section 7 are reasonable and necessary for Premier's
and the Company's protection. The Executive further acknowledges that damages at
law will not be a measurable or adequate remedy for breach of the covenants
contained in this Section 8 or in Section 7 and, accordingly the Executive
consents to the entry by any court of competent jurisdiction of any order
enjoining him from violating any such covenants. The parties hereto further
agree that if, in any judicial proceeding, a court should refuse to enforce any
covenants set forth in this Section 8 or in Section 7 because of their term or
geographical scope, then such covenants shall be deemed to be modified to permit
their enforcement to the maximum extent permitted by law. Notwithstanding any
other provision herein, the provisions of this Section 8 shall survive
termination of employment under this Agreement pursuant to Section 6 hereof
and/or termination of this Agreement by reason of a Failure to Renew pursuant to
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Section 2(b) hereof.
9. GOVERNING LAW; CONSENT TO JURISDICTION. This Agreement shall in
all respects, including all matters of construction, validity and performance,
be governed by and construed and enforced in accordance with the laws of the
State of New York applicable to agreements made and to be performed entirely
within such jurisdiction. Each party hereto irrevocably consents to the
exclusive jurisdiction of the courts of the State of New York and the federal
courts situated in the State of New York in connection with any action to
enforce the provisions of this Agreement, to recover damages or other relief for
breach or default under this Agreement, to enforce any decision or award of any
arbitrators, or otherwise arising under or by reason of this Agreement.
10. SUCCESSORS AND ASSIGNS.
(a) PERSONAL SERVICES AGREEMENT. This Agreement is a personal
services contract which may not be assigned or delegated by the Executive to, or
assumed from the Executive by, any other person or entity without the prior
written consent of the Company. Subject to the foregoing limitation, this
Agreement and all rights hereunder shall inure to the benefit of and be
enforceable by the parties hereto, their personal or legal representatives,
heirs and permitted successors and assigns. If the Executive should die while
any amounts still are payable to him hereunder if he had continued to live, all
such amounts, unless otherwise provided herein, shall be paid in accordance with
the terms of this Agreement to the Executive's devisee, legatee, or other
designee or, if there be no such designee, to the Executive's estate.
(b) SUCCESSORS TO THE COMPANY. In addition to any obligations
imposed by law upon any successor to the Company, the Company shall be obligated
to require any successor (whether direct or indirect, by purchase, merger,
consolidation, operation of law or otherwise) to all or substantially all of the
business and/or assets of the Company to expressly assume 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; in the event of
such a succession, references to the "Company" herein shall thereafter be deemed
to include such successor. Failure of the Company to obtain such assumption and
agreement prior to the effectiveness of any such succession shall be a breach of
this Agreement.
11. MISCELLANEOUS.
(a) NOTICES. Any and all notices required or permitted to be
given hereunder shall be in writing and shall be deemed to have been given when
delivered personally or by facsimile or, if mailed, upon mailing by certified or
registered mail, postage prepaid, addressed as follows (or at such other address
as may hereafter be designated by notice given in compliance with the terms
hereof):
If to the Executive: PAUL A. MAISCH
7 LORENE DRIVE
LAGRANGE, NY 12540
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If to the Company: Premier National Bank
c/o Premier National Bancorp, Inc.
Route 55
LaGrangeville, New York 12540
Attention: Chairman of the Board's
Personnel and Compensation
Committee
Facsimile: (914) 471-1114
Any party may change by notice the address to which notices to it are to be
addressed.
(b) WAIVERS. A waiver by any party hereto of any of the terms or
conditions of this Agreement shall not operate as, constitute or be construed to
be a waiver thereof for the future or of any subsequent breach thereof.
(c) AMENDMENTS, ETC. This Agreement may not be varied, altered,
modified, waived, changed, departed from or in any way amended except by an
instrument in writing executed by the parties hereto or their legal
representatives.
(d) SEVERABILITY. Any term or provision of this Agreement which
is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction,
be ineffective to the extent of such invalidity or unenforceability without
affecting the validity or enforceability of any other term or provision hereof
in that or any other jurisdiction. If any provision of this Agreement is so
broad as to be unenforceable, the provision shall be interpreted so as to be
enforceable.
(e) WITHHOLDING. All payments to the Executive provided for
hereunder shall be paid net of (a) any applicable Social Security taxes and
withholding taxes required under federal, state or local law or regulation, (b)
any other taxes that may be lawfully levied by any governmental authority which
may be required by law from time to time to be withheld and (c) any additional
withholding to which the Executive has agreed.
(f) COUNTERPARTS. This Agreement may be executed in any number of
counterparts, which taken together shall be deemed to constitute one original.
(g) NO RIGHT TO CONTINUED EMPLOYMENT. Nothing in this Agreement
shall be deemed to give the Executive the right to be retained in the employ or
service of the Company (or any successor thereto), or to interfere with the
right of the Company (or any successor thereto) to discharge the Executive at
any time, subject in all cases to the terms of this Agreement.
(h) ENTIRE AGREEMENT. This agreement contains the entire
agreement between the parties concerning the employment of the Executive by the
Company, and supersedes any employment or change in control agreements between
the Executive and the Company or any of its predecessors, subsidiaries or
predecessors of subsidiaries.
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(i) HEADINGS AND CAPTIONS. Headings and paragraph captions used
in this Agreement are intended for convenience of reference only and shall not
affect the interpretation of this Agreement.
(j) SUPERVISORY SUSPENSION. Notwithstanding any other provision
of this Agreement, in the event the Executive is suspended from office and/or
temporarily prohibited from participating in the conduct of the affairs of
Premier, the Company or any Subsidiary by a notice served under Section 8(e)(3)
or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C. Section 1818(e)(3) or
1818(g)(1), the Company's obligations under this Agreement shall be suspended
effective as of the service date of the notice of suspension or temporary
prohibition, unless stayed by appropriate proceedings. If the charges in the
notice are dismissed, the Company shall (i) pay the Executive all compensation
withheld while its obligations under this Agreement were suspended, and (ii)
reinstate all obligations under this Agreement that were suspended.
(k) AUTHORIZATION. The Company represents and warrants that it is
duly authorized to execute and enter into this Agreement.
(l) REIMBURSEMENT OF LEGAL COSTS. The Company (or any successor
thereto) shall pay to the Executive all reasonable legal fees and expenses
incurred by the Executive after a Change in Control as a result of or in
connection with a bona fide dispute regarding the application of any provision
of this Agreement that arises after a Change in Control, including, without
limitation, all such fees and expenses, if any, incurred (i) in disputing any
termination under Section 6, or (ii) in seeking to enforce or obtain any right
or benefit provided by this Agreement; PROVIDED, HOWEVER, that the Company (or
any successor thereto) shall only be obligated to make payments under this
Section 11(l) for legal fees and expenses incurred by the Executive in
connection with or as a result of any such bona fide dispute regarding which the
Executive has obtained a final, nonappealable decision or determination in his
favor (a "Final Determination"). Any payments pursuant to this Section 11(l)
shall be made only if a Final Determination has been rendered and shall be made
within five (5) business days after delivery of the Executive's respective
written requests for payment accompanied by such evidence of fees and expenses
incurred as the Company (or any successor thereto) reasonably may require.
IN WITNESS WHEREOF, the parties have executed and entered into this Agreement
effective as of the date set forth above.
PREMIER NATIONAL BANK
By: /s/ Paul A. Maisch
Name: Paul A. Maisch
Title: Executive Vice President
Executive Paul A. Maisch
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SCHEDULE 1
A. Company vehicle under arrangements equivalent to other Bank Executive Vice
Presidents.
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EXHIBIT 10.9
INDEMNITY AGREEMENT
THIS INDEMNITY AGREEMENT (THIS "AGREEMENT") IS MADE AS OF JULY 17, 1998
BY AND BETWEEN PREMIER NATIONAL BANCORP, INC., A NEW YORK CORPORATION (THE
"COMPANY"), AND (THE INDEMNITEE").
RECITALS
A. THE INDEMNITEE HAS AGREED TO SERVE AS A DIRECTOR AND/OR OFFICER OF THE
COMPANY AND IN SUCH CAPACITY WILL RENDER VALUABLE SERVICES TO THE
COMPANY.
B. THE COMPANY HAS INVESTIGATED THE SUFFICIENCY OF LIABILITY INSURANCE AND
NEW YORK STATUTORY INDEMNIFICATION PROVISIONS TO PROVIDE ITS DIRECTORS
AND OFFICERS AND ITS SUBSIDIARIES' DIRECTORS AND OFFICERS WITH ADEQUATE
PROTECTION AGAINST VARIOUS LEGAL RISKS AND POTENTIAL LIABILITIES TO
WHICH SUCH INDIVIDUALS ARE SUBJECT DUE TO THEIR POSITION WITH THE
COMPANY OR ITS SUBSIDIARIES AND HAS CONCLUDED THAT SUCH INSURANCE AND
STATUTORY PROVISIONS MAY PROVIDE INADEQUATE AND UNACCEPTABLE
PROTECTION.
C. IN ORDER TO INDUCE AND ENCOURAGE HIGHLY EXPERIENCED AND CAPABLE PERSONS
SUCH AS THE INDEMNITEE TO SERVE AS A DIRECTOR AND/OR OFFICER OF THE
COMPANY, THE BOARD OF DIRECTORS OF THE COMPANY (THE "BOARD") HAS
DETERMINED, AFTER DUE CONSIDERATION AND INVESTIGATION OF THE TERMS AND
PROVISIONS OF THIS AGREEMENT AND THE VARIOUS OTHER OPTIONS AVAILABLE TO
THE COMPANY AND THE INDEMNITEE IN LIEU HEREOF, THAT THIS AGREEMENT IS
NOT ONLY REASONABLE AND PRUDENT BUT NECESSARY TO PROMOTE AND ENSURE THE
BEST INTERESTS OF THE COMPANY, ITS SUBSIDIARIES AND ITS SHAREHOLDERS.
AGREEMENT
NOW, THEREFORE, IN CONSIDERATION OF THE SERVICES OF THE INDEMNITEE AND
IN ORDER TO INDUCE THE INDEMNITEE TO SERVE AS A DIRECTOR AND/OR OFFICER, THE
COMPANY AND THE INDEMNITEE DO HEREBY AGREE AS FOLLOWS:
1. DEFINITIONS
(A) THE TERM "CHANGE IN CONTROL" SHALL BE DEEMED TO HAVE OCCURRED IF
(i) ANY "PERSONS" (AS SUCH TERM IS USED IN SECTIONS 13(d) AND
14(d) OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE
"EXCHANGE ACT"), OTHER THAN A TRUSTEE OR OTHER FIDUCIARY HOLDING
SECURITIES UNDER AN EMPLOYEE BENEFIT PLAN OF THE COMPANY OR A
CORPORATION OWNED DIRECTLY OR INDIRECTLY BY THE SHAREHOLDERS OF
THE COMPANY IN SUBSTANTIALLY THE SAME PROPORTIONS AS THEIR
OWNERSHIP OF STOCK OF THE COMPANY, IS OR BECOMES THE "BENEFICIAL
OWNER" (AS
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DEFINED IN RULE 13d-3 OF THE GENERAL RULES AND REGULATIONS UNDER
THE EXCHANGE ACT), DIRECTLY OR INDIRECTLY, OF SECURITIES OF THE
COMPANY REPRESENTING 20% OR MORE OF THE TOTAL VOTING POWER
REPRESENTED BY THE COMPANY'S THEN OUTSTANDING VOTING SECURITIES,
OR (ii) DURING ANY PERIOD OF TWO OR MORE CONSECUTIVE YEARS,
INDIVIDUALS WHO AT THE BEGINNING OF SUCH PERIOD CONSTITUTE THE
BOARD AND ANY NEW DIRECTOR WHOSE ELECTION BY THE BOARD OR
NOMINATION OF ELECTION BY THE COMPANY'S SHAREHOLDERS WAS APPROVED
BY A VOTE OF AT LEAST TWO-THIRDS (2/3) OF THE DIRECTORS THEN STILL
IN OFFICE WHO EITHER WERE DIRECTORS AT THE BEGINNING OF THE PERIOD
OR WHOSE ELECTION OR NOMINATION FOR ELECTION WAS PREVIOUSLY SO
APPROVED, CEASE FOR ANY REASON TO CONSTITUTE A MAJORITY THEREOF,
OR (iii) THE SHAREHOLDERS OF THE COMPANY APPROVE A MERGER OR
CONSOLIDATION OF THE COMPANY WITH ANY OTHER CORPORATION, OTHER
THAN A MERGER OR CONSOLIDATION WHICH WOULD RESULT IN THE VOTING
SECURITIES OF THE COMPANY OUTSTANDING IMMEDIATELY PRIOR THERETO
CONTINUING TO REPRESENT (EITHER BY REMAINING OUTSTANDING OR BY
BEING CONVERTED INTO VOTING SECURITIES OF THE SURVIVING ENTITY) AT
LEAST 80% OF THE TOTAL VOTING POWER REPRESENTED BY THE VOTING
SECURITIES OF THE COMPANY OR SUCH SURVIVING ENTITY OUTSTANDING
IMMEDIATELY AFTER SUCH MERGER OR CONSOLIDATION, OR THE
SHAREHOLDERS OF THE COMPANY APPROVE A PLAN OF COMPLETE LIQUIDATION
OF THE COMPANY OR AN AGREEMENT FOR THE SALE OR DISPOSITION BY THE
COMPANY OF ALL OR SUBSTANTIALLY ALL OF THE COMPANY'S ASSETS.
(B) THE TERM "EXPENSES" INCLUDES, WITHOUT LIMITATION, ATTORNEYS' FEES,
DISBURSEMENTS AND RETAINERS, ACCOUNTING AND WITNESS FEES, TRAVEL
AND DEPOSITION COSTS, EXPENSES OF INVESTIGATIONS, JUDICIAL OR
ADMINISTRATIVE PROCEEDINGS OR APPEALS, AMOUNTS PAID IN SETTLEMENT
BY OR ON BEHALF OF THE INDEMNITEE, AND ANY EXPENSES OF
ESTABLISHING A RIGHT TO INDEMNIFICATION PURSUANT TO THIS AGREEMENT
OR OTHERWISE INCLUDING REASONABLE COMPENSATION FOR TIME SPENT BY
THE INDEMNITEE IN CONNECTION WITH THE INVESTIGATION, DEFENSE OR
APPEAL OF A PROCEEDING OR ACTION FOR INDEMNIFICATION FOR WHICH HE
OR SHE IS NOT OTHERWISE COMPENSATED BY THE COMPANY, ANY OF ITS
SUBSIDIARIES OR ANY THIRD PARTY. THE TERM "EXPENSES" DOES NOT
INCLUDE THE AMOUNT OF JUDGMENTS, FINES, PENALTIES ORERISA EXCISE
TAXES ACTUALLY LEVIED AGAINST THE INDEMNITEE.
(C) THE TERM "INDEPENDENT LEGAL COUNSEL" SHALL MEAN LEGAL COUNSEL
RETAINED JOINTLY BY, AND MUTUALLY ACCEPTABLE TO, THE COMPANY AND
THE INDEMNITEE. THE INDEMNITEE AND THE COMPANY EACH MAY SUBMIT NO
MORE THAN THREE (3) CANDIDATES FOR THE POSITION OF INDEPENDENT
LEGAL COUNSEL. ALL CANDIDATES SHALL DISCLOSE TO THE INDEMNITEE AND
THE COMPANY ANY CIRCUMSTANCES LIKELY TO AFFECT HIS OR HER
IMPARTIALITY, INCLUDING, WITHOUT LIMITATION, BIAS, INTEREST IN THE
RESOLUTION OF THE PROCEEDING, AND PAST OR PRESENT RELATIONS WITH
EITHER THE INDEMNITEE, THE EMPLOYER OF THE INDEMNITEE OR THE
COMPANY, OR COUNSEL OF EITHER SUCH PARTY. UNDER NO CIRCUMSTANCES
SHALL THE INDEPENDENT LEGAL
<PAGE>
COUNSEL BE (OR HAVE BEEN DURING THE SIX (6) YEAR PERIOD PRIOR TO
THE DATE OF SUCH APPOINTMENT) A RELATIVE, EMPLOYEE, OFFICER,
DIRECTOR OR STOCKHOLDER OF EITHER THE INDEMNITEE, THE EMPLOYER OF
THE INDEMNITEE OR THE COMPANY, OR AN "AFFILIATE" (AS SUCH TERM IS
DEFINED IN RULE 12b-2, AS IN EFFECT ON THE DATE HEREOF, UNDER THE
EXCHANGE ACT) OF THE COMPANY. EACH PARTY MAY REJECT A CANDIDATE
FOR GOOD CAUSE, SUCH AS REASONABLE CONCERN REGARDING THAT
CANDIDATE'S INDEPENDENCE, IMPARTIALITY, ACCESS TO CONFIDENTIAL
INFORMATION OR FAILURE TO MEET AGREED UPON QUALIFICATIONS. ONCE
INDEPENDENT LEGAL COUNSEL HAS BEEN SELECTED AND JOINTLY RETAINED
BY THE PARTIES, THE COMPANY SHALL PAY ALL COSTS AND EXPENSES OF
SUCH COUNSEL. INDEPENDENT LEGAL COUNSEL MAY RETAIN SUCH ADDITIONAL
EXPERTS AS HE OR SHE DETERMINES ARE NECESSARY OR USEFUL FOR THE
RENDERING OF HIS OR HER ADVISE, PROVIDED THAT HE OR SHE IN GOOD
FAITH DETERMINES, AFTER NOTIFYING THE COMPANY AND THE INDEMNITEE
OF THE SELECTION OF SUCH EXPERT AND SOLICITING ANY OBJECTIONS
EITHER PARTY MIGHT HAVE, THAT SUCH EXPERT DOES NOT APPEAR TO HAVE
A CONFLICT OF INTEREST. CIRCUMSTANCES THAT MIGHT CAUSE DOUBT
REGARDING THE EXPERT'S INDEPENDENCE OR IMPARTIALITY INCLUDE BIAS,
INTEREST IN THE RESULT OF ANY PROCEEDING, AND PAST OR PRESENT
RELATIONS WITH THE INDEMNITEE, THE COMPANY (INCLUDING AN AFFILIATE
OF THE COMPANY) OR THEIR RESPECTIVE COUNSELS. UNDER NO
CIRCUMSTANCES SHALL ANY SUCH EXPERT BE (OR HAVE BEEN DURING THE
SIX (6) YEAR PERIOD PRIOR TO THE SELECTION OF THE INDEPENDENT
LEGAL COUNSEL) A RELATIVE, EMPLOYEE, OFFICER, DIRECTOR OR
STOCKHOLDER OF THE INDEMNITEE, THE EMPLOYER OF THE INDEMNITEE, THE
COMPANY OR AN AFFILIATE OF THE COMPANY, OR AN INDIVIDUAL OTHERWISE
PROVIDING MATERIAL SERVICES TO THE INDEMNITEE, THE EMPLOYER OF HE
INDEMNITEE, THE COMPANY OR AN AFFILIATE OF THE COMPANY.
(D) THE TERM "POTENTIAL CHANGE IN CONTROL" SHALL BE DEEMED TO HAVE
OCCURRED IF (i) THE COMPANY ENTERS INTO AN AGREEMENT, THE
CONSUMMATION OF WHICH WOULD RESULT IN THE OCCURRENCE OF A CHANGE
IN CONTROL; (ii) ANY PERSON (INCLUDING THE COMPANY) PUBLICLY
ANNOUNCES AN INTENTION TO TAKE OR TO CONSIDER TAKING ACTIONS
WHICH, IF CONSUMMATED, WOULD CONSTITUTE A CHANGE IN CONTROL; (iii)
ANY PERSON, OTHER THAN A TRUSTEE OR OTHER FIDUCIARY HOLDING
SECURITIES UNDER ANY EMPLOYEE BENEFIT PLAN OF THE COMPANY OR A
CORPORATION OWNED, DIRECTLY OR INDIRECTLY, BY THE SHAREHOLDERS OF
THE COMPANY IN SUBSTANTIALLY THE SAME PROPORTIONS AS THEIR
OWNERSHIP OF STOCK OF THE COMPANY, WHO BECOMES THE BENEFICIAL
OWNER, DIRECTLY OR INDIRECTLY, OF SECURITIES OF THE COMPANY
REPRESENTING 10% OR MORE OF THE COMBINED VOTING POWER OF THE
COMPANY'S THEN-OUTSTANDING VOTING SECURITIES; OR (iv) THE BOARD
ADOPTS A RESOLUTION TO THE EFFECT THAT, FOR THE PURPOSES OF THIS
AGREEMENT, A POTENTIAL CHANGE IN CONTROL HAS OCCURRED.
(E) THE TERM "PROCEEDING" SHALL INCLUDE ANY THREATENED, PENDING OR
COMPLETED ACTION, SUIT OR PROCEEDING, WHETHER BROUGHT IN THE NAME
OF THE COMPANY OR ONE OF ITS SUBSIDIARIES OR OTHERWISE AND WHETHER
OF A CIVIL, CRIMINAL OR ADMINISTRATIVE OR INVESTIGATIVE NATURE, BY
REASON OF OR ARISING OUT OF THE FACT THAT THE INDEMNITEE IS OR WAS
A DIRECTOR OF THE COMPANY, OR IS OR WAS SERVING AT THE REQUEST OF
THE COMPANY AS A DIRECTOR, OFFICER, EMPLOYEE OR AGENT OF
<PAGE>
ANOTHER ENTERPRISE, WHETHER OR NOT HE OR SHE IS SERVING IN SUCH
CAPACITY AT THE TIME ANY LIABILITY OR EXPENSES ARE INCURRED FOR
WHICH INDEMNIFICATION OR REIMBURSEMENT IS TO BE PROVIDED UNDER
THIS AGREEMENT.
2. AGREEMENT TO SERVE
THE INDEMNITEE AGREES TO SERVE AS A DIRECTOR AND/OR OFFICER OF THE
COMPANY FOR SO LONG AS HE OR SHE IS DULY ELECTED OR APPOINTED OR UNTIL
SUCH TIME AS HE OR SHE TENDERS HIS OR HER RESIGNATION IN WRITING.
3. INDEMNIFICATION IN THIRD PARTY ACTIONS
THE COMPANY SHALL INDEMNIFY THE INDEMNITEE IN ACCORDANCE WITH THE
PROVISIONS OF THIS SECTION IF THE INDEMNITEE IS A PARTY TO OR
THREATENED TO BE MADE A PARTY TO OR OTHERWISE INVOLVED IN ANY
PROCEEDING (OTHER THAN A PROCEEDING BY OR IN THE NAME OF THE CMPANY OR
SUCH SUBSIDIARY TO PROCURE A JUDGEMENT IN ITS FAVOR), BY REASON OF THE
FACT THAT THE INDEMNITEE IS OR WAS A DIRECTOR OF THE COMPANY OR A
SUBSIDIARY, OR IS OR WAS SERVING AT THE REQUEST OF THE COMPANY OR A
SUBSIDIARY AS A DIRECTOR, OFFICER, EMPLOYEE OR AGENT OF ANOTHER
ENTERPRISE AGAINST ALL EXPENSES, JUDGEMENTS, FINES, PENALTIES AND ERISA
EXCISE TAX ACTUALLY AND REASONABLY INCURRED BY THE INDEMNITEE IN
CONNECTION WITH THE DEFENSE OR SETTLEMENT OF SUCH PROCEEDING, TO THE
FULLEST EXTENT PERMITTED BY NEW YORK LAW; PROVIDED THAT ANY SETTLEMENT
BE APPROVED IN WRITING BY THE COMPANY.
4. INDEMNIFICATION IN PROCEEDINGS BY OR IN THE NAME OF THE
COMPANY
THE COMPANY SHALL INDEMNIFY THE INDEMNITEE IN ACCORDANCE WITH THE
PROVISIONS OF THIS SECTION IF THE INDEMNITEE IS A PARTY TO OR
THREATENED TO BE MADE A PARTY TO OR OTHERWISE INVOLVED IN ANY
PROCEEDING BY OR IN THE NAME OF THE COMPANY OR A SUBSIDIARY TO PROCURE
A JUDGEMENT IN ITS FAVOR BY REASON OF THE FACT THAT THE INDEMNITEE WAS
OR IS A DIRECTOR OF THE COMPANY OR A SUBSIDIARY, OR IS OR WAS SERVING
AT THE REQUEST OF THE COMPANY OR A SUBSIDIARY AS A DIRECTOR, OFFICER,
EMPLOYEE OR AGENT OF ANOTHER ENTERPRISE, AGAINST ALL EXPENSES ACTUALLY
AND REASONABLY INCURRED BY THE INDEMNITEE IN CONNECTION WITH THE
DEFENSE OR SETTLEMENT OF SUCH PROCEEDING, TO THE FULLEST EXTENT
PERMITTED BY NEW YORK LAW.
5. CONCLUSIVE PRESUMPTION REGARDING STANDARD OF CONDUCT
THE INDEMNITEE SHALL BE CONCLUSIVELY PRESUMED TO HAVE MET THE RELEVANT
STANDARDS OF CONDUCT AS DEFINED BY NEW YORK LAW FOR INDEMNIFICATION
PURSUANT TO THIS AGREEMENT, UNLESS A DETERMINATION IS MADE THAT THE
INDEMNITEE HAS NOT MET SUCH STANDARDS BY (i) THE BOARD BY A MAJORITY
VOTE OF A QUORUM THEREOF CONSISTING OF DIRECTORS WHO WERE NOT PARTIES
TO SUCH PROCEEDING (THE "DISINTERESTED DIRECTORS"), (ii) THE
SHAREHOLDERS OF THE COMPANY BY MAJORITY VOTE, OR (iii) IN A WRITTEN
OPINION BY INDEPENDENT LEGAL COUNSEL IN THE CASE OF A CHANGE IN
CONTROL.
<PAGE>
6. INDEMNIFICATION OF EXPENSES OF SUCCESSFUL PARTY
NOTWITHSTANDING ANY OTHER PROVISIONS OF THIS AGREEMENT, TO THE EXTENT
THAT THE INDEMNITEE HAS BEEN SUCCESSFUL IN DEFENSE OF ANY PROCEEDING OR
IN DEFENSE OF ANY CLAIM, ISSUE OR MATTER THEREIN, ON THE MERITS OR
OTHERWISE, INCLUDING THE DISMISSAL OF A PROCEEDING WITHOUT PREJUDICE,
THE INDEMNITEE SHALL BE INDEMNIFIED AGAINST ALL EXPENSES INCURRED IN
CONNECTION THEREWITH TO THE FULLEST EXTENT PERMITTED BY NEW YORK LAW.
7. ADVANCES OF EXPENSES
THE EXPENSES INCURRED BY THE INDEMNITEE IN ANY PROCEEDING SHALL BE PAID
PROMPTLY BY THE COMPANY IN ADVANCE OF THE FINAL DISPOSITION OF THE
PROCEEDING AT THE WRITTEN REQUEST OF THE INDEMNITEE TO THE FULLEST
EXTENT PERMITTED BY NEW YORK LAW; PROVIDED THAT AS LONG AS NEW YORK LAW
REQUIRES SUCH AN UNDERTAKING, THE INDEMNITEE SHALL UNDERTAKE IN WRITING
TO REPAY SUCH AMOUNT TO THE EXTENT THAT IT IS ULTIMATELY DETERMINED
THAT THE INDEMNITEE IS NOT ENTITLED TO INDEMNIFICATION.
8. PARTIAL INDEMNIFICATION
IF THE INDEMNITEE IS ENTITLED UNDER ANY PROVISION OF THIS AGREEMENT TO
INDEMNIFICATION BY THE COMPANY OR ONE OF ITS SUBSIDIARIES FOR SOME OR A
PORTION OF THE EXPENSES, JUDGEMENTS, FINES, PENALTIES OR ERISA EXCISE
TAXES ACTUALLY AND REASONABLY INCURRED BY HIM OR HER IN THE
INVESTIGATION, DEFENSE, APPEAL OR SETTLEMENT OF ANY PROCEEDING BUT NOT,
HOWEVER, FOR THE TOTAL AMOUNT THEREOF, THE COMPANY SHALL NEVERTHELESS
INDEMNIFY THE INDEMNITEE FOR THE PORTION OF SUCH EXPENSES, JUDGEMENTS,
FINES, PENALTIES OR ERISA EXCISE TAXES TO WHICH THE INDEMNITEE IS
ENTITLED.
9. INDEMNIFICATION PROCEDURE; DETERMINATION OF RIGHT TO
INDEMNIFICATION
(a) PROMPTLY AFTER RECEIPT BY THE INDEMNITEE OF WRITTEN NOTICE OF THE
COMMENCEMENT OF ANY PROCEEDING, THE INDEMNITEE WILL, IF A CLAIM IN
RESPECT THEREOF IS TO BE MADE AGAINST THE COMPANY UNDER THIS
AGREEMENT, NOTIFY THE COMPANY OF THE COMMENCEMENT THEREOF. THE
OMISSION SO TO NOTIFY THE COMPANY (i) WILL RELIEVE THE COMPANY
FROM ANY LIABILITY WHICH THE COMPANY MAY HAVE TO THE INDEMNITEE
UNDER THIS AGREEMENT ONLY TO THE EXTENT THAT THE COMPANY IS ABLE
TO ESTABLISH THAT ITS ABILITY TO AVOID SUCH LIABILITY WAS
MATERIALLY PREJUDICED BY SUCH OMISSION, AND (ii) WILL NOT RELIEVE
THE COMPANY FROM ANY LIABILITY WHICH IT MAY HAVE TO THE INDEMNITEE
OTHERWISE THAN UNDER THIS AGREEMENT.
(b) IF A CLAIM UNDER THIS AGREEMENT IS NOT PAID BY THE COMPANY WITHIN
THIRTY (30) DAYS OF RECEIPT OF WRITTEN NOTICE, THE RIGHT TO
INDEMNIFICATION AS PROVIDED BY THIS AGREEMENT SHALL BE ENFORCEABLE
BY THE INDEMNITEE IN ANY COURT OF COMPETENT JURISDICTION. THE
BURDEN OF PROVING BY CLEAR AND CONVINCING
<PAGE>
EVIDENCE THAT THE RIGHT TO INDEMNIFICATION OR ADVANCEMENT OF
EXPENSES ARE NOT APPROPRIATE SHALL BE ON THE COMPANY. NEITHER THE
FAILURE OF THE DIRECTORS OR SHAREHOLDERS OF THE COMPANY OR
INDEPENDENT LEGAL COUNSEL TO HAVE MADE A DETERMINATION PRIOR TO
THE COMMENCEMENT OF SUCH ACTION THAT THE RIGHT TO INDEMNIFICATION
OR ADVANCEMENT OF EXPENSES ARE PROPER IN THE CIRCUMSTANCES BECAUSE
THE INDEMNITEE HAS MET THE APPLICABLE STANDARD OF CONDUCT, NOR AN
ACTUAL DETERMINATION BY THE DIRECTORS OR SHAREHOLDERS OF THE
COMPANY OR INDEPENDENT LEGAL COUNSEL THAT THE INDEMNITEE HASN'T
MET SUCH APPLICABLE STANDARD OF CONDUCT, SHALL BE A DEFENSE TO THE
ACTION OR CREATE A PRESUMPTION THAT THE INDEMNITEE HAS NOT MET THE
APPLICABLE STANDARD OF CONDUCT.
(C) THE INDEMNITEE'S EXPENSES INCURRED IN CONNECTION WITH ANY
PROCEEDING CONCERNING HIS OR HER RIGHT TO INDEMNIFICATION OR
ADVANCEMENT OF EXPENSES IN WHOLE OR IN PART PURSUANT TO THIS
AGREEMENT SHALL ALSO BE INDEMNIFIED BY THE COMPANY REGARDLESS OF
THE OUTCOME OF SUCH PROCEEDING, UNLESS A COURT OF COMPETENT
JURISDICTION DETERMINES THAT THE MATERIAL ASSERTIONS MADE BY THE
INDEMNITEE IN SUCH PROCEEDING WERE NOT MADE IN GOOD FAITH OR WERE
FRIVOLOUS.
(D) WITH RESPECT TO ANY PROCEEDING FOR WHICH INDEMNIFICATION IS
REQUESTED, THE COMPANY WILL BE ENTITLED TO PARTICIPATE THEREIN AT
ITS OWN EXPENSE AND, EXCEPT AS OTHERWISE PROVIDED BELOW, TO THE
EXTENT THAT IT MAY WISH, THE COMPANY MAY ASSUME THE DEFENSE
THEREOF, WITH COUNSEL REASONABLY SATISFACTORY TO THE INDEMNITEE.
AFTER NOTICE FROM THE COMPANY TO THE INDEMNITEE OF ITS ELECTION TO
ASSUME THE DEFENSE OF A PROCEEDING, THE COMPANY WILL NOT BE LIABLE
TO THE INDEMNITEE UNDER THIS AGREEMENT FOR ANY LEGAL OR OTHER
EXPENSES SUBSEQUENTLY INCURRED BATHE INDEMNITEE IN CONNECTION WITH
DEFENSE THEREOF, OTHER THAN REASONABLE COSTS OF INVESTIGATION OR
AS OTHERWISE PROVIDED BELOW. THE COMPANY SHALL NOT SETTLE ANY
PROCEEDING IN ANY MANNER WHICH WOULD IMPOSE ANY PENALTY OR
LIMITATION ON THE INDEMNITEE WITHOUT THE INDEMNITEE'S WRITTEN
CONSENT. THE INDEMNITEE SHALL HAVE THE RIGHT TO EMPLOY HIS OR HER
COUNSEL IN ANY PROCEEDING BUT THE FEES AND EXPENSES OF SUCH
COUNSEL INCURRED AFTER WRITTEN NOTICE FROM THE COMPANY OF ITS
ASSUMPTION OF THE DEFENSE THEREOF SHALL BE AT THE EXPENSE OF THE
INDEMNITEE, UNLESS (i) THE EMPLOYMENT OF COUNSEL BY THE INDEMNITEE
HAS BEEN AUTHORIZED BY THE COMPANY, (ii) THE INDEMNITEE SHALL HAVE
REASONABLY CONCLUDED THAT THERE MAY BE A CONFLICT OF INTEREST
BETWEEN THE COMPANY AND THE INDEMNITEE IN THE CONDUCT OF A
PROCEEDING, OR (iii) THE COMPANY SHALL NOT IN FACT HAVE EMPLOYED
COUNSEL TO ASSUME THE DEFENSE OF A PROCEEDING, IN EACH OF WHICH
CASES THE FEES AND EXPENSES OF THE INDEMNITEE'S COUNSEL SHALL BE
AT THE EXPENSE OF THE COMPANY. THE COMPANY SHALL NOT BE ENTITLED
TO ASSUME THE DEFENSE OF ANY PROCEEDING BROUGHT BY OR ON BEHALF OF
THE COMPANY OR AS TO WHICH THE INDEMNITEE HAS MADE THE CONCLUSION,
WITH THE CONCURRENCE OF INDEPENDENT LEGAL COUNSEL, THAT THERE MAY
BE A CONFLICT OF INTEREST BETWEEN THE COMPANY AND THE INDEMNITEE.
<PAGE>
10. LIMITATIONS ON INDEMNIFICATION
NO PAYMENTS PURSUANT TO THIS AGREEMENT SHALL BE MDE BY THE COMPANY:
(a) TO INDEMNIFY OR ADVANCE EXPENSES TO THE INDEMNITEE WITH RESPECT TO
PROCEEDINGS INITIATED, BROUGHT OR JOINED IN VOLUNTARILY BY THE
INDEMNITEE, EXCEPT WITH RESPECT TO PROCEEDINGS BROUGHT TO ESTABISH
OR ENFORCE A RIGHT TO INDEMNIFICATION OR ADVANCEMENT OF EXPENSES
UNDER THIS AGREEMENT OR ANY OTHER STATUTE OR LAW OR OTHERWISE AS
REQUIRED UNDER NEW YORK LAW, BUT SUCH INDEMNIFICATION OR
ADVANCEMENT OF EXPENSES MAY BE PROVIDED BY THE COMPANY IN SPECIFIC
CASES IF THE BOARD FINDS IT TO BE APPROPRIATE;
(b) TO INDEMNIFY THE INDEMNITEE FOR ANY EXPENSES, JUDGEMENTS, FINES,
PENALTIES OR ERISA EXCISE TAXES FOR WHICH PAYMENT IS ACTUALLY MADE
TO THE INDEMNITEE UNDER A VALID AND COLLECTIBLE INSURANCE POLICY,
EXCEPT IN RESPECT OF ANY EXCESS BEYOND THE AMOUNT OF PAYMENT UNDER
SUCH INSURANCE;
(c) TO INDEMNIFY THE INDEMNITEE FOR ANY EXPENSES, JUDGEMENTS, FINES OR
PENALTIES SUSTAINED IN ANY PROCEEDING FOR AN ACCOUNTING OF PROFITS
MADE FROM THE PURCHASE OR SALE BY THE INDEMNITEE OF SECURITIES OF
THE COMPANY PURSUANT TO THE PROVISIONS OF SECTION 16(b) OF THE
EXCHANGE ACT, THE RULES AND REGULATIONS PROMULGATED THEREUNDER AND
AMENDMENTS THERETO OR SIMILAR PROVISIONS OF ANY FEDERAL, STATE OR
LOCAL STATUTORY LAW;
(d) TO INDEMNIFY THE INDEMNITEE FOR ANY EXPENSES, JUDGEMENTS, FINES,
PENALTIES OR ERISA EXCISE TAXES RESULTING FROM THE INDEMNITEE'S
CONDUCT WHICH IS FINALLY ADJUDGED TO HAVE BEEN WILLFUL MISCONDUCT,
KNOWINGLY FRAUDULENT OR DELIBERATELY DISHONEST; OR
(e) IF A COURT OF COMPETENT JURISDICTION SHALL FINALLY DETERMINE THAT
ANY INDEMNIFICATION HEREUNDER IS UNLAWFUL.
11. MAINENANCE OF LIABILITY INSURANCE
(a) THE COMPANY CURRENTLY MAINTAINS IN FULL FORCE AND EFFECT
DIRECTORS' AND OFFICERS' LIABILITY INSURANCE ("D&O INSURANCE").
(b) UPON EXECUTION OF THIS AGREEMENT, THE INDEMNITEE SHALL BE NAMED AS
AN INSURED IN SUCH A MANNER AS TO PROVIDE THE INDEMNITEE THE SAME
RIGHTS AND BENEFITS AS ARE ACCORDED TO THE MOST FAVORABLY INSURED
OF THE COMPANY'S DIRECTORS AND/OR OFFICERS, AS APPROPRIATE.
(c) NOTWITHSTANDING THE FOREGOING, THE COMPANY SHALL HAVE NO
OBLIGATION TO OBTAIN OR MAINTAIN D&O INSURANCE IF THE COMPANY
DETERMINES IN GOOD FAITH THAT SUCH INSURANCE IS NOT REASONABLY
AVAILABLE, THE PREMIUM COSTS FOR SUCH INSURANCE ARE
DISPROPORTIONATE TO THE AMOUNT OF COVERAGE PROVIDED, THE COVERAGE
PROVIDED BY SUCH INSURANCE IS SO LIMITED BY EXCLUSIONS THAT IT
<PAGE>
PROVIDES AN INSUFFICIENT BENEFIT, OR THE INDEMNITEE IS COVERED BY
SIMILAR INSURANCE MAINTAINED BY A SUBSIDIARY OF THE COMPANY.
12. LIMITATION OF ACTIONS AND RELEASE OF CLAIMS
NO PROCEEDING SHALL BE BROUGHT AND NO CAUSE OF ACTION SHALL BE ASSERTED
BY OR ON BEHALF OF THE COMPANY OR ANY SUBSIDIARY AGAINST THE
INDEMNITEE, HIS OR HER SPOUSE, HEIRS, ESTATE, EXECUTORS OR
ADMINISTRATORS AFTER THE EXPIRATION OF TWO YEARS FROM THE ACT OR
OMISSION OF THE INDEMNITEE UPON WHICH SUCH PROCEEDING IS BASED;
HOWEVER, IN A CASE WHERE THE INDEMNITEE FRAUDULENTLY CONCEALS THE FACTS
UNDERLYING SUCH CAUSE OF ACTION, NO PROCEEDING SHALL BE BROUGHT AND NO
CAUSE OF ACTION SHALL BE ASSERTED AFTER THE EXPIRATION OF TWO YEARS
FROM THE EARLIER OF (i) THE DATE THE COMPANY OR ANY SUBSIDIARY OF THE
COMPANY DISCOVERS SUCH FACTS, OR (ii) THE DATE THE COMPANY OR ANY
SUBSIDIARY OF THE COMPANY COULD HAVE DISCOVERED SUCH FACTS BY THE
EXERCISE OF REASONABLE DILIGENCE. ANY CLAIM OR CAUSE OF ACTION OF THE
COMPANY OR ANY SUBSIDIARY OF THE COMPANY, INCLUDING CLAIMS PREDICATED
UPON THE NEGLIGENT ACT OR OMISSION OF THE INDEMNITEE, SHALL BE
EXTINGUISHED AND DEEMED RELEASED UNLESS ASSERTED BY FILING OF A LEGAL
ACTION WITHIN SUCH PERIOD. THIS SECTION SHALL NOT APPLY TO ANY CAUSE OF
ACTION WHICH HAS ACCRUED ON THE DATE HEREOF AND OF WHICH THE INDEMNITEE
IS AWARE ON THE DATE HEREOF, BUT AS TO WHICH THE COMPANY HAS NO ACTUAL
KNOWLEDGE APART FROM THE INDEMNITEE'S KNOWLEDGE.
13. CHANGE IN CONTROL
THE COMPANY AGREES THAT IF THERE IS A CHANGE IN CONTROL OF THE COMPANY
(OTHER THAN A CHANGE IN CONTROL WHICH HAS BEEN APPROVED BY A MAJORITY
OF THE BOARD WHO WERE DIRECTORS IMMEDIATELY PRIOR TO SUCH CHANGE IN
CONTROL) THEN WITH RESPECT TO ALL MATTERS THEREAFTER ARISING CONCERNING
THE RIGHTS OF THE INDEMNITEE TO INDEMNITY PAYMENTS OR ADVANCEMENT OF
EXPENSES UNDER THIS AGREEMENT, ANY OTHER AGREEMENT OR THE COMPANY'S
CERTIFICATE OF INCORPORATION OR BYLAWS NOW OR HEREAFTER IN EFFECT
RELATING TO CLAIMS FOR INDEMNITY PAYMENTS OR THE ADVANCEMENT OF
EXPENSES, THE COMPANY SHALL SEEK LEGAL ADVISE ONLY FROM AN INDEPENDENT
LEGAL COUNSEL. THE INDEPENDENT LEGAL COUNSEL SHALL, AMONG OTHER THINGS,
RENDER ITS WRITTEN OPINION TO THE COMPANY AND THE INDEMNITEE AS TO
WHETHER AND TO WHAT EXTENT THE INDEMNITEE WOULD BE PERMITTED TO BE
INDEMNIFIED UNDER APPLICABLE LAW. THE COMPANY AGREES TO INDEMNIFY THE
INDEPENDENT LEGAL COUNSEL AGAINST ANY AND ALL EXPENSES (INCLUDING
ATTORNEYS' FEES), CLAIMS, LIABILITIES, AND DAMAGES ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR ITS ENGAGEMENT PURSUANT HERETO.
14. ESTABLISHMENT OF A TRUST IN THE EVENT OF A POTENTIAL CHANGE
IN CONTROL
IN THE EVENT OF A POTENTIAL CHANGE IN CONTROL, THE COMPANY SHALL, UPON
THE WRITTEN REQUEST BY THE INDEMNITEE AND UPON APPROVAL BY A MAJORITY
OF DISINTERESTED DIRECTORS, CREATE A TRUST FOR HE BENEFIT OF THE
INDEMNITEE, AND THE COMPANY SHALL, FROM TIME TO TIME UPON WRITTEN
REQUEST OF THE INDEMNITEE AND UPON APPROVAL BY A MAJORITY OF
DISINTERESTED DIRECTORS OR THE INDEPENDENT LEGAL COUNSEL IN THE EVENT
OF
<PAGE>
A CHANGE IN CONTROL, FUND SUCH TRUST IN AN AMOUNT SUFFICIENT TO SATISFY
ANY AND ALL EXPENSES REASONABLY ANTICIPATED AT THE TIME OF EACH SUCH
REQUEST TO BE INCURRED IN CONNECTION WITH INVESTIGATING, PREPARING FOR,
AND DEFENDING ANY PROCEEDING, ANY AND ALL JUDGMENTS, FINES, PENALTIES
AND SETTLEMENT AMOUNTS IN CONNECTION WITH ANY AND ALL PROCEEDINGS FROM
TIME TO TIME ACTUALLY PAID OR CLAIMED, REASONABLY ANTICIPATED OR
PROPOSED TO BE PAID, AND THE FEES AND EXPENSES OF THE TRUSTEE. THE
AMOUNT OR AMOUNTS TO BE DEPOSITED IN THE TRUST PURSUANT TO THE
FOREGOING FUNDING OBLIGATION SHALL BE DETERMINED BY THE BOARD, OR THE
INDEPENDENT LEGAL COUNSEL IN THE EVENT OF A CHANGE IN CONTROL. THE
TERMS OF THE TTRUST SHALL PROVIDE THAT, UPON A CHANGE IN CONTROL, (i)
THE TRUST SHALL NOT BE REVOKED OR THE PRINCIPAL THEREOF INVADED,
WITHOUT THE WRITTEN CONSENT OF THE INDEMNITEE, (ii) THE TRUSTEE SHALL
ADVANCE, WITHIN FIVE (5) DAYS OF A REQUEST BY THE INDEMNITEE, ANY AND
ALL EXPENSES TO THE INDEMNITEE (AND THE INDEMNITEE HEREBY AGREES TO
REIMBURSE THE TRUST UNDER THE CIRCUMSTANCES UNDER WHICH THE INDEMNITEE
WOULD BE REQUIRED TO REIMBURSE THE COMPANY UNDER SECTION 7 OF THIS
AGREEMENT), (iii) THE TRUST SHALL CONTINUE TO BE FUNDED BY THE COMPANY
IN ACCORDANCE WITH THE FUNDING OBLIGATIONS SET FORTH ABOVE, (iv) THE
TRUSTEE SHALL PROMPTLY PAY TO THE INDEMNITEE ALL AMOUNTS FOR WHICH THE
INDEMNITEE SHALL BE ENTITLED TO INDEMNIFICATION PURSUANT TO THIS
AGREEMENT OR OTHERWISE, AND (v) ALL UNEXPECTED FUNDS IN SUCH TRUST
SHALL REVERT TO THE COMPANY UPON A FINAL DETERMINATION BY THE BOARD,
THE INDEPENDENT LEGAL COUNSEL, OR A COURT OF COMPETENT JURISDICTION, AS
THE CASE MAY BE, THAT THE INDEMNITEE HAS BEEN FULLY INDEMNIFIED UNDER
THE TERMS OF THIS AGREEMENT. THE TRUSTEE SHALL BE CHOSEN BY THE
INDEMNITEE AND APPROVED OF BY A MAJORITY OF DISINTERESTED DIRECTORS.
NOTHING IN THIS SECTION 14 SHALL RELIEVE THE COMPANY OF ANY OF ITS
OBLIGATIONS UNDER THIS AGREEMENT.
15. INDEMNIFICATION HEREUNDER NOT EXCLUSIVE
THE INDEMNIFICATION PROVIDED BY THIS AGREEMENT SHALL NOT BE DEEMED
EXCLUSIVE OF ANY OTHER RIGHTS TO WHICH THE INDEMNITEE MAY BE ENTITLED
UNDER THE COMPANY'S OR ANY SUBSIDIARY'S CHARTER OR BYLAWS, OR ANY VOTE
OF SHAREHOLDERS OR DISINTERESTED DIRECTORS OR NEW YORK LAW, BOTH AS TO
ACTION IN HIS OR HER OFFICIAL CAPACITY AND AS TO ACTION IN ANOTHER
CAPACITY ON BEHALF OF THE COMPANY OR ANY SUBSIDIARY WHILE HOLDING SUCH
OFFICE.
16. SUCCESSORS AND ASSIGNS
THIS AGREEMENT SHALL BE BINDING UPON, AND SHALL INURE TO THE BENEFIT OF
THE INDEMNITEE AND HIS OR HER HEIRS, PERSONAL REPRESENTATIVES AND
ASSIGNS, AND THE COMPANY AND ITS SUCCESSORS AND ASSIGNS.
17. SEPARABILITY
EACH PROVISION OF THIS AGREEMENT IS A SEPARATE AND DISTINCT AGREEMENT
AND INDEPENDENT OF THE OTHERS, SO THAT IF ANY PROVISION HEREOF SHALL BE
HELD TO BE INVALID OR UNENFORCEABLE FOR ANY REASON, SUCH INVALIDITY OR
UNENFORCEABILITY SHALL NOT AFFECT THE VALIDITY OR ENFORCEABILITY OF THE
OTHER PROVISIONS HEREOF. TO THE EXTENT REQUIRED,
<PAGE>
ANY PROVISION OF THIS AGREEMENT MAY BE MODIFIED BY A COURT OF COMPETENT
JURISDICTION TO PRESERVE ITS VALIDITY AND TO PROVIDE THE INDEMNITEE
WITH THE BROADEST POSSIBLE INDEMNIFICATION PERMITTED UNDER NEW YORK
LAW.
18. SAVINGS CLAUSE
IF THIS AGREEMENT OR ANY PORTION THEREOF BE INVALIDATED ON ANY GROUND
BY ANY COURT OF COMPETENT JURISDICTION, THEN THE COMPANY SHALL
NEVERTHELESS INDEMNIFY INDEMNITEE AS TO EXPENSES, JUDGEMENTS, FINES,
PENALTIES OR ERISA EXCISE TAXES WITH RESPECT TO ANY PROCEEDING TO THE
FULL EXTENT PERMITTED BY ANY APPLICABLE PORTION OF THIS AGREEMENT THAT
SHALL NOT HAVE BEEN INVALIDATED OR BY ANY OTHER APPLICABLE NEW YORK
LAW.
19. INTERPRETATION; GOVERNING LAW
THIS AGREEMENT SHALL BE CONSTRUED AS A WHOLE AND IN ACCORDANCE WITH ITS
FAIR MEANING. HEADINGS ARE FOR CONVENIENCE ONLY AND SHALL NOT BE USED
IN CONSTRUING MEANING. THIS AGREEMENT SHALL BE GOVERNED AND INTERPRETED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAWS THEREOF.
20. AMENDMENTS
NO AMENDMENT, WAIVER, MODIFICATION, TERMINATION OR CANCELLATION OF THIS
AGREEMENT SHALL BE EFFECTIVE UNLESS IN WRITING SIGNED BY THE PARTY
AGAINST WHOM ENFORCEMENT IS SOUGHT. THE INDEMNIFICATION RIGHTS AFFORDED
TO THE INDEMNITEE HEREBY ARE CONTRACT RIGHTS AND MAY NOT BE DIMINISHED,
ELIMINATED OR OTHERWISE AFFECTED BY AMENDMENTS TO THE COMPANY'S OR ANY
SUBSIDIARY'S CHARTER OR BYLAWS OR BY AMENDMENTS TO ANY AGREEMENTS,
INCLUDING D&O INSURANCE POLICIES.
21. COUNTERPARTS
THIS AGREEMENT MAY BE EXECUTED IN ONE OR MORE COUNTERPARTS, ALL OF
WHICH SHALL BE CONSIDERED ONE AND THE SAME AGREEMENT AND SHALL BECOME
EFFECTIVE WHEN ONE OR MORE COUNTERPARTS HAVE BEEN SIGNED BY EACH PARTY
AND DELIVERED TO THE OTHER.
22. NOTICES
ALL NOTICES, DEMANDS, REQUESTS, OR OTHER COMMUNICATIONS WHICH MAY BE OR
ARE REQUIRED TO BE GIVEN, SERVED OR SENT BY EITHER PARTY TO THE OTHER
PARTY PURSUANT TO THIS AGREEMENT, SHALL BE IN WRITING AND SHALL BE HAND
DELIVERED, SENT BY EXPRESS MAIL OR OTHER OVERNIGHT DELIVERY SERVICE OR
MAILED BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED,
POSTAGE PREPAID, OR TRANSMITTED BY TELEGRAM, TELEX OR TELECOPY,
ADDRESSED AS FOLLOWS:
<PAGE>
IF TO THE COMPANY:
PREMIER NATIONAL BANCORP, INC.
ROUTE 55
LAGRANGEVILLE, NEW YORK 12540
ATTN: PRESIDENT
IF TO THE INDEMNITEE:
EACH PARTY MAY DESIGNATE BY NOTICE IN WRITING A NEW ADDRESS (OR
SUBSTITUTE OR ADDITIONAL PERSONS) TO WHICH ANY NOTICE, DEMAND, REQUEST
OR COMMUNICATION MAY THEREAFTER BE SO GIVEN, SERVED OR SENT. EACH
NOTICE, DEMAND, REQUEST, OR COMMUNICATION WHICH SHALL BE MAILED, SENT,
DELIVERED, TELEFAXED OR TELEXED IN THE MANNER DESCRIBED ABOVE, OR WHICH
SHALL BEDELIVERED TO A TELEGRAPH COMPANY, SHALL BE DEEMED SUFFICIENTLY
GIVEN, SERVED, SENT TO BE DELIVERED OR RECEIVED FOR ALL PURPOSES AT
SUCH TIME AS IT IS DELIVERED TO THE ADDRESSEE (WITH THE RETURN RECEIPT,
THE DELIVERY RECEIPT OR, WITH RESPECT TO ATELEX OR TELEFAX, THE ANSWER
BACK BEING DEEMED CONCLUSIVE EVIDENCE OF SUCH DELIVERY) OR AT SUCH TIME
AS DELIVERY IS REFUSED BY THEADDRESSEE UPON PRESENTATION.
23. TERMINATION OF PRIOR INDEMNIFICATION AGREEMENT
THIS AGREEMENT SUPERCEDES AND REPLACES ANY PRIOR AGREEMENTS BETWEEN THE
COMPANY OR ANY OF ITS PREDECESSORS AND THE INDEMNITEE RELATING TO
INDEMNIFICATION OF THE INDEMNITEE BY THE COMPANY OR SUCH PREDECESSOR,
INCLUDING WITHOUT LIMITATION THE INDEMNIFICATION AGREEMENT EFFECTIVE
JULY 17, 1998 BETWEEN PROGRESSIVE BANK, INC. AND THE INDEMNITEE, AND
UPON THE EXECUTION AND DELIVERY OF THIS AGREEMENT BY THE PARTIES HERETO
ALL SUCH AGREEMENTS SHALL TERMINATE AND BE OF NO FURHER FORCE OR
EFFECT. NOTHING CONTAINED IN THISSECTION 23 SHALL BE CONSTRUED TO LIMIT
IN ANY WAY THE PROVISIONS OF SECTION 15 HEREOF.
24. SUBROGATION
IN THE EVENT OF PAYMENT UNDER THIS AGREEMENT, THECOMPANY SHALL BE
SUBROGATED TO THE EXTENT OF SUCH PAYMENT TO ALL OF THE RIGHTS OF
RECOVERY OF INDEMNITEE, WHO SHALL EXECUTE ALL PAPERS REQUIRED AND SHALL
DO EVERYTHING HAT MAY BE NECESSARY TO ENABLE THECOMPANY EFFECTIVELY TO
BRING SUIT TO ENFORCE SUCH RIGHTS.
<PAGE>
IN WITNESS WHEREOF, THE PARTIES HERETO HAVE ENERED INTO THIS AGREEMENT
AS OF THE DATE FIRST WRITTEN ABOVE.
INDEMNITEE
-----------------------------------
PREMIER NATIONAL BANCORP, INC.
BY:
--------------------------------
NAME:
TITLE:
<PAGE>
EXHIBIT 10.10
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement"), made as of APRIL 1, 1999,
is by and between Premier National Bank, a national banking association having
its principal place of business at Route 55, LaGrangeville, New York 12540 (the
"Company"), and DAVID MACFARLAND, residing at 74 SUSAN DRIVE, NEWBURGH, NY 12550
(the "Executive").
W I T N E S S E T H:
WHEREAS, the Company, a wholly-owned subsidiary of Premier (as
hereinafter defined), has determined that it is in its best interests to employ
the Executive as a Executive Vice President pursuant to a written employment
agreement, as hereinafter provided; and
WHEREAS, the Executive desires to accept such employment, upon the
terms and conditions hereinafter set forth;
NOW, THEREFORE, in furtherance of the interests described above and in
consideration of the respective covenants and agreements contained herein, the
parties hereto agree as follows:
1. AGREEMENT OF EMPLOYMENT. During the term of employment provided
for in this Agreement, the Company agrees to employ the Executive, and the
Executive agrees to accept employment and to serve the Company, as Executive
Vice President, all upon the terms and conditions hereinafter set forth.
2. TERM.
(a) EFFECTIVE DATE. This Agreement and the employment of the
Executive under this Agreement shall become effective as of APRIL 1, 1999 (the
"Effective Date").
(b) DURATION OF AGREEMENT. This Agreement shall terminate on the
TWELVE (12) month anniversary of the Effective Date (the "Initial Term"), but
shall be extended automatically for additional one year periods (each, a
"Renewal Term") unless the Company or the Executive gives written notice to the
other party that the Agreement shall not be so extended at least twelve (12)
months prior to the expiration of the Initial Term or any Renewal Term (a
"Failure to Renew"), in which case this Agreement shall terminate on the
expiration of such Initial Term or such Renewal Term; PROVIDED, HOWEVER, that
after a Change in Control (as hereinafter defined) no termination of this
Agreement pursuant to a Failure to Renew by the Company shall be effective prior
to the expiration of TWENTY-FOUR (24) months after such Change in Control (such
period being
<PAGE>
referred to herein as the "CIC Coverage Period"). Notwithstanding any other
provision of this Agreement, nothing contained in this Agreement shall prohibit
or prevent the continued employment of the Executive by the Company, as
Executive Vice President or in any other capacity, after the termination of this
Agreement as a result of a Failure to Renew. Except as specifically set forth
herein, the terms and provisions of this Agreement shall not govern, control or
be applied to any such continued employment of the Executive by the Company in
any capacity after the termination of this Agreement as a result of a Failure to
Renew. Notwithstanding any other provision of this Agreement, nothing contained
in this Agreement shall be deemed to create any obligation on the part of the
Company or the Executive to extend this Agreement beyond the Initial Term or any
Renewal Term.
(c) DURATION OF EMPLOYMENT PURSUANT TO THIS AGREEMENT.
Notwithstanding any Failure to Renew this Agreement, the employment of the
Executive under this Agreement shall be terminated only pursuant to, and in
compliance with, the terms and conditions set forth in Section 6 herein. A
Failure to Renew this Agreement in and of itself shall not (i) constitute
termination of the employment of the Executive under this Agreement pursuant to,
or for purposes of, any provision of Section 6 herein or (ii) give rise to any
obligation on the part of the Company to make, or any right on the part of the
Executive to receive, any payments or other benefits provided for pursuant to
Section 6 herein.
3. DUTIES. The Executive shall perform the duties and discharge the
responsibilities of Executive Vice President (Corporate Banking) of the Company,
and shall perform all other duties and responsibilities as may reasonably be
assigned from time to time by the Chief Executive Officer of the Company. The
Executive agrees to devote substantially all of his business time to the
Company's business and affairs and the performance of the services provided for
herein.
4. COMPENSATION. For the services rendered by the Executive to the
Company under this Agreement, the Company shall compensate the Executive as
follows:
(a) SALARY. The Company shall pay the Executive for services an
annual salary of $132,500.00 (the "Annual Base Salary"), payable in accordance
with the payroll practices of the Company applicable to all employees and
subject to periodic review and increase in accordance with the Company's salary
administration program and policies as may be in effect from time to time.
(b) BONUS AND EXECUTIVE BENEFITS. The Executive shall be entitled
to participate, on an equitable basis with other executive personnel of the
Company, in such bonus programs as the Company may extend from time to time to
its executive personnel. The Executive shall be entitled to receive, on the same
basis as other executive personnel of the Company, group employee benefits such
as sick leave, group disability and health, life and accident insurance and
similar benefits as the Company may extend from time to time to its employees.
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<PAGE>
(c) OTHER BENEFITS. The Executive shall be entitled to receive
such additional benefits as are set forth in SCHEDULE 1 hereto on the terms and
conditions set forth in such schedule.
5. REIMBURSEMENT OF BUSINESS EXPENSES. The Company shall promptly
reimburse the Executive for all reasonable travel and other business expenses
incurred by him in the performance of his duties and responsibilities hereunder,
subject to such reasonable requirements with respect to substantiation and
documentation as may be specified by the Company.
6. TERMINATION.
(a) TERMINATION FOR CAUSE. The Company may terminate the
employment of the Executive hereunder if the Executive (i) commits any violation
of any law, rule or regulation or of a cease and desist order with respect to
Premier, the Company or any of their subsidiaries (each hereinafter referred to
as a "Subsidiary") which has become final, (ii) engages or participates in any
unsafe or unsound practice in connection with Premier, the Company or any
Subsidiary regardless of whether actual harm or damages result to Premier, the
Company or any Subsidiary, (iii) commits or engages, or fails to commit or
engage, in any act or practice, which action or practice or the failure to
engage in such action or practice involves personal dishonesty on the part of
the Executive or demonstrates a willful or continuing disregard for the best
interests of Premier, the Company, or any Subsidiary, (iv) is adjudicated to be
of an unsound mind, (v) is adjudicated to be bankrupt, (vi) intentionally
destroys the property of Premier, the Company or any Subsidiary, (vii) breaches
or violates in any material respect any agreement with Premier, the Company or
any Subsidiary signed by the Executive, including, but not limited to, this
Agreement and any other confidentiality and nondisclosure agreements, (viii)
engages in dishonorable or disruptive behavior, practices or acts that would be
reasonably expected to harm or bring into disrepute Premier, the Company or any
Subsidiary, or any of their businesses or employees, (ix) is convicted of a
felony, or (x) continually fails to substantially perform his duties under
Section 3 hereof for a period of thirty (30) days (other than as a result of a
disability pursuant to Section 6(g) hereof) after delivery by the Company to the
Executive of a written demand for substantial performance, stating with
reasonable detail the nature of such failure and affording the Executive an
opportunity, as soon as practicable, to correct the acts or omissions specified.
Termination pursuant to this Section 6(a) shall be referred to herein as a
"Termination for Cause." A Termination for Cause shall be effective immediately
upon written notification thereof by the Company unless otherwise specified in
the written notice. Upon a Termination for Cause, whether such Termination for
Cause occurs prior or subsequent to a Change in Control (as hereinafter
defined), the Company shall have no further obligation to pay the Executive's
Annual Base Salary or to provide any employee or other benefits hereunder except
for any Annual Base Salary or other such benefits that have fully accrued and
vested but not been paid as of the effective date of such termination.
(b) TERMINATION WITHOUT CAUSE. At any time after the Effective
Date, the Company may terminate the employment of the Executive hereunder
without cause for
3
<PAGE>
any reason. Such termination shall be effective by the Company providing the
Executive with a written notice of termination at least thirty (30) days prior
to the effective date of such termination. Termination pursuant to this Section
6(b) shall be referred to herein as "Termination Without Cause."
(c) TERMINATION BY THE EXECUTIVE FOR GOOD REASON. At any time
after the Effective Date, the Executive may terminate his employment hereunder
if any one or more of the following occurs without the written consent of the
Executive: (i) a reduction by the Company in the Executive's Annual Base Salary
as in effect on the Effective Date or as the same may be increased from time to
time; (ii) the failure by the Company to pay to the Executive any portion of the
Executive's then-current compensation, or to pay to the Executive any portion of
an installment of deferred compensation under any deferred compensation program
of the Company, in each case within seven (7) days of the date such compensation
is due; (iii) any failure by the Company to comply with and satisfy Section
10(b) hereof; (iv) any material breach by the Company of this Agreement if such
breach is not cured within a period of thirty (30) days after delivery by the
Executive to the Company of a written notice stating with reasonable detail the
nature of such breach and affording the Company an opportunity, as soon as
practicable, to cure such breach; (v) the Executive is required by the Company
to occupy a position or positions in the Company, the function or functions of
which is or are materially inconsistent with the Executive's skills and
experience at that time; (vi) after or in connection with any Change in Control
(as hereinafter defined), the Executive is required to be based at any office or
location that is more than fifty (50) miles from the nearer of (A) the
Executive's residence or (B) the Company's administrative headquarters
immediately prior to the Change in Control. Termination pursuant to this Section
6(c) shall be referred to herein as a "Termination for Good Reason." A
Termination for Good Reason shall be effective immediately upon written
notification thereof by the Executive.
(d) BENEFITS IN THE EVENT OF A TERMINATION WITHOUT CAUSE OR A
TERMINATION FOR GOOD REASON. In the event of a Termination Without Cause or a
Termination for Good Reason the Executive shall be entitled to the following:
If a Termination Without Cause or a Termination for Good
Reason occurs at any time other than during the CIC Coverage
Period, the Company shall be obligated to make an undiscounted
lump sum payment to the Executive equal to the Executive's Annual
Base Salary as in effect on the effective date of such termination
(without giving effect to any reduction in Annual Base Salary
described in Section 6(c)(i) hereof), such payment to be made
within ten (10) business days of the effective date of such
Termination Without Cause or Termination for Good Reason, as the
case may be.
4
<PAGE>
If a Termination Without Cause or a Termination for Good
Reason occurs during the CIC Coverage Period, the Executive shall
be entitled to an undiscounted lump sum payment equal to the
product of (A) the Executive's Annual Base Salary as in effect on
the effective date of such termination (without giving effect to
any reduction in Annual Base Salary described in Section 6(c)(i)
hereof) and (B) two (2) years.
(e) TERMINATION BY THE EXECUTIVE WITHOUT GOOD REASON. The
Executive may voluntarily terminate his employment hereunder without cause for
any reason other than the occurrence of any event set forth in Section 6(c)
hereof by providing the Company with a written notice of termination at least
forty-five (45) days prior to the effective date of such termination.
Termination pursuant to this Section 6(e) shall be referred to herein as a
"Termination Without Good Reason." Upon a Termination Without Good Reason,
whether such Termination Without Good Reason occurs prior or subsequent to a
Change in Control (as hereinafter defined), the Company shall have no further
obligation to pay the Executive's Annual Base Salary or to provide any other
employee or other benefits hereunder except for any Annual Base Salary or other
such benefits that have fully accrued and vested but not been paid as of the
effective date of such termination.
(f) DEATH. The employment of the Executive hereunder shall
terminate automatically effective as of the death of the Executive, in which
case the Company shall have no further obligation to pay the Executive's Annual
Base Salary or to provide any other employee or other benefits hereunder except
for any Annual Base Salary or other such benefits that have fully accrued and
vested but not been paid as of the effective date of such termination.
(g) DISABILITY. If, during the Initial Term or any Renewal Term,
the Executive suffers an illness or incapacity of such a character as to prevent
or preclude him from devoting substantially full working time to his employment
hereunder or otherwise from carrying out any substantial portion of the normal
and usual duties of his employment hereunder for 180 days (whether or not
consecutive) during any twelve-month period, then the employment of the
Executive hereunder may be terminated by the Company (a "Disability
Termination") upon thirty (30) days' prior written notice to the Executive, such
Disability Termination to be effective as of the expiration date of such thirty
(30) days' notice. During the period of the Executive's disability and until the
expiration date of such thirty (30) days' notice, the Executive shall continue
to earn all compensation provided herein as if he had not been disabled, such
compensation to be paid at the time, in the amounts, and in the manner provided
for herein. Upon the effectiveness of any Disability Termination, whether such
Disability Termination occurs prior or subsequent to a Change in Control (as
hereinafter defined), the Company shall have no further obligation to pay the
Executive's Annual Base Salary or to provide any other employee or other
benefits hereunder except for any Annual Base Salary or other such benefits that
have fully accrued and vested but not been paid as of the effective date of such
termination.
5
<PAGE>
(h) CHANGE IN CONTROL. As used in this Agreement, "Change in
Control" shall mean a change in control of Premier National Bancorp, Inc., a New
York corporation, or any successor thereto ("Premier"), of a nature that would
be required to be reported in response to Item 6(e) of Schedule 14A of
Regulation 14A (or in response to any similar item on any similar schedule or
form) promulgated under the Securities Exchange Act of 1934, as amended from
time to time, whether or not Premier is then subject to such reporting
requirement; provided, however, that without limitation, a Change in Control
shall be deemed to have occurred if:
(i) Premier consummates a merger, consolidation, share
exchange, division or other reorganization or transaction of
Premier (a "Fundamental Transaction") with any other corporation,
other than a Fundamental Transaction that the Board of Directors
of Premier declares a "Merger of Equals" or that results in the
voting securities of Premier outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity) at
least fifty-one percent (51%) of the combined voting power
immediately after such Fundamental Transaction of (i) Premier's
outstanding securities, (ii) the surviving entity's outstanding
securities, or (iii) in the case of a division, the outstanding
securities of each entity resulting from the division;
(ii) the shareholders of Premier approve a plan of complete
liquidation or winding-up of Premier or an agreement for the sale
or disposition (in one transaction or a series of transactions) of
all or substantially all of Premier's assets;
(iii) as a result of a proxy contest, individuals who, prior
to the conclusion thereof, constituted the Board of Directors of
Premier (including for this purpose any new director whose
election or nomination for election by Premier's shareholders in
connection with such proxy contest was approved by a vote of at
least two-thirds (2/3) of the directors then still in office who
were directors prior to such proxy contest) cease to constitute at
least a majority of the Board of Directors of Premier (excluding
any Board of Directors seat that is vacant or otherwise
unoccupied); or
(iv) the Board of Directors of Premier determines that a
Change in Control has occurred.
(i) CONTINUED BENEFITS. After any Termination Without Cause
pursuant to Section 6(b) or any Termination for Good Reason pursuant to Section
6(c), whether prior or subsequent to a Change in Control, the Company shall
provide the Executive with health insurance benefits substantially similar to
those which the Executive is receiving immediately prior to the effective date
of such Termination Without Cause or Termination for Good Reason (such effective
date being referred to as the "Date of Termination"), as the case may be, for
(i) with respect to any such termination that occurs at any time other
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than during the CIC Coverage Period, a twelve-month period beginning on the Date
of Termination, and (ii) with respect to any such termination that occurs during
the CIC Coverage Period, a twenty-four (24) month period beginning on the Date
of Termination (the applicable period described in the preceding clause (i) or
(ii) being referred to as the "Benefits Period"). Benefits otherwise receivable
by the Executive pursuant to this Section 6(i) shall be reduced to the extent
comparable benefits are actually received by or made available to the Executive
by any other employer(s) during the Benefits Period at a cost to the Executive
that is commensurate with the cost incurred by the Executive immediately prior
to the Date of Termination; provided, however, that if the Executive becomes
employed by a new employer which maintains a medical plan that either (A) does
not cover the Executive or a family member or dependent with respect to a
preexisting condition which was covered under the applicable Company medical
plan, or (B) does not cover the Executive or a family member or dependent for a
designated waiting period, the Executive's coverage under the applicable Company
medical plan shall continue until the earlier of the end of the applicable
period of noncoverage under the new employer's plan or the end of the applicable
period as set forth in this Section 6(i). If health insurance benefits are
provided or made available to the Executive by any other employer(s) of the
Executive during the Benefits Period at a cost that is not commensurate with the
cost incurred by the Executive immediately prior to the Executive's Date of
Termination, the Company may, at its election, make periodic cash payments to
the Executive that are sufficient to reimburse the Executive, in advance and on
a before-tax basis, for the additional cost incurred by the Executive for such
health insurance benefits. During any period with respect to which the Company
makes such reimbursement payments to the Executive, the Executive shall be
treated herein as receiving such health insurance benefits at a cost that is
commensurate with the cost incurred by the Executive immediately prior to the
Executive's Date of Termination. The Executive shall be entitled to elect to
change his level of coverage and/or his choice of coverage options (such as
Executive only or family medical coverage) with respect to the benefits to be
provided by the Company to the Executive to the same extent that active
employees of the Company are permitted to make such changes; provided, however,
that in the event of any such change the Executive shall pay the amount of any
cost increase that would actually be paid by an active employee of the Company
by reason of making the same change in his level of coverage or coverage
options. Any such benefits actually received by or made available to the
Executive from such other employer(s) shall be reported to the Company by the
Executive.
(j) LIMITATION ON CERTAIN BENEFITS. Notwithstanding any other
provision of this Agreement, in the event that any payment or benefit received
or to be received by the Executive in connection with a Change in Control or the
termination of the Executive's employment pursuant to Section 6 hereof (whether
under the terms of this Agreement or any other plan, arrangement or agreement)
(all such payments and benefits, including the payments and benefits provided
for hereunder, being hereinafter called "Total Payments") would not be
deductible (in whole or part) by the Company, an affiliate or other person or
entity making such payment or providing such benefit as a result of section 280G
of the Internal Revenue Code of 1986, as amended (the "Code"), then, to the
extent necessary to make such portion of the Total Payments deductible, (A) any
cash payments provided for by Section 6 hereof shall first be reduced (if
necessary, to zero), and (B) any non-cash
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<PAGE>
benefits provided for by Section 6 hereof shall next be reduced. For purposes of
this limitation, no portion of the Total Payments the receipt or enjoyment of
which the Executive shall have waived by written notice to the Company prior to
the date of any cash payment provided for by Section 6 hereof shall be taken
into account. All determinations required to be made under the provisions of
this Section 6(j) shall be made by tax counsel selected by the Company's or
Premier's independent auditors and reasonably acceptable to the Executive.
(k) SURVIVAL. Notwithstanding any other provision herein, the
Company's obligations to make payments and provide benefits pursuant to the
terms and conditions set forth in this Section 6 shall survive termination of
employment under this Agreement pursuant to this Section 6 hereof and/or
termination of this Agreement by reason of a Failure to Renew pursuant to
Section 2(b) hereof.
7. CONFIDENTIALITY. The Company and the Executive acknowledge that
each of Premier and the Company competes in a highly competitive industry and in
competitive markets and that, as an executive officer of the Company, the
Executive may have access to proprietary and confidential information, technical
information and trade secrets of Premier, the Company and/or a Subsidiary.
During the term of the Executive's employment hereunder and thereafter, the
Executive agrees that he will not, without the written consent of the Company,
disclose or permit any person under his control to disclose to any person or
entity not properly entitled to the information or use in any way for his own
benefit or the benefit of any other person or entity other than Premier, the
Company or any Subsidiary any confidential or proprietary information or
technical information or any trade secret of or relating to Premier, the Company
or any Subsidiary other than (a) information that is publicly disseminated or
(b) as required by any court, supervisory authority, administrative agency or
applicable law. Notwithstanding any other provision herein, the provisions of
this Section 7 shall survive termination of employment under this Agreement
pursuant to Section 6 hereof and/or termination of this Agreement by reason of a
Failure to Renew pursuant to Section 2(b) hereof.
8. COMPETITION.
(a) NONCOMPETE AGREEMENT. In consideration of the Company's
agreement to employ the Executive hereunder, the Executive hereby agrees that
during the Noncompete Period (as hereinafter defined), without the prior written
approval of the Company, the Executive shall not, directly or indirectly, enter
into or in any manner take part in any business, either individually or as an
officer, director, employee, agent, consultant, partner, investor (excluding
passive investments in publicly traded securities not aggregating more than 1%
of any such entity's total outstanding voting securities), principal or
otherwise, which is in competition with the business of Premier, the Company or
any Subsidiary in any business in which Premier, the Company or any Subsidiary
is materially engaged on the date of termination in any state or territorial
jurisdiction (including the District of Columbia) in which Premier, the Company
or any Subsidiary is so materially engaged on the date of termination. The
Executive further agrees that during the Noncompete Period he shall not,
directly or indirectly, acting either alone or in concert with others, seek to
(i) influence any employee of Premier, the Company or any
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Subsidiary to leave or otherwise terminate his or her employment with such
entity or (ii) solicit business from or otherwise do business or deal with any
person or entity who is, on the date of termination, a customer of Premier, the
Company or any Subsidiary, in connection with any product or service similar to
or competitive with any product or service offered or provided by Premier, the
Company or any such Subsidiary (to such customer or otherwise) on the date of
termination.
(b) CERTAIN DEFINITIONS.
(i) As used herein, "Noncompete Period" shall mean the
period commencing on the Effective Date and ending on (i) in the
case of any Termination Without Cause or Termination for Good
Reason occurring subsequent to a Change in Control, the effective
date of such termination pursuant to Section 6, or (ii) in the
case of any other termination of employment pursuant to Section 6
hereof, the first anniversary of the effective date of such
termination pursuant to Section 6.
(ii) As used herein, the phrase "a customer of Premier, the
Company or any Subsidiary" shall mean any person or entity who
has, at the time, an effective contract with Premier, the Company
or a Subsidiary, as the case may be, under which Premier, the
Company or such Subsidiary provides products, services or a loan.
In the case of any customer which is a subsidiary, division or
other business unit, or a department, agency, authority or other
political subdivision or instrumentality of a municipal, state or
federal government (in each case, a "Unit"), the phrase " a
customer of Premier, the Company or any Subsidiary" shall mean
only such Unit, and not any affiliated or related business unit or
any other department, agency or subdivision of such government
(unless such other unit, department, agency or subdivision is
itself a customer of Premier, the Company or a Subsidiary).
(c) EXECUTIVE'S ACKNOWLEDGMENT. The Executive acknowledges that
he has carefully read and considered all of the terms of this Agreement,
including particularly the terms of this Section 8 and the preceding Section 7,
that each of Premier and the Company has made a substantial investment in
Premier's and the Company's business and that the restrictions provided in this
Section 8 and the preceding Section 7 are reasonable and necessary for Premier's
and the Company's protection. The Executive further acknowledges that damages at
law will not be a measurable or adequate remedy for breach of the covenants
contained in this Section 8 or in Section 7 and, accordingly the Executive
consents to the entry by any court of competent jurisdiction of any order
enjoining him from violating any such covenants. The parties hereto further
agree that if, in any judicial proceeding, a court should refuse to enforce any
covenants set forth in this Section 8 or in Section 7 because of their term or
geographical scope, then such covenants shall be deemed to be modified to permit
their enforcement to the maximum extent permitted by law. Notwithstanding any
other provision herein, the provisions of this Section 8 shall survive
termination of employment under this Agreement pursuant to Section 6 hereof
and/or termination of this Agreement by reason of a Failure to Renew pursuant to
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Section 2(b) hereof.
9. GOVERNING LAW; CONSENT TO JURISDICTION. This Agreement shall in
all respects, including all matters of construction, validity and performance,
be governed by and construed and enforced in accordance with the laws of the
State of New York applicable to agreements made and to be performed entirely
within such jurisdiction. Each party hereto irrevocably consents to the
exclusive jurisdiction of the courts of the State of New York and the federal
courts situated in the State of New York in connection with any action to
enforce the provisions of this Agreement, to recover damages or other relief for
breach or default under this Agreement, to enforce any decision or award of any
arbitrators, or otherwise arising under or by reason of this Agreement.
10. SUCCESSORS AND ASSIGNS.
(a) PERSONAL SERVICES AGREEMENT. This Agreement is a personal
services contract which may not be assigned or delegated by the Executive to, or
assumed from the Executive by, any other person or entity without the prior
written consent of the Company. Subject to the foregoing limitation, this
Agreement and all rights hereunder shall inure to the benefit of and be
enforceable by the parties hereto, their personal or legal representatives,
heirs and permitted successors and assigns. If the Executive should die while
any amounts still are payable to him hereunder if he had continued to live, all
such amounts, unless otherwise provided herein, shall be paid in accordance with
the terms of this Agreement to the Executive's devisee, legatee, or other
designee or, if there be no such designee, to the Executive's estate.
(b) SUCCESSORS TO THE COMPANY. In addition to any obligations
imposed by law upon any successor to the Company, the Company shall be obligated
to require any successor (whether direct or indirect, by purchase, merger,
consolidation, operation of law or otherwise) to all or substantially all of the
business and/or assets of the Company to expressly assume 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; in the event of
such a succession, references to the "Company" herein shall thereafter be deemed
to include such successor. Failure of the Company to obtain such assumption and
agreement prior to the effectiveness of any such succession shall be a breach of
this Agreement.
11. MISCELLANEOUS.
(a) NOTICES. Any and all notices required or permitted to be
given hereunder shall be in writing and shall be deemed to have been given when
delivered personally or by facsimile or, if mailed, upon mailing by certified or
registered mail, postage prepaid, addressed as follows (or at such other address
as may hereafter be designated by notice given in compliance with the terms
hereof):
If to the Executive: DAVID MACFARLAND
-----------------------------------
74 SUSAN DRIVE
-----------------------------------
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NEWBURGH, NY 12550
-----------------------------------
If to the Company: Premier National Bank
c/o Premier National Bancorp, Inc.
Route 55
LaGrangeville, New York 12540
Attention: Chairman of the Board's
Personnel and Compensation
Committee
Facsimile: (914) 471-1114
Any party may change by notice the address to which notices to it are to be
addressed.
(b) WAIVERS. A waiver by any party hereto of any of the terms or
conditions of this Agreement shall not operate as, constitute or be construed to
be a waiver thereof for the future or of any subsequent breach thereof.
(c) AMENDMENTS, ETC. This Agreement may not be varied, altered,
modified, waived, changed, departed from or in any way amended except by an
instrument in writing executed by the parties hereto or their legal
representatives.
(d) SEVERABILITY. Any term or provision of this Agreement which
is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction,
be ineffective to the extent of such invalidity or unenforceability without
affecting the validity or enforceability of any other term or provision hereof
in that or any other jurisdiction. If any provision of this Agreement is so
broad as to be unenforceable, the provision shall be interpreted so as to be
enforceable.
(e) WITHHOLDING. All payments to the Executive provided for
hereunder shall be paid net of (a) any applicable Social Security taxes and
withholding taxes required under federal, state or local law or regulation, (b)
any other taxes that may be lawfully levied by any governmental authority which
may be required by law from time to time to be withheld and (c) any additional
withholding to which the Executive has agreed.
(f) COUNTERPARTS. This Agreement may be executed in any number of
counterparts, which taken together shall be deemed to constitute one original.
(g) NO RIGHT TO CONTINUED EMPLOYMENT. Nothing in this Agreement
shall be deemed to give the Executive the right to be retained in the employ or
service of the Company (or any successor thereto), or to interfere with the
right of the Company (or any successor thereto) to discharge the Executive at
any time, subject in all cases to the terms of this Agreement.
(h) ENTIRE AGREEMENT. This agreement contains the entire
agreement between the parties concerning the employment of the Executive by the
Company, and supersedes any employment or change in control agreements between
the Executive and the Company or any of its predecessors, subsidiaries or
predecessors of subsidiaries.
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(i) HEADINGS AND CAPTIONS. Headings and paragraph captions used
in this Agreement are intended for convenience of reference only and shall not
affect the interpretation of this Agreement.
(j) SUPERVISORY SUSPENSION. Notwithstanding any other provision
of this Agreement, in the event the Executive is suspended from office and/or
temporarily prohibited from participating in the conduct of the affairs of
Premier, the Company or any Subsidiary by a notice served under Section 8(e)(3)
or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C. Section 1818(e)(3)
or 1818(g)(1), the Company's obligations under this Agreement shall be
suspended effective as of the service date of the notice of suspension or
temporary prohibition, unless stayed by appropriate proceedings. If the
charges in the notice are dismissed, the Company shall (i) pay the Executive
all compensation withheld while its obligations under this Agreement were
suspended, and (ii) reinstate all obligations under this Agreement that were
suspended.
(k) AUTHORIZATION. The Company represents and warrants that it is
duly authorized to execute and enter into this Agreement.
(l) REIMBURSEMENT OF LEGAL COSTS. The Company (or any successor
thereto) shall pay to the Executive all reasonable legal fees and expenses
incurred by the Executive after a Change in Control as a result of or in
connection with a bona fide dispute regarding the application of any provision
of this Agreement that arises after a Change in Control, including, without
limitation, all such fees and expenses, if any, incurred (i) in disputing any
termination under Section 6, or (ii) in seeking to enforce or obtain any right
or benefit provided by this Agreement; PROVIDED, HOWEVER, that the Company (or
any successor thereto) shall only be obligated to make payments under this
Section 11(l) for legal fees and expenses incurred by the Executive in
connection with or as a result of any such bona fide dispute regarding which the
Executive has obtained a final, nonappealable decision or determination in his
favor (a "Final Determination"). Any payments pursuant to this Section 11(l)
shall be made only if a Final Determination has been rendered and shall be made
within five (5) business days after delivery of the Executive's respective
written requests for payment accompanied by such evidence of fees and expenses
incurred as the Company (or any successor thereto) reasonably may require.
IN WITNESS WHEREOF, the parties have executed and entered into this Agreement
effective as of the date set forth above.
PREMIER NATIONAL BANK
By: /s/ David MacFarland
Name: David MacFarland
Title: Executive Vice President
Executive David MacFarland
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SCHEDULE 1
A. Annual golf dues and fees for membership at the Powelton Club of Newburgh.
B. Company vehicle under arrangements equivalent to other Bank Executive
VicePresidents.
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EXHIBIT 10.11
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement"), made as of APRIL 1, 1999,
is by and between Premier National Bank, a national banking association having
its principal place of business at Route 55, LaGrangeville, New York 12540 (the
"Company"), and PAUL S. MACK, residing at 43 WOODLAND AVENUE, POUGHKEEPSIE, NY
12603 (the "Executive").
W I T N E S S E T H:
WHEREAS, the Company, a wholly-owned subsidiary of Premier (as
hereinafter defined), has determined that it is in its best interests to employ
the Executive as a Executive Vice President, Chief Credit Officer pursuant to a
written employment agreement, as hereinafter provided; and
WHEREAS, the Executive desires to accept such employment, upon the
terms and conditions hereinafter set forth;
NOW, THEREFORE, in furtherance of the interests described above and in
consideration of the respective covenants and agreements contained herein, the
parties hereto agree as follows:
1. AGREEMENT OF EMPLOYMENT. During the term of employment provided
for in this Agreement, the Company agrees to employ the Executive, and the
Executive agrees to accept employment and to serve the Company, as Executive
Vice President, Chief Credit Officer, all upon the terms and conditions
hereinafter set forth.
2. TERM.
(a) EFFECTIVE DATE. This Agreement and the employment of the
Executive under this Agreement shall become effective as of APRIL 1, 1999 (the
"Effective Date").
(b) DURATION OF AGREEMENT. This Agreement shall terminate on the
TWELVE (12) month anniversary of the Effective Date (the "Initial Term"), but
shall be extended automatically for additional one year periods (each, a
"Renewal Term") unless the Company or the Executive gives written notice to the
other party that the Agreement shall not be so extended at least twelve (12)
months prior to the expiration of the Initial Term or any Renewal Term (a
"Failure to Renew"), in which case this Agreement shall terminate on the
expiration of such Initial Term or such Renewal Term; PROVIDED, HOWEVER, that
after a Change in Control (as hereinafter defined) no termination of this
Agreement pursuant to a Failure to Renew by the Company shall be effective prior
to the expiration of TWENTY-FOUR (24) months after such Change in Control (such
period being
<PAGE>
referred to herein as the "CIC Coverage Period"). Notwithstanding any other
provision of this Agreement, nothing contained in this Agreement shall prohibit
or prevent the continued employment of the Executive by the Company, as
Executive Vice President, Chief Credit Officer or in any other capacity, after
the termination of this Agreement as a result of a Failure to Renew. Except as
specifically set forth herein, the terms and provisions of this Agreement shall
not govern, control or be applied to any such continued employment of the
Executive by the Company in any capacity after the termination of this Agreement
as a result of a Failure to Renew. Notwithstanding any other provision of this
Agreement, nothing contained in this Agreement shall be deemed to create any
obligation on the part of the Company or the Executive to extend this Agreement
beyond the Initial Term or any Renewal Term.
(c) DURATION OF EMPLOYMENT PURSUANT TO THIS AGREEMENT.
Notwithstanding any Failure to Renew this Agreement, the employment of the
Executive under this Agreement shall be terminated only pursuant to, and in
compliance with, the terms and conditions set forth in Section 6 herein. A
Failure to Renew this Agreement in and of itself shall not (i) constitute
termination of the employment of the Executive under this Agreement pursuant to,
or for purposes of, any provision of Section 6 herein or (ii) give rise to any
obligation on the part of the Company to make, or any right on the part of the
Executive to receive, any payments or other benefits provided for pursuant to
Section 6 herein.
3. DUTIES. The Executive shall perform the duties and discharge the
responsibilities of Executive Vice President, Chief Credit Officer of the
Company, and shall perform all other duties and responsibilities as may
reasonably be assigned from time to time by the Chief Executive Officer of the
Company. The Executive agrees to devote substantially all of his business time
to the Company's business and affairs and the performance of the services
provided for herein.
4. COMPENSATION. For the services rendered by the Executive to the
Company under this Agreement, the Company shall compensate the Executive as
follows:
(a) SALARY. The Company shall pay the Executive for services an
annual salary of $112,000.00 (the "Annual Base Salary"), payable in accordance
with the payroll practices of the Company applicable to all employees and
subject to periodic review and increase in accordance with the Company's salary
administration program and policies as may be in effect from time to time.
(b) BONUS AND EXECUTIVE BENEFITS. The Executive shall be entitled
to participate, on an equitable basis with other executive personnel of the
Company, in such bonus programs as the Company may extend from time to time to
its executive personnel. The Executive shall be entitled to receive, on the same
basis as other executive personnel of the Company, group employee benefits such
as sick leave, group disability and health, life and accident insurance and
similar benefits as the Company may extend from time to time to its employees.
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(c) OTHER BENEFITS. The Executive shall be entitled to receive
such additional benefits as are set forth in SCHEDULE 1 hereto on the terms and
conditions set forth in such schedule.
5. REIMBURSEMENT OF BUSINESS EXPENSES. The Company shall promptly
reimburse the Executive for all reasonable travel and other business expenses
incurred by him in the performance of his duties and responsibilities hereunder,
subject to such reasonable requirements with respect to substantiation and
documentation as may be specified by the Company.
6. TERMINATION.
(a) TERMINATION FOR CAUSE. The Company may terminate the
employment of the Executive hereunder if the Executive (i) commits any violation
of any law, rule or regulation or of a cease and desist order with respect to
Premier, the Company or any of their subsidiaries (each hereinafter referred to
as a "Subsidiary") which has become final, (ii) engages or participates in any
unsafe or unsound practice in connection with Premier, the Company or any
Subsidiary regardless of whether actual harm or damages result to Premier, the
Company or any Subsidiary, (iii) commits or engages, or fails to commit or
engage, in any act or practice, which action or practice or the failure to
engage in such action or practice involves personal dishonesty on the part of
the Executive or demonstrates a willful or continuing disregard for the best
interests of Premier, the Company, or any Subsidiary, (iv) is adjudicated to be
of an unsound mind, (v) is adjudicated to be bankrupt, (vi) intentionally
destroys the property of Premier, the Company or any Subsidiary, (vii) breaches
or violates in any material respect any agreement with Premier, the Company or
any Subsidiary signed by the Executive, including, but not limited to, this
Agreement and any other confidentiality and nondisclosure agreements, (viii)
engages in dishonorable or disruptive behavior, practices or acts that would be
reasonably expected to harm or bring into disrepute Premier, the Company or any
Subsidiary, or any of their businesses or employees, (ix) is convicted of a
felony, or (x) continually fails to substantially perform his duties under
Section 3 hereof for a period of thirty (30) days (other than as a result of a
disability pursuant to Section 6(g) hereof) after delivery by the Company to the
Executive of a written demand for substantial performance, stating with
reasonable detail the nature of such failure and affording the Executive an
opportunity, as soon as practicable, to correct the acts or omissions specified.
Termination pursuant to this Section 6(a) shall be referred to herein as a
"Termination for Cause." A Termination for Cause shall be effective immediately
upon written notification thereof by the Company unless otherwise specified in
the written notice. Upon a Termination for Cause, whether such Termination for
Cause occurs prior or subsequent to a Change in Control (as hereinafter
defined), the Company shall have no further obligation to pay the Executive's
Annual Base Salary or to provide any employee or other benefits hereunder except
for any Annual Base Salary or other such benefits that have fully accrued and
vested but not been paid as of the effective date of such termination.
(b) TERMINATION WITHOUT CAUSE. At any time after the Effective
Date, the Company may terminate the employment of the Executive hereunder
without cause for
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any reason. Such termination shall be effective by the Company providing the
Executive with a written notice of termination at least thirty (30) days prior
to the effective date of such termination. Termination pursuant to this Section
6(b) shall be referred to herein as "Termination Without Cause."
(c) TERMINATION BY THE EXECUTIVE FOR GOOD REASON. At any time
after the Effective Date, the Executive may terminate his employment hereunder
if any one or more of the following occurs without the written consent of the
Executive: (i) a reduction by the Company in the Executive's Annual Base Salary
as in effect on the Effective Date or as the same may be increased from time to
time; (ii) the failure by the Company to pay to the Executive any portion of the
Executive's then-current compensation, or to pay to the Executive any portion of
an installment of deferred compensation under any deferred compensation program
of the Company, in each case within seven (7) days of the date such compensation
is due; (iii) any failure by the Company to comply with and satisfy Section
10(b) hereof; (iv) any material breach by the Company of this Agreement if such
breach is not cured within a period of thirty (30) days after delivery by the
Executive to the Company of a written notice stating with reasonable detail the
nature of such breach and affording the Company an opportunity, as soon as
practicable, to cure such breach; (v) the Executive is required by the Company
to occupy a position or positions in the Company, the function or functions of
which is or are materially inconsistent with the Executive's skills and
experience at that time; (vi) after or in connection with any Change in Control
(as hereinafter defined), the Executive is required to be based at any office or
location that is more than fifty (50) miles from the nearer of (A) the
Executive's residence or (B) the Company's administrative headquarters
immediately prior to the Change in Control. Termination pursuant to this Section
6(c) shall be referred to herein as a "Termination for Good Reason." A
Termination for Good Reason shall be effective immediately upon written
notification thereof by the Executive.
(d) BENEFITS IN THE EVENT OF A TERMINATION WITHOUT CAUSE OR A
TERMINATION FOR GOOD REASON. In the event of a Termination Without Cause or a
Termination for Good Reason the Executive shall be entitled to the following:
If a Termination Without Cause or a Termination for Good
Reason occurs at any time other than during the CIC Coverage
Period, the Company shall be obligated to make an undiscounted
lump sum payment to the Executive equal to the Executive's Annual
Base Salary as in effect on the effective date of such termination
(without giving effect to any reduction in Annual Base Salary
described in Section 6(c)(i) hereof), such payment to be made
within ten (10) business days of the effective date of such
Termination Without Cause or Termination for Good Reason, as the
case may be.
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If a Termination Without Cause or a Termination for Good
Reason occurs during the CIC Coverage Period, the Executive shall
be entitled to an undiscounted lump sum payment equal to the
product of (A) the Executive's Annual Base Salary as in effect on
the effective date of such termination (without giving effect to
any reduction in Annual Base Salary described in Section 6(c)(i)
hereof) and (B) two (2) years.
(e) TERMINATION BY THE EXECUTIVE WITHOUT GOOD REASON. The
Executive may voluntarily terminate his employment hereunder without cause for
any reason other than the occurrence of any event set forth in Section 6(c)
hereof by providing the Company with a written notice of termination at least
forty-five (45) days prior to the effective date of such termination.
Termination pursuant to this Section 6(e) shall be referred to herein as a
"Termination Without Good Reason." Upon a Termination Without Good Reason,
whether such Termination Without Good Reason occurs prior or subsequent to a
Change in Control (as hereinafter defined), the Company shall have no further
obligation to pay the Executive's Annual Base Salary or to provide any other
employee or other benefits hereunder except for any Annual Base Salary or other
such benefits that have fully accrued and vested but not been paid as of the
effective date of such termination.
(f) DEATH. The employment of the Executive hereunder shall
terminate automatically effective as of the death of the Executive, in which
case the Company shall have no further obligation to pay the Executive's Annual
Base Salary or to provide any other employee or other benefits hereunder except
for any Annual Base Salary or other such benefits that have fully accrued and
vested but not been paid as of the effective date of such termination.
(g) DISABILITY. If, during the Initial Term or any Renewal Term,
the Executive suffers an illness or incapacity of such a character as to prevent
or preclude him from devoting substantially full working time to his employment
hereunder or otherwise from carrying out any substantial portion of the normal
and usual duties of his employment hereunder for 180 days (whether or not
consecutive) during any twelve-month period, then the employment of the
Executive hereunder may be terminated by the Company (a "Disability
Termination") upon thirty (30) days' prior written notice to the Executive, such
Disability Termination to be effective as of the expiration date of such thirty
(30) days' notice. During the period of the Executive's disability and until the
expiration date of such thirty (30) days' notice, the Executive shall continue
to earn all compensation provided herein as if he had not been disabled, such
compensation to be paid at the time, in the amounts, and in the manner provided
for herein. Upon the effectiveness of any Disability Termination, whether such
Disability Termination occurs prior or subsequent to a Change in Control (as
hereinafter defined), the Company shall have no further obligation to pay the
Executive's Annual Base Salary or to provide any other employee or other
benefits hereunder except for any Annual Base Salary or other such benefits that
have fully accrued and vested but not been paid as of the effective date of such
termination.
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(h) CHANGE IN CONTROL. As used in this Agreement, "Change in
Control" shall mean a change in control of Premier National Bancorp, Inc., a New
York corporation, or any successor thereto ("Premier"), of a nature that would
be required to be reported in response to Item 6(e) of Schedule 14A of
Regulation 14A (or in response to any similar item on any similar schedule or
form) promulgated under the Securities Exchange Act of 1934, as amended from
time to time, whether or not Premier is then subject to such reporting
requirement; provided, however, that without limitation, a Change in Control
shall be deemed to have occurred if:
(i) Premier consummates a merger, consolidation, share
exchange, division or other reorganization or transaction of
Premier (a "Fundamental Transaction") with any other corporation,
other than a Fundamental Transaction that the Board of Directors
of Premier declares a "Merger of Equals" or that results in the
voting securities of Premier outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity) at
least fifty-one percent (51%) of the combined voting power
immediately after such Fundamental Transaction of (i) Premier's
outstanding securities, (ii) the surviving entity's outstanding
securities, or (iii) in the case of a division, the outstanding
securities of each entity resulting from the division;
(ii) the shareholders of Premier approve a plan of complete
liquidation or winding-up of Premier or an agreement for the sale
or disposition (in one transaction or a series of transactions) of
all or substantially all of Premier's assets;
(iii) as a result of a proxy contest, individuals who, prior
to the conclusion thereof, constituted the Board of Directors of
Premier (including for this purpose any new director whose
election or nomination for election by Premier's shareholders in
connection with such proxy contest was approved by a vote of at
least two-thirds (2/3) of the directors then still in office who
were directors prior to such proxy contest) cease to constitute at
least a majority of the Board of Directors of Premier (excluding
any Board of Directors seat that is vacant or otherwise
unoccupied); or
(iv) the Board of Directors of Premier determines that a
Change in Control has occurred.
(i) CONTINUED BENEFITS. After any Termination Without Cause
pursuant to Section 6(b) or any Termination for Good Reason pursuant to Section
6(c), whether prior or subsequent to a Change in Control, the Company shall
provide the Executive with health insurance benefits substantially similar to
those which the Executive is receiving immediately prior to the effective date
of such Termination Without Cause or Termination for Good Reason (such effective
date being referred to as the "Date of Termination"), as the case may be, for
(i) with respect to any such termination that occurs at any time other
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than during the CIC Coverage Period, a twelve-month period beginning on the Date
of Termination, and (ii) with respect to any such termination that occurs during
the CIC Coverage Period, a twenty-four (24) month period beginning on the Date
of Termination (the applicable period described in the preceding clause (i) or
(ii) being referred to as the "Benefits Period"). Benefits otherwise receivable
by the Executive pursuant to this Section 6(i) shall be reduced to the extent
comparable benefits are actually received by or made available to the Executive
by any other employer(s) during the Benefits Period at a cost to the Executive
that is commensurate with the cost incurred by the Executive immediately prior
to the Date of Termination; provided, however, that if the Executive becomes
employed by a new employer which maintains a medical plan that either (A) does
not cover the Executive or a family member or dependent with respect to a
preexisting condition which was covered under the applicable Company medical
plan, or (B) does not cover the Executive or a family member or dependent for a
designated waiting period, the Executive's coverage under the applicable Company
medical plan shall continue until the earlier of the end of the applicable
period of noncoverage under the new employer's plan or the end of the applicable
period as set forth in this Section 6(i). If health insurance benefits are
provided or made available to the Executive by any other employer(s) of the
Executive during the Benefits Period at a cost that is not commensurate with the
cost incurred by the Executive immediately prior to the Executive's Date of
Termination, the Company may, at its election, make periodic cash payments to
the Executive that are sufficient to reimburse the Executive, in advance and on
a before-tax basis, for the additional cost incurred by the Executive for such
health insurance benefits. During any period with respect to which the Company
makes such reimbursement payments to the Executive, the Executive shall be
treated herein as receiving such health insurance benefits at a cost that is
commensurate with the cost incurred by the Executive immediately prior to the
Executive's Date of Termination. The Executive shall be entitled to elect to
change his level of coverage and/or his choice of coverage options (such as
Executive only or family medical coverage) with respect to the benefits to be
provided by the Company to the Executive to the same extent that active
employees of the Company are permitted to make such changes; provided, however,
that in the event of any such change the Executive shall pay the amount of any
cost increase that would actually be paid by an active employee of the Company
by reason of making the same change in his level of coverage or coverage
options. Any such benefits actually received by or made available to the
Executive from such other employer(s) shall be reported to the Company by the
Executive.
(j) LIMITATION ON CERTAIN BENEFITS. Notwithstanding any other
provision of this Agreement, in the event that any payment or benefit received
or to be received by the Executive in connection with a Change in Control or the
termination of the Executive's employment pursuant to Section 6 hereof (whether
under the terms of this Agreement or any other plan, arrangement or agreement)
(all such payments and benefits, including the payments and benefits provided
for hereunder, being hereinafter called "Total Payments") would not be
deductible (in whole or part) by the Company, an affiliate or other person or
entity making such payment or providing such benefit as a result of section 280G
of the Internal Revenue Code of 1986, as amended (the "Code"), then, to the
extent necessary to make such portion of the Total Payments deductible, (A) any
cash payments provided for by Section 6 hereof shall first be reduced (if
necessary, to zero), and (B) any non-cash
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benefits provided for by Section 6 hereof shall next be reduced. For purposes of
this limitation, no portion of the Total Payments the receipt or enjoyment of
which the Executive shall have waived by written notice to the Company prior to
the date of any cash payment provided for by Section 6 hereof shall be taken
into account. All determinations required to be made under the provisions of
this Section 6(j) shall be made by tax counsel selected by the Company's or
Premier's independent auditors and reasonably acceptable to the Executive.
(k) SURVIVAL. Notwithstanding any other provision herein, the
Company's obligations to make payments and provide benefits pursuant to the
terms and conditions set forth in this Section 6 shall survive termination of
employment under this Agreement pursuant to this Section 6 hereof and/or
termination of this Agreement by reason of a Failure to Renew pursuant to
Section 2(b) hereof.
7. CONFIDENTIALITY. The Company and the Executive acknowledge that
each of Premier and the Company competes in a highly competitive industry and in
competitive markets and that, as an executive officer of the Company, the
Executive may have access to proprietary and confidential information, technical
information and trade secrets of Premier, the Company and/or a Subsidiary.
During the term of the Executive's employment hereunder and thereafter, the
Executive agrees that he will not, without the written consent of the Company,
disclose or permit any person under his control to disclose to any person or
entity not properly entitled to the information or use in any way for his own
benefit or the benefit of any other person or entity other than Premier, the
Company or any Subsidiary any confidential or proprietary information or
technical information or any trade secret of or relating to Premier, the Company
or any Subsidiary other than (a) information that is publicly disseminated or
(b) as required by any court, supervisory authority, administrative agency or
applicable law. Notwithstanding any other provision herein, the provisions of
this Section 7 shall survive termination of employment under this Agreement
pursuant to Section 6 hereof and/or termination of this Agreement by reason of a
Failure to Renew pursuant to Section 2(b) hereof.
8. COMPETITION.
(a) NONCOMPETE AGREEMENT. In consideration of the Company's
agreement to employ the Executive hereunder, the Executive hereby agrees that
during the Noncompete Period (as hereinafter defined), without the prior written
approval of the Company, the Executive shall not, directly or indirectly, enter
into or in any manner take part in any business, either individually or as an
officer, director, employee, agent, consultant, partner, investor (excluding
passive investments in publicly traded securities not aggregating more than 1%
of any such entity's total outstanding voting securities), principal or
otherwise, which is in competition with the business of Premier, the Company or
any Subsidiary in any business in which Premier, the Company or any Subsidiary
is materially engaged on the date of termination in any state or territorial
jurisdiction (including the District of Columbia) in which Premier, the Company
or any
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Subsidiary is so materially engaged on the date of termination. The Executive
further agrees that during the Noncompete Period he shall not, directly or
indirectly, acting either alone or in concert with others, seek to (i) influence
any employee of Premier, the Company or any Subsidiary to leave or otherwise
terminate his or her employment with such entity or (ii) solicit business from
or otherwise do business or deal with any person or entity who is, on the date
of termination, a customer of Premier, the Company or any Subsidiary, in
connection with any product or service similar to or competitive with any
product or service offered or provided by Premier, the Company or any such
Subsidiary (to such customer or otherwise) on the date of termination.
(b) CERTAIN DEFINITIONS.
(i) As used herein, "Noncompete Period" shall mean the
period commencing on the Effective Date and ending on (i) in the
case of any Termination Without Cause or Termination for Good
Reason occurring subsequent to a Change in Control, the effective
date of such termination pursuant to Section 6, or (ii) in the
case of any other termination of employment pursuant to Section 6
hereof, the first anniversary of the effective date of such
termination pursuant to Section 6.
(ii) As used herein, the phrase "a customer of Premier, the
Company or any Subsidiary" shall mean any person or entity who
has, at the time, an effective contract with Premier, the Company
or a Subsidiary, as the case may be, under which Premier, the
Company or such Subsidiary provides products, services or a loan.
In the case of any customer which is a subsidiary, division or
other business unit, or a department, agency, authority or other
political subdivision or instrumentality of a municipal, state or
federal government (in each case, a "Unit"), the phrase "a
customer of Premier, the Company or any Subsidiary" shall mean
only such Unit, and not any affiliated or related business unit or
any other department, agency or subdivision of such government
(unless such other unit, department, agency or subdivision is
itself a customer of Premier, the Company or a Subsidiary).
(c) EXECUTIVE'S ACKNOWLEDGMENT. The Executive acknowledges that
he has carefully read and considered all of the terms of this Agreement,
including particularly the terms of this Section 8 and the preceding Section 7,
that each of Premier and the Company has made a substantial investment in
Premier's and the Company's business and that the restrictions provided in this
Section 8 and the preceding Section 7 are reasonable and necessary for Premier's
and the Company's protection. The Executive further acknowledges that damages at
law will not be a measurable or adequate remedy for breach of the covenants
contained in this Section 8 or in Section 7 and, accordingly the Executive
consents to the entry by any court of competent jurisdiction of any order
enjoining him from violating any such covenants. The parties hereto further
agree that if, in any judicial proceeding, a court should refuse to enforce any
covenants set forth in this Section 8 or in Section 7 because of their term or
geographical scope, then such covenants shall be deemed to be modified to permit
their enforcement to the maximum extent permitted by law. Notwithstanding any
other provision herein, the provisions of this Section 8 shall survive
termination of employment under this Agreement pursuant to Section 6 hereof
and/or termination of this Agreement by reason of a Failure to Renew pursuant to
9
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Section 2(b) hereof.
9. GOVERNING LAW; CONSENT TO JURISDICTION. This Agreement shall in
all respects, including all matters of construction, validity and performance,
be governed by and construed and enforced in accordance with the laws of the
State of New York applicable to agreements made and to be performed entirely
within such jurisdiction. Each party hereto irrevocably consents to the
exclusive jurisdiction of the courts of the State of New York and the federal
courts situated in the State of New York in connection with any action to
enforce the provisions of this Agreement, to recover damages or other relief for
breach or default under this Agreement, to enforce any decision or award of any
arbitrators, or otherwise arising under or by reason of this Agreement.
10. SUCCESSORS AND ASSIGNS.
(a) PERSONAL SERVICES AGREEMENT. This Agreement is a personal
services contract which may not be assigned or delegated by the Executive to, or
assumed from the Executive by, any other person or entity without the prior
written consent of the Company. Subject to the foregoing limitation, this
Agreement and all rights hereunder shall inure to the benefit of and be
enforceable by the parties hereto, their personal or legal representatives,
heirs and permitted successors and assigns. If the Executive should die while
any amounts still are payable to him hereunder if he had continued to live, all
such amounts, unless otherwise provided herein, shall be paid in accordance with
the terms of this Agreement to the Executive's devisee, legatee, or other
designee or, if there be no such designee, to the Executive's estate.
(b) SUCCESSORS TO THE COMPANY. In addition to any obligations
imposed by law upon any successor to the Company, the Company shall be obligated
to require any successor (whether direct or indirect, by purchase, merger,
consolidation, operation of law or otherwise) to all or substantially all of the
business and/or assets of the Company to expressly assume 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; in the event of
such a succession, references to the "Company" herein shall thereafter be deemed
to include such successor. Failure of the Company to obtain such assumption and
agreement prior to the effectiveness of any such succession shall be a breach of
this Agreement.
11. MISCELLANEOUS.
(a) NOTICES. Any and all notices required or permitted to be
given hereunder shall be in writing and shall be deemed to have been given when
delivered personally or by facsimile or, if mailed, upon mailing by certified or
registered mail, postage prepaid, addressed as follows (or at such other address
as may hereafter be designated by notice given in compliance with the terms
hereof):
If to the Executive: PAUL S. MACK
43 WOODLAND AVENUE
POUGHKEEPSIE, NY 12603
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If to the Company: Premier National Bank
c/o Premier National Bancorp, Inc.
Route 55
LaGrangeville, New York 12540
Attention: Chairman of the Board's
Personnel and Compensation
Committee
Facsimile: (914) 471-1114
Any party may change by notice the address to which notices to it are to be
addressed.
(b) WAIVERS. A waiver by any party hereto of any of the terms or
conditions of this Agreement shall not operate as, constitute or be construed to
be a waiver thereof for the future or of any subsequent breach thereof.
(c) AMENDMENTS, ETC. This Agreement may not be varied, altered,
modified, waived, changed, departed from or in any way amended except by an
instrument in writing executed by the parties hereto or their legal
representatives.
(d) SEVERABILITY. Any term or provision of this Agreement which
is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction,
be ineffective to the extent of such invalidity or unenforceability without
affecting the validity or enforceability of any other term or provision hereof
in that or any other jurisdiction. If any provision of this Agreement is so
broad as to be unenforceable, the provision shall be interpreted so as to be
enforceable.
(e) WITHHOLDING. All payments to the Executive provided for
hereunder shall be paid net of (a) any applicable Social Security taxes and
withholding taxes required under federal, state or local law or regulation, (b)
any other taxes that may be lawfully levied by any governmental authority which
may be required by law from time to time to be withheld and (c) any additional
withholding to which the Executive has agreed.
(f) COUNTERPARTS. This Agreement may be executed in any number of
counterparts, which taken together shall be deemed to constitute one original.
(g) NO RIGHT TO CONTINUED EMPLOYMENT. Nothing in this Agreement
shall be deemed to give the Executive the right to be retained in the employ or
service of the Company (or any successor thereto), or to interfere with the
right of the Company (or any successor thereto) to discharge the Executive at
any time, subject in all cases to the terms of this Agreement.
(h) ENTIRE AGREEMENT. This agreement contains the entire
agreement between the parties concerning the employment of the Executive by the
Company, and supersedes any employment or change in control agreements between
the Executive and the Company or any of its predecessors, subsidiaries or
predecessors of subsidiaries.
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(i) HEADINGS AND CAPTIONS. Headings and paragraph captions used
in this Agreement are intended for convenience of reference only and shall not
affect the interpretation of this Agreement.
(j) SUPERVISORY SUSPENSION. Notwithstanding any other provision
of this Agreement, in the event the Executive is suspended from office and/or
temporarily prohibited from participating in the conduct of the affairs of
Premier, the Company or any Subsidiary by a notice served under Section 8(e)(3)
or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C. Section 1818(e)(3)
or 1818(g)(1), the Company's obligations under this Agreement shall be
suspended effective as of the service date of the notice of suspension or
temporary prohibition, unless stayed by appropriate proceedings. If the
charges in the notice are dismissed, the Company shall (i) pay the Executive
all compensation withheld while its obligations under this Agreement were
suspended, and (ii) reinstate all obligations under this Agreement that were
suspended.
(k) AUTHORIZATION. The Company represents and warrants that it is
duly authorized to execute and enter into this Agreement.
(l) REIMBURSEMENT OF LEGAL COSTS. The Company (or any successor
thereto) shall pay to the Executive all reasonable legal fees and expenses
incurred by the Executive after a Change in Control as a result of or in
connection with a bona fide dispute regarding the application of any provision
of this Agreement that arises after a Change in Control, including, without
limitation, all such fees and expenses, if any, incurred (i) in disputing any
termination under Section 6, or (ii) in seeking to enforce or obtain any right
or benefit provided by this Agreement; PROVIDED, HOWEVER, that the Company (or
any successor thereto) shall only be obligated to make payments under this
Section 11(l) for legal fees and expenses incurred by the Executive in
connection with or as a result of any such bona fide dispute regarding which the
Executive has obtained a final, nonappealable decision or determination in his
favor (a "Final Determination"). Any payments pursuant to this Section 11(l)
shall be made only if a Final Determination has been rendered and shall be made
within five (5) business days after delivery of the Executive's respective
written requests for payment accompanied by such evidence of fees and expenses
incurred as the Company (or any successor thereto) reasonably may require.
IN WITNESS WHEREOF, the parties have executed and entered into this Agreement
effective as of the date set forth above.
PREMIER NATIONAL BANK
By: /s/ Paul S. Mack
Name: Paul S. Mack
Title: Executive Vice President
Executive Paul S. Mack
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SCHEDULE 1
A. $3,000.00 annual automobile allowance.
13
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Exhibit 10.12
SEPARATION AND CONSULTING AGREEMENT
PREMIER NATIONAL BANK (the "Bank"), and ROBERT GABRIELSEN ("Gabrielsen") agree
to enter into this SEPARATION AND CONSULTING AGREEMENT dated as of March 1, 1999
as follows:
1. TERMINATION OF EXECUTIVE SEVERANCE AGREEMENT.
Gabrielsen agrees that as of the effective date of this Separation and
Consulting Agreement, his Executive Severance Agreement dated March 31, 1993
among Pawling Savings Bank, Progressive Bank, Inc. and Gabrielsen (the
"Executive Severance Agreement") is hereby terminated, and shall be null and
void and of no further force and effect. Gabrielsen relinquishes and forever
waives any and all rights in, or claims that he now has or may have under, the
Executive Severance Agreement. Executive represents that with the termination of
the Executive Severance Agreement he has no other present or future contract or
agreement of employment with Pawling Savings Bank, Progressive Bank, Inc., or
the Bank, whether written or oral, express or implied.
2. NOTICE OF RESIGNATION; LAST DAY OF EMPLOYMENT.
(a) Gabrielsen has notified the Bank as of March 1, 1999 that his last day
of employment with the Bank will be July 23, 1999 (the "Resignation
Date").
(b) The Bank hereby agrees to continue to employ Gabrielsen, and Gabrielsen
hereby agrees to continue to be employed by the Bank, until the
Resignation Date, unless earlier terminated pursuant to Section 7 below
(the "Employment Period"), upon the terms and subject to the conditions
set forth in this Agreement.
3. DUTIES AND RESPONSIBILITIES DURING EMPLOYMENT PERIOD.
(a) During the Employment Period, Gabrielsen will serve as the Bank=s
Director of Retail Banking. In such capacity, Gabrielsen shall perform
the customary duties and have the customary responsibilities of such
position, including the integration of the Bank=s retail banking
operations in connection with the merger of First Hudson Valley and
Pawling Savings Bank; PROVIDED that the Bank=s President and Chief
Executive Officer shall have the right at any time to reassign
Gabrielsen to such other duties as are consistent with Gabrielsen=s
skills and experience. Any such reassignment shall not constitute a
termination by the Bank without Cause pursuant to Section 7(c) of this
Agreement.
(b) During the Employment Period, Gabrielsen agrees to faithfully serve the
Bank, devote full working time, attention and energies to the business
of the Bank, its subsidiaries and affiliated entities, and perform the
duties under this Agreement to the best of his abilities. The Bank
acknowledges and agrees that Gabrielsen may devote time and attention
to the establishment of his own consulting company or post-Resignation
Date employment PROVIDED that Gabrielsen fulfills his duties under this
Agreement. Gabrielsen may perform services without compensation
therefor in connection with the management of his personal investments
or in connection with charitable or civic organizations
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(c) Gabrielsen agrees (i) to comply with all applicable laws, rules and
regulations, and all requirements of all applicable regulatory,
self-regulatory, and administrative bodies; (ii) to comply with the
Bank=s rules, procedures, policies, requirements, and directions; and
(iii) not to engage in any other business or employment without the
written consent of the Bank except as otherwise specifically provided
herein.
4. COMPENSATION DURING EMPLOYMENT PERIOD.
During the Employment Period, the Bank shall continue to provide Gabrielsen with
compensation and employee benefits at the same level as was in effect
immediately prior to the date of this Agreement.
5. ADDITIONAL COMPENSATION PAYABLE AT END OF EMPLOYMENT PERIOD.
(a) In consideration for Gabrielsen=s execution of this Agreement and
compliance with the terms and conditions contained herein, the Bank
will provide Gabrielsen with the additional compensation described in
this section UNLESS Gabrielsen=s employment is terminated (i) by reason
of his death or Total Disability pursuant to Section 7(a) below or (ii)
by the Bank for Cause pursuant to Section 7(b) below.
(b) The following additional benefits are payable to Gabrielsen under this
Section 5:
(i) The Bank will pay Gabrielsen $421,211.00, reduced by
applicable withholding taxes, in a single lump sum within 10
business days after Gabrielsen=s last day of employment.
(ii) If Gabrielsen elects to continue group health benefits
coverage in accordance with the COBRA coverage continuation
requirements, the Bank will pay a portion of the COBRA
coverage premiums during the period beginning on the
Resignation Date and ending on the earlier of January 31, 2000
or the date such COBRA coverage terminates. The amount
premiums to be paid by the Bank will be equal to the employer
contribution for the medical benefits coverage in effect for
Gabrielsen immediately prior to the Resignation Date.
6. APPOINTMENT AS CONSULTANT.
(a) In consideration for Gabrielsen=s execution of this Agreement and
compliance with the terms and conditions contained herein, the Bank
hereby agrees that if Gabrielsen=s employment continues until the
Resignation Date, or if Gabrielsen=s employment is terminated by the
Bank without Cause pursuant to Section 7(c) below prior to the
Resignation Date, the Bank will appoint Gabrielsen as a Consultant, and
Gabrielsen hereby agrees to accept such appointment, upon the terms and
conditions set forth in this Agreement. Such appointment shall commence
as of August 1, 1999 and shall continue through July 31, 2000 (the
"Consulting Period"), unless earlier terminated pursuant to Section 7
below, or unless renewed or extended by written agreement of the
parties.
(b) During the Consulting Period, Gabrielsen shall make himself reasonably
available to assist the Bank in effecting a smooth transition and
integration of the Bank=s retail banking operations.
(c) Gabrielsen, in conjunction with his consulting company, agrees to
develop industry best practices information to be presented to the
Bank=s management during the Consulting Period as appropriate.
Page 2 of 8
<PAGE>
(d) During the Consulting Period, Gabrielsen shall report to John Van
Wormer, Vice Chairman.
(e) While it is the intent of this Agreement that the mutual convenience of
the parties be served, it is understood between the parties that during
the Consulting Period Gabrielsen shall act in the capacity of an
independent contractor and shall not be subject to the direction,
control or supervision of the Bank with respect to the time spent, or
procedures followed in the performance of his consulting services
hereunder. Gabrielsen agrees to devote sufficient working time,
attention and energies to complete the tasks described in this Section
6.
(f) The Bank agrees to compensate Gabrielsen for all services rendered
during the Consulting Period the total amount of $66,494. Such
compensation shall be payable in equal monthly installments following
the close of each month in which services are performed. Gabrielsen
hereby agrees that he shall not be eligible either to participate in
any employee benefit plans maintained by the Bank (or any of its
affiliates) or to receive any fringe benefits during the Consulting
Period.
7. TERMINATION OF SERVICES.
Gabrielsen=s services under this Agreement may be terminated prior to the end of
the Employment Period or Consulting Period under any of the circumstances set
forth in this Section 7. Upon termination, Gabrielsen (or his beneficiary or
estate, as the case may be) shall be entitled to receive the compensation
described in Section 8 below.
(a) DEATH OR TOTAL DISABILITY. Gabrielsen=s services shall terminate upon
his death or his becoming "Totally Disabled." For purposes of this
Agreement, Gabrielsen shall be "Totally Disabled" if Gabrielsen is
physically or mentally incapacitated so as to render Gabrielsen
incapable of performing his usual and customary duties under this
Agreement for a period of 6 months or longer, as confirmed in writing
by an independent physician mutually agreed upon by Gabrielsen and the
Bank.
(b) TERMINATION BY THE BANK FOR CAUSE. The Bank may terminate Gabrielsen=s
services under this Agreement if it determines that Gabrielsen has
engaged in an act constituting "Cause". For purposes of this Agreement,
the term "Cause" shall mean any of the following: (A) conviction of a
crime (including conviction on a NOLO CONTENDERE plea) involving a
felony; (B) commission of an act of personal dishonesty or breach of
fiduciary duty resulting in each in case in substantial personal profit
in connection with Gabrielsen=s employment by the Bank, (C) willful and
gross misconduct by Gabrielsen in the course of his duties, (D)
deliberate and intentional continuing refusal to perform duties or
responsibilities that are properly assigned to Gabrielsen (except for
nonperformance because of incapacity due to illness or accident) which
refusal is not cured by Gabrielsen within 30 days after receipt by him
of written notice with respect thereto; or (E) termination directed by
the Superintendent of Banks, the Federal Deposit Insurance Corporation,
or similar regulatory authority.
(c) TERMINATION BY THE BANK WITHOUT CAUSE. The Bank may terminate
Gabrielsen=s services at any time without Cause after providing 30
days= prior written notice to Gabrielsen.
(d) TERMINATION BY GABRIELSEN. Gabrielsen may voluntarily terminate his
services at any time after providing 30 days= prior written notice to
the Bank.
Page 3 of 8
<PAGE>
8. COMPENSATION FOLLOWING TERMINATION OF SERVICES.
(a) TERMINATION PRIOR TO RESIGNATION DATE. In the event that Gabrielsen=s
services are terminated prior to the Resignation Date, he (or his
estate or beneficiaries as the case may be) shall receive the following
compensation:
(i) In the event that Gabrielsen=s services are terminated by the
Bank without Cause pursuant to Section 7(c) above, the Bank
shall continue to provide Gabrielsen with the compensation and
benefits described in Section 4 until the Resignation Date.
(ii) In the event that Gabrielsen's services are terminated (A) by
reason of Gabrielsen's death or Total Disability pursuant to
Section 7(a), (B) by the Bank for Cause pursuant to Section
7(b), or (C) by Gabrielsen pursuant to Section 7(d), the Bank
shall pay Gabrielsen any accrued but unpaid salary for
services rendered to the termination date, any accrued but
unpaid expenses required to be reimbursed in accordance with
the Bank=s policy, and any vacation accrued to Gabrielsen=s
termination date.
(iii) Any employee benefits to which Gabrielsen may be entitled
pursuant to the Bank=s employee benefit plans in which he was
participating immediately prior to his termination date shall
be determined and paid in accordance with the terms of such
plans. Except as may be provided under this Agreement,
Gabrielsen shall have no right to receive any other
compensation, or to participate in any other plan, arrangement
or benefit, with respect to future periods after such
termination or resignation.
(b) TERMINATION PRIOR TO THE END OF THE CONSULTING PERIOD. In the event
that Gabrielsen=s services are terminated after the end of the
Employment Period but prior to the conclusion of the Consulting Period,
he (or his estate or beneficiaries as the case may be) shall receive
the following compensation:
(i) In the event that Gabrielsen=s services are terminated by the
Bank without Cause pursuant to Section 7(c) above, the Bank
shall pay Gabrielsen a lump sum amount equal to the remaining
unpaid balance of the compensation payable for the Consulting
Period.
(ii) In the event that Gabrielsen's services are terminated (A) by
reason of Gabrielsen's death or Total Disability pursuant to
Section 7(a), (B) by the Bank for Cause pursuant to Section
7(b), or (C) by Gabrielsen pursuant to Section 7(d), the Bank
shall pay Gabrielsen any accrued but unpaid compensation for
services rendered to the termination date.
(iii) Except as may be provided under this Agreement, Gabrielsen
shall have no right to receive any other compensation with
respect to future periods after such termination or
resignation.
(c) OTHER COMPENSATION. Notwithstanding anything in this Section 8,
Gabrielsen=s right to receive the additional compensation described in
Section 5 above shall be determined in accordance with the provisions
set forth in Section 5(a).
9. GENERAL RELEASE.
Page 4 of 8
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In consideration for the Bank's payment of the benefits under Section 5 of this
Agreement, the Bank=s agreement to appoint Gabrielsen as a consultant pursuant
to Section 6 of this Agreement, and compliance with the terms and conditions of
this Agreement, Gabrielsen hereby agrees to release the Bank and any and all of
the Bank=s subsidiaries, parents, branches, divisions, affiliates, related
entities, predecessor entities, including Pawling Savings Bank and Progressive
Bank, Inc. and present and former officers, directors, employees and agents
(collectively the "Released Parties"), individually and in their official
capacities, of and from all causes of action, claims, damages, judgments or
agreements of any kind including, but not limited to, all matters arising out of
Gabrielsen=s employment with any of the Released Parties and the cessation
thereof, with the exception of any claims or actions by Gabrielsen to enforce
this Resignation Agreement. This release includes, but is not limited to, any
alleged violation of:
- The National Labor Relations Act;
- Title VII of the Civil Rights Act of 1964;
- Sections 1981 through 1988 of Title 42 of the United States
Code;
- The Employee Retirement Income Security Act of 1974 ("ERISA");
- THE AGE DISCRIMINATION IN EMPLOYMENT ACT OF 1967;
- The Immigration Reform Control Act;
- The Americans with Disabilities Act of 1990;
- The Fair Labor Standards Act:
- The Occupational Safety and Health Act;
- The Family and Medical Leave Act of 1993;
- The New York Human Rights Law;
- The New York Labor Law;
- The New York Equal Rights Law ' 40-c ET SEQ.;
- The New York Minimum Wage Law;
- The New York Equal Pay Law;
- any other federal, state or local civil or human rights law or
any other local, state or federal law, regulation or
ordinance;
- any public policy, contract, tort, or common law; or
- any allegation for costs, fees, or other expenses including
attorneys' fees incurred in these matters.
10. WAIVER OF RELIEF OR RECOVERY.
Gabrielsen hereby waives his right to accept any monetary relief or recovery in
connection with any charge or complaint before any federal, state, or local
court or administrative agency against the Released Parties, except as such
waiver is prohibited by law. Nothing in this Section 10 is intended to limit or
alter Gabrielsen=s coverage under any indemnification policies, practices, or
arrangements maintained by the Released Parties with respect to current and
former directors and officers.
11. WITHHOLDING OF TAXES.
The Bank shall withhold from any compensation and benefits payable under this
Agreement all applicable federal, state, local, or other taxes.
Page 5 of 8
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12. NON-DISCLOSURE OF AGREEMENT TERMS.
Gabrielsen agrees that he will not disclose the terms of this Agreement to any
third party other than his immediate family, attorney, accountants, or other
consultants or advisors or except as may be required by any governmental
authority.
13. SOURCE OF PAYMENTS.
All payments provided under this Agreement, other than payments made pursuant to
a plan which provides otherwise, shall be paid from the general assets of the
Bank, and no special or separate account shall be established, and no other
segregation of assets made, to assure payment. Gabrielsen shall have no right,
title or interest whatever in or to any investments which the Bank may make to
aid the Bank in meeting its obligations under this Agreement. To the extent that
any person acquires a right to receive payments from the Bank under this
Agreement, such right shall be no greater than the right of an unsecured
creditor of the Bank and its affiliates.
14. ARBITRATION.
Any dispute or controversy arising under or in connection with this Agreement
shall be settled by arbitration, conducted before a panel of three arbitrators
in accordance with the rules of the American Arbitration Association under its
National Rules for the Resolution of Employment Disputes. The arbitrators shall
be approved by both the Bank and Gabrielsen and their decision shall be binding
and conclusive for all purposes. Judgment upon the award rendered by the
arbitrator(s) may be entered by any court having jurisdiction thereof. Any such
arbitration shall take place in White Plains, New York or such other place as
may be agreed upon at the time by the parties to the arbitration. The cost of
such arbitration (including reasonable legal fees and expenses) shall be borne
by the party against whom judgment is rendered.
15. SUCCESSORS AND ASSIGNMENT.
Except as otherwise provided in this Agreement, this Agreement shall inure to
the benefit of and be binding upon the parties hereto and their respective
heirs, representatives, successors and assigns. This Agreement shall not be
assignable by Gabrielsen, and shall be assignable by the Company only to any
financially solvent corporation or other entity resulting from the
reorganization, merger or consolidation of the Company with any other
corporation or entity or any corporation or entity to or with which the
Company's business or substantially all of its business or assets may be sold,
exchanged or transferred, and it must be so assigned by the Company to, and
accepted as binding upon it by, such other corporation or entity in connection
with any such reorganization, merger, consolidation, sale, exchange or transfer
(the provisions of this sentence also being applicable to any successive such
transaction).
16. ENTIRE AGREEMENT; AMENDMENT.
This Agreement shall supersede any and all existing oral or written agreements,
representations, or warranties between Gabrielsen and the Bank or any of its
subsidiaries or affiliated entities relating to the terms of Gabrielsen's
employment. It may not be amended except by a written agreement signed by both
parties.
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17. GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with the laws of
the State of New York applicable to agreements made and to be performed in that
State, without regard to its conflict of laws provisions.
18. NOTICES.
Any notice, consent, request or other communication made or given in connection
with this Agreement shall be in writing and shall be deemed to have been duly
given when delivered or mailed by registered or certified mail, return receipt
requested, or by facsimile or by hand delivery, to those listed below at their
following respective addresses or at such other address as each may specify by
notice to the others:
To the Bank:
Premier National Bank
1301 Route 52
P.O. Box 7000
Fishkill, New York 10001-2320
Attention: Peter Van Kleeck, President and
Chief Executive Officer
To Gabrielsen:
Robert Gabrielsen
83 Harden Drive
LaGrangeville, New York 12540
19. MISCELLANEOUS.
(a) WAIVER. The failure of a party to insist upon strict adherence to any
term of this Agreement on any occasion shall not be considered a waiver
thereof or deprive that party of the right thereafter to insist upon
strict adherence to that term or any other term of this Agreement.
(b) SEPARABILITY. If any term or provision of this Agreement is declared
illegal or unenforceable by any court of competent jurisdiction and
cannot be modified to be enforceable, such term or provision shall
immediately become null and void, leaving the remainder of this
Agreement in full force and effect.
(c) HEADINGS. Section headings are used herein for convenience of reference
only and shall not affect the meaning of any provision of this
Agreement.
(d) RULES OF CONSTRUCTION. Whenever the context so requires, the use of the
singular shall be deemed to include the plural and vice versa.
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(e) COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which so executed shall be deemed to be an
original, and such counterparts will together constitute but one
Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of
the day and year set forth below.
PREMIER NATIONAL BANK
By:/s/ Peter Van Kleeck
President and Chief Executive Officer
/s/ Robert Gabrielsen
Executive Vice President
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EXHIBIT 21
SUBSIDIARIES OF PREMIER NATIONAL BANCORP, INC.
NAME UNDER WHICH
NAME OF SUBSIDIARY JURISDICTION OF INCORPORATION SUBSIDIARY CONDUCTS BUSINESS
PREMIER NATIONAL BANK UNITED STATES PREMIER NATIONAL BANK
PREMIER NATIONAL INVESTMENT NEVADA PREMIER NATIONAL INVESTMENT
COMPANY INC. COMPANY INC.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference, in the Registration Statements
listed below, of our report dated February 5, 1999 (February 25, 1999 as to
the subsequent event concerning the approval of a stock repurchase program
described in Note O) relating to the consolidated financial statements of
Premier National Bancorp, Inc. (the "Company") and subsidiaries, appearing in
this Annual Report on Form 10-K of the Company for the year ended
December 31, 1998:
Form S-8 relating to the Company's employee stock option plan (File
No. 33-71806)
Post-Effective Amendment No. 3 (on Form S-3) to Form S-4 relating to
the Company's Dividend Investment and Stock Purchase Plan (File
No. 33-48188)
Post-Effective Amendment No. 1 (on Form S-8) to form S-2 relating to
shares of the Company's common stock offered pursuant to the Fishkill
National Corporation Incentive Stock Option Plan (File No. 33-79844)
Post-Effective Amendment No. 2 (on Form S-3) to Form S-4 relating to
the offering of shares of the Company's common stock by certain selling
stockholders (File No. 33-48660)
Post-Effective Amendment No. 1 (on Form S-8) to Form S-4 relating to shares
of the Company's common stock offered pursuant to the Progressive Bank,
Inc. 1997 Employee Stock Option Plan, the Progressive Bank, Inc. 1993
Non-Qualified Stock Option Plan for Directors, the Progressive Bank,
Inc. Amended and Restated Incentive Stock Option Plan and the Pawling
Savings Bank Incentive Stock Option Plan (File No. 333-49793)
Deloitte & Touche LLP
Stamford, Connecticut
March 26, 1999
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Progressive Bank, Inc.:
We have audited the consolidated balance sheet of Progressive Bank, Inc. and
subsidiary (the "Company") as of December 31, 1997 and the related consolidated
statements of income, shareholders' equity, and cash flows for the years ended
December 31, 1997 and 1996. 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 financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Progressive Bank,
Inc. and subsidiary as of December 31, 1997, and the results of their operations
and their cash flows for the years ended December 31, 1997 and 1996 in
conformity with generally accepted accounting principles.
/s/ KPMG LLP
Stamford, Connecticut
February 2, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 53,230
<INT-BEARING-DEPOSITS> 1,165,770
<FED-FUNDS-SOLD> 121,100
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 359,612
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0
0
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