SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended March 31, 1996
------------------------------
- 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 ____________________
SEC File Number: 0-17839
CENTRAL JERSEY FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
New Jersey 22-2977019
- --------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
of incorporation or organization) Identification No.)
591 Cranbury Road
East Brunswick, New Jersey 08816
- ------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (908) 254-6600
--------------
Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
- -------------------------------------------------------------------------------
(Title of Class)
Indicate by check mark whether 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 Registrant
was required to file such reports), and (2) has been subject to such filing
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. [ ]
The aggregate market value of the voting stock held by non-affiliates of
registrant as of May 31, 1996 was $81,716,000 or $30 5/8 per share.
The number of shares outstanding of the issuer's common stock as of May 31,
1996: Common Stock, no par value - 2,668,269
<PAGE>
CENTRAL JERSEY FINANCIAL CORPORATION
INDEX
Page
PART I
Item 1. Business.....................................................1
Item 2. Properties...................................................7
Item 3. Legal Proceedings............................................8
Item 4. Submission of Matters to a Vote
of Securities Holders........................................8
PART II
Item 5. Market for the Registrant's Common
Equity and Related Stockholder
Matters......................................................8
Item 6. Selected Financial Data......................................9
Item 7. Management's Discussion and Analysis
of Financial Condition and Results
of Operations...............................................10
Item 8. Financial Statements and Supplementary
Data........................................................23
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.........................55
PART III
Item 10. Directors and Executive Officers of the
Registrant.................................................55
Item 11. Executive Compensation.....................................58
Item 12. Security Ownership of Certain Beneficial
Owners and Management......................................65
Item 13. Certain Relationships and Related
Transactions...............................................65
PART IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K....................................66
Signatures
<PAGE>
PART I
ITEM 1. BUSINESS
General. Central Jersey Financial Corporation (the "Corporation") is a
unitary thrift holding company incorporated in the State of New Jersey. The
Corporation commenced business in December 1989 with the acquisition of Central
Jersey Savings Bank, SLA ("CJSB"), its only subsidiary. Principal executive
offices of the Corporation and CJSB are located at 591 Cranbury Road, East
Brunswick, New Jersey 08816 and the telephone number is (908) 254-6600.
CJSB is a state chartered savings and loan association that was
organized in 1892 as "The South River Building and Loan Association." The
deposits of CJSB are insured by the Savings Association Insurance Fund ("SAIF")
of the Federal Deposit Insurance Corp. ("FDIC"). On September 20, 1984, CJSB
converted from a mutual to a New Jersey stock savings association through the
sale and issuance of a total of 1,239,305 shares of common stock and, on May 7,
1986, CJSB completed a second offering of a total of 623,907 shares of common
stock (which totals are adjusted pursuant to a three-for-two stock split,
effective in September 1987, a ten percent stock dividend paid on October 1,
1992, a five-for-four stock split paid October 22, 1993 and a ten percent stock
dividend paid September 2, 1994). In December 1989, the Corporation acquired
CJSB as part of the reorganization of CJSB into a savings and loan holding
company structure. The Corporation conducts its business through six
full-service offices located in East Brunswick, North Brunswick, Jamesburg,
South River and Spotswood, New Jersey.
Merger Agreement - Summit Bancorp. The Corporation, on May 22, 1996,
entered into a definitive merger agreement (the "Agreement") with Summit Bancorp
("Summit"). The Agreement provides for Summit to acquire the Corporation in a
tax-free exchange of stock. Under the general terms of the Agreement, each of
the corporation's common shares would be exchanged for 0.875 shares of Summit
common stock. Summit was given an option to purchase up to 19.9 percent of the
Corporation's common stock if certain conditions occur. Additional details of
the Agreement are provided in the accompanying notes to consolidated financial
statements.
Acquisition - University Savings and Loan Association. On July 1, 1982,
the Corporation acquired University Savings and Loan Association ("University")
and accounted for the acquisition under the purchase method of accounting. At
the time of acquisition, University's liabilities exceeded its assets by
$8,505,522, based upon its then fair market value. In accordance with generally
accepted accounting principles, the Corporation amortized the cost in excess of
fair market value on a straight-line basis over 30 years. Management
subsequently determined, consistent with the policy of many financial
institutions, to shorten the maximum amortization period for goodwill from 30 to
25 years. Therefore, commencing January 1, 1986, the goodwill applicable to the
acquisition is being amortized over a period of 25 years. At March 31, 1996, the
Corporation had goodwill of $3,791,000. The net contribution (charge) to net
income from amortization and accretion of valuation adjustments related to the
acquisition of University was ($156,000), ($50,000), ($13,000), $104,000, and
$151,000 for the years ended March 31, 1996, 1995, 1994, 1993, and 1992,
respectively.
BANKING ACTIVITIES
General. CJSB is the primary asset of the Corporation and the
Corporation's business is conducted principally through CJSB. The Corporation's
business consists primarily of attracting deposits from the general public and
using those deposits, together with borrowings and other funds, to originate and
acquire mortgage loans and purchase mortgage-backed securities and investments.
The principal elements of the Corporation's current operating strategy are to
(i) concentrate lending efforts on single family residential loans and sell
certain mortgage loans being originated; (ii) purchase mortgage-backed
securities ("MBS") and investments (including real estate mortgage investment
conduits ("REMICs") and
<PAGE>
collateralized mortgage obligations ("CMOs"); (iii) focus on retail deposits as
the primary funding source supplemented by borrowings and (iv) manage interest
rate risk. To a lesser extent, the Corporation, through CJSB's service
corporation, Old Reliable Corporation, Inc. ("Old Reliable"), is engaged in a
real estate development project, although the Corporation does not intend to
pursue new development projects in the future. Management adopted a policy to
sell certain mortgage loans currently being originated. The determination of the
loans which are originated for sale is based upon management's evaluation of,
among other considerations, interest-rate sensitivity investments, liquidity and
capital regulations.
Net Interest Income/Interest-Rate Sensitivity. The earnings of the
corporation depend primarily on the level of net interest income, which is the
difference between interest earned on loans, MBS, investment securities and cash
in interest bearing accounts and interest paid on deposits and borrowed funds.
Earnings are also impacted by fluctuations in the value of real estate
underlying mortgage loans and real estate investments. The Corporation's loan,
MBS and investment portfolios have been and remain less sensitive to general
interest rate changes than its deposit base. This is the result of having a
substantial portion of these portfolios comprised of long-term, fixed-rate
products, while the deposit base is comprised of accounts with substantially
shorter maturities adjusting more readily with current market conditions. The
Corporation, as a result of the relationship of its interest earning assets and
liabilities, would be adversely affected in a rising interest-rate environment.
Loans. The Corporation is engaged in the origination of mortgage loans,
including equity lines of credit, to finance owner occupied homes and had
retained these loans in its portfolio until fiscal 1992. During fiscal 1992, the
Corporation adopted a policy to sell certain loans being originated based upon
management's evaluation of various criteria. Since January 1992, loans
originated for sale have been sold on a non-recourse basis with servicing
generally retained. The Corporation offers fixed-rate and adjustable-rate
mortgage loans for periods generally ranging from 1-30 years; terms normally
provide for monthly payments of principal and interest. The Corporation's
experience indicates that home mortgage loans generally remain outstanding for
significantly shorter periods than their contractual terms. Adjustable-rate home
mortgage loans presently offered by the Corporation generally provide for
interest rates that adjust monthly to a rate equal to 1.5 percent above the
prime lending rate or that adjust every one or three years to a rate equal to
2.00-2.75 percent over the rate of the corresponding Treasury bill. The
Corporation's adjustable-rate home mortgage loans typically provide for maximum
interest rate increases of 2% per year and 6% over the life of the loan. The
Corporation also offers a mortgage loan product providing for an initial
fixed-rate term of ten years, adjusting each year thereafter for the remaining
twenty years to maturity.
The Corporation also offers consumer loans, including loans on
automobiles, household and other consumer goods, property improvement loans and
savings account loans.
During fiscal 1992, the Corporation resumed the origination of
construction and commercial real estate loans on a limited basis using criteria
designed to reduce credit risk. Previously, management had discontinued
originating loans for construction and commercial purposes to reduce the amount
of these loans in its portfolio.
2
<PAGE>
A summary of the Corporation's loan portfolio by type of loan at March
31, 1996 through 1992 is presented in the accompanying table, headed "Type of
Loans."
<TABLE>
<CAPTION>
March 31,
1996 1995 1994 1993 1992
---------- ----------- ---------- ---------- -------
(In Thousands)
Type of Loans
First mortgage real estate loans:
<S> <C> <C> <C> <C> <C>
Conventional........................... $154,636 $174,828 $158,631 $154,825 $157,462
Commercial............................. 29,496 31,456 33,310 32,912 35,462
Construction and land.................. 11,505 11,129 16,668 11,964 11,384
FHA insured and VA guaranteed.......... 7,006 8,411 10,011 13,086 16,490
------- ------- ------- ------- -------
202,643 225,824 218,620 212,787 220,798
Home equity loans........................ 27,510 28,659 29,009 30,131 18,643
Other consumer loans..................... 793 814 553 659 700
Other commercial loans................... 276 328 404 2,228 4,133
------- ------- ------- -------- --------
231,222 255,625 248,586 245,805 244,274
Less:
Loans in process ...................... 7,569 6,825 6,736 2,503 2,888
Discount on loans receivable
acquired through business combinations -- 207 521 871 1,263
Deferred loan fees..................... 595 661 902 1,230 1,235
Unearned (premium) discount on purchased
loans and other loans................ (82) (180) (278) (396) 188
Allowance for loan losses.............. 3,031 2,890 2,652 2,882 2,081
------- ------- ------- ------- -------
$220,109 $245,222 $238,053 $238,715 $236,619
======= ======= ======= ======= =======
</TABLE>
Investments. The adoption of the policy to sell certain mortgage loans
being originated has made investing a more significant aspect of the
corporation's business. MBS and other types of securities have become the
Corporation's primary focus of investment. MBS are participants in organized
pools of residential mortgages, the principal and interest payments on which are
passed from the mortgage originators through intermediaries to investors. Other
asset-backed securities which the Corporation purchases are collateralized
mortgage obligations (CMOs) and real estate mortgage investment conduits
(REMICs). CMOs and REMICs are debt obligations collateralized by pools of
mortgages; the underlying cash flow of the collateral is used to fund the debt
service on the bonds. CMOs and REMICs are priced based on their own maturity and
rate of return rather than that of the underlying mortgages.
A summary of the Corporation's investment portfolio at March 31, 1996,
1995, and 1994 is presented in the accompanying notes to consolidated financial
statements.
3
<PAGE>
Deposits. Deposits are the principal source of the Corporation's funds
for lending and investment purposes. The following paragraphs provide a brief
description of the types of accounts offered by the Corporation.
Money Market Deposit Accounts ("MMDA"). The corporation's MMDA's do not
have a maximum rate of interest unless an account balance drops below $5,000 for
a tiered MMDA, $2,500 for a statement MMDA and $1,000 for a passbook MMDA. These
accounts have no minimum, maturity or prepayment penalty and no restrictions on
the size and frequency of withdrawals or additional deposits, except that MMDAs
are limited to three checks per month payable to third parties. The Corporation
regularly reviews the interest rate paid on the MMDAs and adjusts the rate to
reflect cash flow projections and market conditions.
Passbook and NOW Accounts. Savings may be invested in and withdrawn from
regular passbook accounts without restriction. Interest on passbook savings is
compounded monthly and credited monthly. The Corporation offers negotiable order
of withdrawal ("NOW") accounts which are similar to interest-bearing checking
accounts; interest is compounded monthly and credited monthly.
IRA and Keogh Accounts. The Corporation offers two 18-month retirement
accounts, one with a fixed rate and the other with a rate that adjusts
periodically. Any of the other certificates offered by the Corporation which
have a term of 6 months or more are also available for IRA and Keogh accounts.
Fixed-Rate, Fixed-Term Certificates. Certificates have no interest rate
ceiling. Certificates are the highest cost deposit product offered by the
Corporation. Interest rates offered on certificates are regularly reviewed and
adjusted to reflect cash flow projections and market conditions.
A summary of deposits by type at March 31, 1996, 1995 and 1994 is
presented in the accompanying notes to consolidated financial statements.
OTHER ACTIVITIES
The corporation, through Old Reliable, is involved in a real estate
work-out project. The Corporation does not intend to pursue new real estate
investments and is considering alternatives to reduce and ultimately eliminate
its investment in this project. The decision to withdraw from real estate
development was based on the severe depression of the market and the capital
regulations imposed by the Office of Thrift Supervision ("OTS"), CJSB's primary
regulator. Capital regulations provide, among other requirements, that equity
investments, which include real estate investments, must be deducted from
regulatory capital.
EMPLOYEES
As of March 31, 1996, the Corporation and CJSB employed 105 full-time
and part-time persons. Management considers relations with its employees to be
satisfactory.
COMPETITION
The banking business is highly competitive and the Corporation competes
not only with New Jersey thrifts, but also with commercial banks, savings banks,
money market funds, mortgage bankers, insurance companies, consumer finance
companies, credit unions, and other lending and deposit-gathering institutions.
4
<PAGE>
SUPERVISION AND REGULATION
General. The Corporation is unitary savings and loan holding company
subject to regulatory oversight by the OTS. As such, the Corporation is required
to register and file reports with the OTS and is subject to regulation and
examination by the OTS. In addition, the OTS has enforcement authority over the
Corporation and any non-savings association subsidiaries which also permits the
OTS to restrict or prohibit activities that are determined to be a serious risk
to the subsidiary savings association. This regulation and oversight is intended
primarily for the protection of the depositors of CJSB and not for stockholders
of the Corporation.
CJSB and its subsidiary, Old Reliable, are regulated and supervised by
the New Jersey Department of Banking and the OTS. Deposits of CJSB are insured
by the FDIC to the maximum extent provided by law through the SAIF and, as a
result, CJSB and Old Reliable are subject to regulation and supervision by the
FDIC.
On December 19, 1991, the FDICIA was enacted into law. The purpose of
the FDICIA is to provide funding to the federal deposit insurance funds insuring
the deposits of both banks and savings associations. Among other things, the
FDICIA (i) reduced the percentage of assets required to meet the qualified
thrift lender test to 65% from the previous requirement of 70% and permitted
savings associations to include certain assets in their calculation of qualified
thrift investments not previously includable under existing law; (ii) requires
federal regulators to seize a bank or savings association which does not
maintain tangible equity (as defined in the adopting regulations) of at least 2%
of total assets; (iii) increased the amount of consumer loans a savings
association may invest in to 35% of total assets from the prior limitation of
30%; and (iv) requires all banks and savings associations to be subject to
uniform accounting principles and annual audits of their financial statements.
The FDICIA imposes a number of new mandatory supervisory measures on
savings associations, such as CJSB. The FDICIA requires financial institutions
to take certain actions relating to their internal operations, including:
providing annual reports on financial condition and management to the
appropriate federal banking regulators, having an annual independent audit of
financial statements performed by an independent public accountant and
establishing an independent audit committee comprised solely of outside
directors. The FDICIA also imposes certain operational and managerial standards
on financial institutions relating to internal controls, loan documentation,
credit underwriting, interest rate exposure, asset growth, compensation, fees
and benefits. The FDICIA also required the FDIC to assess deposit insurance
premiums based on risk. As discussed below, the FDIC has adopted a new
risk-based deposit insurance premium.
Deposit Insurance. Pursuant to FDICIA, on October 1, 1992, the FDIC
adopted final regulations (i) establishing 15 year recapitalization schedules
for the SAIF and the Bank Insurance Fund ("BIF"), (ii) implementing a
transitional risk-based assessment system, and (iii) increasing the deposit
insurance rate for certain members of SAIF and BIF. The purpose of these
regulations is to restore the reserve ratios for BIF and SAIF to the statutorily
mandated reserve ratio of 1.25% of insured deposits for both funds.
Under the risk-based assessment system, each BIF and SAIF member
institution will be assigned to one of nine assessment risk classifications
based on its capital ratios and supervisory evaluations. Initially, the lowest
risk institutions will pay deposit insurance at a rate of .23% of domestic
deposits while the highest risk institutions will be assessed at the rate of
.31% of domestic deposits. Each institution's classification under the system is
reexamined semiannually. In addition, the FDIC is unauthorized to increase or
decrease such rates on a semiannual basis. The risk-based system and the
5
<PAGE>
applicable insurance rates are effective for the semiannual assessment period
beginning January 1, 1993. Under the transitional risk-based assessment schedule
adopted by the FDIC, CJSB's deposit insurance premium is $.23 per $100 of total
domestic deposits.
In January 1995, the FDIC proposed to lower the insurance premium for
members of the BIF to a range between .04 percent and .31 percent of deposits.
Any reduction in insurance premiums for BIF members could place the SAIF members
at a materially competitive disadvantage to BIF members and, for the reasons set
forth below, could have a materially adverse effect on the results of operations
and financial condition of CJSB in future periods.
A disparity in insurance premiums between those required for CJSB and
BIF members could allow BIF members to attract and retain deposits at a lower
effective cost than that possible for CJSB, and put competitive pressure on CJSB
to raise its interest rates paid on deposits, thus increasing its cost of funds
and possibly reducing net interest income. The resultant competitive
disadvantage could result in CJSB losing deposits to BIF members who have a
lower cost of funds and are therefore able to pay higher rates of interest on
deposits. Although CJSB has other sources of funds, these other sources may have
higher costs than those of deposits.
Among other ideas under consideration for addressing this disparity is a
possible one-time assessment on thrift institutions sufficient to recapitalize
the SAIF to a level which would at least approach that of the BIF. While there
can be no assurance that this or any other idea for addressing the premium
disparity will be effected, an assessment of this kind could have an adverse
impact on CJSB's results of operations.
Regulatory Capital. The OTS has established a core capital ratio of at
least 3 percent for those savings associations in the strongest financial and
managerial condition based on the "CAMEL" rating system currently in use by the
OTS. Those savings associations receiving a CAMEL rating of "1", the best
possible rating on a scale of 1 to 5, are required to maintain a ratio of core
capital to adjusted total assets of 3 percent. All other savings associations
are required to maintain minimum core capital of at least 4 percent of total
adjusted assets, with a maximum core capital ratio requirement of 5 percent. At
March 31, 1996, CJSB's ratio of core capital to total adjusted assets was 9.56
percent. CJSB is currently prohibited by the OTS from disclosing its CAMEL
rating.
Lending and Other Limitations. Among other regulations imposed and
enforced by CJSB's regulators are limitations on loans to one borrower,
restrictions on equity investments, including real estate investments, and a
general prohibition from entering into any agreement, including loans, which
would jeopardize the safety or soundness of the institution. Actions that could
be taken for violations include cease and desist orders, including orders for
the rescission of contracts, and civil money penalties. CJSB is also subject to
other laws and regulations relating to, among other things, investments, loans,
establishment of branches and other aspects of its operations.
The appropriate federal regulatory authorities also have authority to
prohibit a savings association or holding company from engaging in any activity
or transaction deemed by the federal regulatory authority to be an unsafe or
unsound practice. The payment of dividends could, depending upon the financial
condition of the savings association or holding company, be such an unsafe or
unsound practice.
Branching. On April 2, 1992, the OTS amended its rules on branching by
federally chartered savings associations to permit nationwide branching to the
extent allowed by federal statute. This action, which became effective May 2,
1992, permits federal associations with interstate networks to diversify their
loan portfolios and lines of business. These rules preempt any state law
purporting to regulate
6
<PAGE>
branching by federal savings associations. CJSB, as a savings association
chartered under New Jersey law, is prohibited by New Jersey law from interstate
branching.
The foregoing references to certain statutes and regulations are brief
summaries thereof. The references are not intended to be complete, and are
qualified in their entirety by reference to the statutes and regulations. In
addition, there are other statutes and regulations that apply to and regulate
the operation of banking institutions. A change in applicable law or regulation
may have a material effect on the business of the Corporation.
There are numerous legislative and regulatory proposals being considered
at both the federal and state levels which would impact among other areas,
deposit insurance, the structure of bank regulation, and foreign and interstate
banking. It is premature to assess the impact these proposals could have on the
operations and financial condition of the Corporation; however, if certain
proposals become law, competition in the banking industry within the State of
New Jersey could be significantly increased.
The Corporation's common stock is registered under the Securities
Exchange Act of 1934. As a result, the Corporation and its common stock are
subject to the Securities and Exchange Commission's rules regarding, among other
things, the filing of public reports, the solicitation of proxies and the
disclosure of beneficial ownership of certain securities.
ITEM 2. PROPERTIES
The Corporation's headquarters is located at 591 Cranbury Road, East
Brunswick, New Jersey; the main office of CJSB is also maintained at this
location. In addition to the main office, the Corporation operates five
full-service branch offices in the following locations:
Branch Office Location
----------------------
25 E. Railroad Avenue
Jamesburg, New Jersey
75 and 79 Main Street
South River, New Jersey
911 Livingston Avenue
North Brunswick, New Jersey
455 Old Bridge Turnpike
East Brunswick, New Jersey
296 Summerhill Road
Spotswood, New Jersey
All of the above locations are owned and not subject to any mortgages.
Property was purchased adjacent to the North Brunswick branch for the
purpose of replacing the present facility with a new and larger facility. The
decision to proceed with the project has been suspended for the present time, as
a result of the merger announcement with Summit.
7
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Corporation is involved in various legal proceedings which arise out
of the general operations of its business. The lawsuits primarily involve claims
to enforce liens on real and personal property, condemnation proceedings on real
property and other matters incidental to the Corporation's business. The
Corporation does not believe that the resolution of these lawsuits would have a
material adverse effect on 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 security holders during the
fourth quarter of the fiscal year ended March 31, 1996.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Corporation's common stock is listed on the Nasdaq National Market
System under the ticker symbol CJFC. The following table sets forth, for the
periods indicated, the highest and lowest prices for actual transactions in the
Corporation's common stock as reported by the Nasdaq National Market System.
Cash dividends declared on the Corporation's common stock are also presented.
<TABLE>
<CAPTION>
Dividends Declared
Per Share
High Low Common Stock
---------- -------- ------------------
Fiscal 1996
<S> <C> <C> <C>
First quarter................ $21 $17 $.10
Second quarter............... 25 19 3/4 .12
Third quarter................ 25 1/2 21 .12
Fourth quarter............... 30 3/4 23 3/4 .12
Fiscal 1995
First quarter................ 18 5/8 14 9/16 .09
Second quarter............... 22 17 1/2 .10
Third quarter................ 21 1/2 15 1/2 .10
Fourth quarter............... 18 1/2 15 1/2 .10
</TABLE>
The number of common shareholders of record at March 31, 1996 was
approximately 1,676.
8
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
As of or for the Year Ended March 31,
--------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(Dollars in Thousands, except per share amounts)
For The Year
<S> <C> <C> <C> <C> <C>
Total interest income....................... $32,851 $28,255 $27,885 $29,174 $30,727
Total interest expense...................... 17,481 13,895 13,037 14,836 19,913
------ ------ ------ ------ ------
Net interest income......................... 15,370 14,360 14,848 14,338 10,814
Provision for loan losses................... 250 200 300 807 835
Non-interest income (loss).................. 1,530 1,094 1,858 1,018 (461)
Non-interest expenses....................... 8,532 8,500 8,923 8,345 6,604
Income tax expense ......................... 2,914 2,489 2,833 2,446 1,089
-----
Net income ................................. $5,204 $4,265 $4,650(2) $3,758 $1,825
===== ===== ===== ===== =====
Per Common Share
Earnings - assuming no dilution............. $ 2.15 $ 2.12 $ 2.34(2) $ 1.95 $ 0.95
Earnings - assuming full dilution........... 1.96 1.75 1.89(2) -- --
Tangible book value......................... 19.42 19.40 17.60 14.40 12.55
Stated book value........................... 20.84 21.52 19.94 17.09 15.39
Cash dividends.............................. 0.46 0.39 0.31 0.24 0.22
Total As of Year End
Assets....................................... $468,272 $ 439,884 $408,009 $392,384 $369,725
Loans receivable, net........................ 220,109 245,222 238,053 238,715 236,619
Mortgage-backed securities................... 191,531 144,926 114,753 103,989 57,403
Investment securities........................ 26,768 20,560 20,743 16,598 20,337
Cash and interest bearing deposits........... 8,805 7,694 8,205 5,943 24,224
Excess of cost over fair value of net assets
acquired................................... 3,791 4,155 4,518 5,178 5,465
Deposits..................................... 386,569 361,213 352,829 348,198 328,975
Borrowed funds............................... 22,500 32,105 11,770 5,400 5,400
Stockholders' equity......................... 55,612 42,261 38,509 32,918 29,647
Selected Ratios
Return on average assets.................... 1.13% 0.99% 1.15%(2) 0.99% 0.51%
Return on average equity.................... 10.41 10.61 12.84 (2) 12.06 6.30
Net interest margin......................... 3.53 3.55 3.93 4.07 3.25
Average equity/average assets............... 10.87 9.36 8.95 8.21 8.04
Average tangible equity/average assets...... 10.01 8.35 7.73 6.80 6.48
Dividend payout ratio....................... 21.40 18.40 13.25 (2) 12.31 23.16
Allowance for loan losses/non- performing loans 38.95 53.11 30.18 29.55 17.98
Allowance for loan losses/gross loans....... 1.36 1.16 1.10 1.19 0.87
Non-performing assets/total assets(1)....... 1.81 1.70 3.09 4.34 5.68
Non-performing loans/gross loans............ 3.49 2.19 3.65 4.04 4.85
</TABLE>
- --------------------------
(1) Non-performing assets include: non-accrual loans before deduction for
specific and general allowances; investments in real estate, including
investments in non-consolidated entities, net of specific allowances but
before deduction of general allowances; and other real estate owned net
of all allowances related to those assets.
(2) Net income based statistics for the year ended March 31, 1994, excludes
the cumulative effect of a change in accounting principle, SFAS No. 109
"Accounting for Income Taxes." The cumulative effect amounted to income
of $1,500,000, $0.75 per share assuming no dilution and $0.55 per share
assuming full dilution.
9
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
Net income for the year ended March 31, 1996 amounted to $5,204,000
compared with $4,265,000 in 1995, an increase of $939,000. The increase in net
income was primarily the result of the increase in net interest income
$1,010,000 and the increase in non-interest income $436,000. Net interest income
increased from $14,360,000 in 1995 to $15,370,000 in 1996 and non-interest
income increased from $1,094,000 in 1995 to $1,530,000 in 1996. The increases in
income were partially offset by an increase in income tax expense of $425,000
from $2,489,000 in 1995 to $2,914,000 in 1996.
Net income for 1994 included $1,500,000 of income resulting from the
cumulative effect of a change in accounting principle, SFAS No. 109 "Accounting
for Income Taxes." Excluding the cumulative effect of the change in accounting
principle, net income decreased $385,000 between 1995 and 1994, from $4,650,000
to $4,265,000, respectively. The decrease was generally attributable to the
decrease in net interest income $488,000, from $14,848,000 in 1994 to
$14,360,000 in 1995 and the decrease in non-interest income $764,000 from
$1,858,000 in 1994 to $1,094,000 in 1995. The decreases in income were partially
offset by decreases in non-interest expenses $423,000, from $8,923,000 in 1994
to $8,500,000 in 1995 and the decrease in income tax expense $344,000, from
$2,833,000 in 1994 to $2,489,000 in 1995.
The Corporation, on May 22, 1996, entered into a definitive merger
agreement (the "Agreement") with Summit Bancorp. The terms of the Agreement,
more fully discussed in the accompanying notes to consolidated financial
statements, provide for Summit Bancorp to acquire the Corporation in a tax-free
exchange of stock. Summit Bancorp was given an option to purchase up to 19.9
percent of the Corporation's common stock if certain conditions occur. The
transaction is expected to be completed in the fourth quarter of calendar 1996,
subject to the approval of the Corporation's shareholders, regulatory approvals
and the market price of Summit Bancorp.
Net Interest Income
Net interest income is the most significant component of the
Corporation's income from operations. Net interest income is the difference
between interest received on interest-earning assets, primarily loans,
mortgage-backed securities ("MBS") and investments, and the interest expense
paid on interest-bearing liabilities, primarily deposits and borrowings. Net
interest income depends upon the volume of interest-earning assets and
interest-bearing liabilities and the interest rate earned or paid on them.
10
<PAGE>
The following table presents a summary of average balances with
corresponding interest income and expense and average yield and cost information
for each of the years ended March 31, 1996, 1995 and 1994.
<TABLE>
<CAPTION>
Average Balances, Interest and Yields
-----------------------------------------------------------------------------------------------------
1996 1995 1994
----------------------------------- -------------------------------- ----------------------------
Interest Average Interest Average Interest Average
Average Earned Yield/ Average Earned Yield/ Average Earned Yield/
Balance(4) or Paid Cost Balance(4) or Paid Cost Balance(4) or Paid Cost
---------- ------- ---- ---------- ------- ---- ---------- ------- ----
(Dollars in Thousands)
Assets
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans receivable(1)......... $237,614 $19,345 8.14%(2) $251,553 $19,263 7.66%(2) $243,156 $20,296 8.35%(2)
Mortgage-backed securities.. 171,411 11,581 6.76 (2) 129,689 7,415 5.72 (2) 110,044 6,193 5.63 (2)
Investment securities:
available for sale........ 8,150 577 7.08 (2) 6,389 448 7.02 (2) -- --
Investment securities:
portfolio................. 17,273 1,266 7.33 (2) 14,664 1,056 7.20 (2) 20,812 1,275 6.13 (2)
Deposits in other banks..... 1,410 82 5.77 (2) 2,133 73 3.43 (2) 3,687 121 3.30 (2)
------- ----- ------- ----- ------- ------
Total interest-earning
assets.................... 435,858 32,851 7.54 (2) 404,428 28,255 6.99 (2) 377,699 27,885 7.38 (2)
------ ------ ------
Other assets................ 24,011 25,019 26,911
------- ------- -------
Total assets................ $459,869 $429,447 $404,610
======= ======= =======
Liabilities and
Stockholders' Equity
Deposits:
Savings certificates...... $217,858 12,166 5.58 (2) $183,112 7,911 4.32 (2) $182,266 7,690 4.22 (2)
Money market accounts..... 51,679 1,477 2.86 (2) 63,409 1,771 2.79 (2) 64,983 1,748 2.69 (2)
Passbook accounts......... 67,854 1,813 2.67 (2) 71,216 1,941 2.73 (2) 66,739 1,797 2.69 (2)
Individual NOW accounts... 38,154 670 1.76 (2) 34,513 640 1.85 (2) 32,072 598 1.86 (2)
Business NOW accounts..... 3,543 -- 0.00 (2) 3,115 -- 0.00 (2) 2,805 -- 0.00 (2)
------- ------ ------- ----- ------- -----
379,088 16,126 4.25 (2) 355,365 12,263 3.45 (2) 348,865 11,833 3.39 (2)
Long-term debt.............. 3,842 198 5.14 (2) 9,822 757 7.71 (2) 12,308 1,135 9.22 (2)
Other borrowed funds........ 19,577 1,157 5.91 (2) 16,830 875 5.20 (2) 2,118 69 3.26 (2)
------- ------ ------- ------ ------- -----
Total interest-bearing
liabilities............... 402,507 17,481 4.34 (2) 382,017 13,895 3.64 (2) 363,291 13,037 3.59 (2)
Other liabilities........... 7,354 7,237 5,091
------- ------- -------
Total liabilities........... 409,861 389,254 368,382
Stockholders' equity........ 50,008 40,193 36,228
------- ------- -------
Total liabilities and
stockholders' equity...... $459,869 $429,447 $404,610
======= ======= =======
Net interest income/Net ------ ------ ------
interest spread........... $15,370 3.20 $14,360 3.35 $14,848 3.79
====== ====== ======
Net interest margin......... 3.53 (3) 3.55 (3) 3.93 (3)
</TABLE>
- --------------------
(1) Non-accrual loan balances are included in the calculations.
(2) Calculated by dividing income/expense for the year by the respective
average category of asset/liability.
(3) Calculated by dividing net interest income for the year by average
interest-earning assets.
(4) Average balances are computed on a quarterly basis, except Other Borrowed
Funds which is calculated on a daily basis.
11
<PAGE>
The following table presents an analysis of changes in interest income
and expense for the year ended March 31, 1996 compared with 1995 and for the
year ended March 31, 1995 compared with 1994, identifying the portion of the
change attributable to rate, volume and a combination of rate/volume.
<TABLE>
<CAPTION>
Year Ended March 31, 1996 vs 1995 Year Ended March 31, 1995 vs 1994
-------------------------------------- ----------------------------------------
Interest-Earning Asset/ (1) (2) (3)Rate/ (1) (2) (3)Rate/
Interest-Bearing Liability Rate Volume Volume Total Rate Volume Volume Total
- -------------------------- ---- ------- ------- ------- ------- ------ ------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Loans receivable ......... $ 1,217 $(1,067) $ (68) $ 82 $(1,676) $ 701 $ (58) $(1,033)
Mortgage-backed securities 1,347 2,385 434 4,166 99 1,105 18 1,222
Investment securities:
available for sale ...... 4 124 1 129 -- 448 -- 448
Investment securities:
portfolio .............. 19 188 3 210 227 (379) (67) (219)
Deposits in other banks .. 50 (24) (17) 9 5 (51) (2) (48)
------- ------- ------- ------- ------- ------- ------- -------
Total earned ..... 2,637 1,606 353 4,596 (1,345) 1,824 (109) 370
------- ------- ------- ------- ------- ------- ------- -------
Deposits: savings ....... 2,933 719 181 3,833 251 134 3 388
Deposits: other ......... (35) 69 (4) 30 (4) 47 (1) 42
Long-term debt ........... (252) (461) 154 (559) (186) (229) 37 (378)
Other borrowed funds ..... 120 143 19 282 41 482 283 806
------- ------- ------- ------- ------- ------- ------- -------
Total paid ....... 2,766 470 350 3,586 102 434 322 858
------- ------- ------- ------- ------- ------- ------- -------
Net interest earned ...... $ (129) $ 1,136 $ 3 $ 1,010 $(1,447) $ 1,390 $ (431) $ (488)
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
- ------------------------
(1) Changes in rate (change in rate multiplied by old average volume)
(2) Changes in volume (changes in average volume multiplied by old rate)
(3) Changes in rate-volume (changes in rate multiplied by the changes in
average volume)
Year ended - March 31, 1996 compared with 1995
Net interest income increased $1,010,000 for the year ended March 31, 1996
compared with 1995, from $14,360,000 in 1995 to $15,370,000 in 1996. Interest
income increased $4,596,000, from $28,255,000 in 1995 to $32,851,000 in 1996,
which was partially offset by the increase in interest expense of $3,586,000,
from $13,895,000 in 1995 to $17,481,000 in 1996. Net interest spread, the
difference between the average yield on interest-earning assets and the average
cost of interest-bearing liabilities decreased 15 basis points, from 3.35
percent in 1995 to 3.20 percent in 1996. The decreased spread was the result of
the higher cost of funds from 3.64 percent in 1995 to 4.34 percent in 1996, an
increase of 70 basis points. The increased cost of funds was partially offset by
the increase in the yield on interest-bearing assets 55 basis points from 6.99
percent in 1995 to 7.54 percent in 1996.
Interest on loans receivable increased from $19,263,000 for the year ended
March 31, 1995 to $19,345,000 in 1996, an increase of $82,000. The increase was
the result of an increase in the average rate earned on the loan portfolio,
partially offset by a decrease in the average balance of loans receivable. The
average rate earned on loans increased 48 basis points, from 7.66 percent in
1995 to 8.14 percent in 1996. The average balance of loans receivable decreased
$13,939,000 for the year ended March 31,
12
<PAGE>
1996 compared with 1995, from $251,553,000 in 1995 to $237,614,000 in 1996.
During 1996, the Corporation sold most of the first mortgage loans which it
originated, both the fixed-rate and adjustable-rate loan products. The
fixed-rate mortgages were sold to facilitate the management of interest-rate
risk, while the adjustable-rate mortgages were sold because of the low yields
during the first few years of the loans' life.
Interest on MBS increased from $7,415,000 for the year ended March 31, 1995
to $11,581,000 in 1996, an increase of $4,166,000. The increase was the result
of the increase in the average balance of MBS and the increase in the average
rate earned on MBS. The average balance of MBS increased from $129,689,000 in
1995 to $171,411,000 in 1996, an increase of $41,722,000. Since most loans
originated during 1996 were sold as noted above, available funds were used to
purchase MBS. The average rate earned on MBS also increased, from 5.72 percent
in 1995 to 6.76 percent in 1996, an increase of 104 basis points.
Interest on investment securities, both available for sale and portfolio,
increased $339,000, from $1,504,000 in 1995 to $1,843,000 in 1996. The increase
in interest income from investments was generally the result of the increase in
the average balance of investments. The average balance of investments in 1995
was $21,053,000 compared with $25,423,000 in 1996, an increase of $4,370,000.
Interest on deposits increased $3,863,000 for the year ended March 31, 1996
compared with 1995 from $12,263,000 in 1995 to $16,126,000 in 1996. The increase
in the cost of deposits was primarily related to the increased cost of savings
certificates. Savings certificates are by far the largest component of deposits
and the most costly component. Certificates have historically provided the prime
source of deposit growth for the Corporation and any future growth will likely
come from this area. Interest on savings certificates increased $4,255,000, from
$7,911,000 in 1995 to $12,166,000 in 1996. The average balance of certificates
increased $34,746,000, from $183,112,000 in 1995 to $217,858,000 in 1996. The
average interest rate on certificates of deposit increased from 4.32 percent in
1995 to 5.58 percent in 1996, an increase of 126 basis points.
The increase in the average balance of savings certificates was generally
attributable to special promotional programs associated with the opening of the
new branch facility on April 1, 1995. The new branch replaced an older facility.
This level of certificate growth is not expected to continue into future
periods.
Interest on long-term debt decreased $559,000 from $757,000 for the year
ended March 31, 1995 to $198,000 in 1996. The decrease is attributable to the
conversion of all of the Convertible Subordinated Debentures (the "Debentures"),
in September 1995, into common stock of the Corporation. The conversion of the
Debentures is discussed more fully in the accompanying notes to consolidated
financial statements.
The interest on other borrowed funds increased $282,000 from $875,000 in
1995 to $1,157,000 in 1996. The Corporation draws from its lines of credit with
the Federal Home Loan Bank to supplement deposit growth and will likely continue
this policy for the foreseeable future. The average balance of other borrowed
funds was $19,577,000 in 1996 an increase of $2,747,000 from 1995's average
balance of $16,830,000.
13
<PAGE>
Year ended - March 31, 1995 compared with 1994
Net interest income decreased $488,000 for the year ended March 31, 1995
compared with 1994, from $14,848,000 in 1994 to $14,360,000 in 1995. The
decrease was the result of the increase in interest expense partially offset by
an increase in interest income.
Interest on loans receivable decreased from $20,296,000 for the year ended
March 31, 1994 to $19,263,000 in 1995, a decrease of $1,033,000. The decrease
was the result of a decrease in the average rate earned on the loan portfolio,
partially offset by an increase in the average balance of loans receivable. The
average rate earned on loans decreased 69 basis points, from 8.35 percent in
1994 to 7.66 percent in 1995. The average balance of loans receivable increased
$8,397,000 for the year ended March 31, 1995 compared with 1994, from
$243,156,000 in 1994 to $251,553,000 in 1995.
Interest on MBS increased from $6,193,000 for the year ended March 31, 1994
to $7,415,000 in 1995, an increase of $1,222,000. MBS continue to be the
Corporation's primary focus of investment. The increase was basically the result
of the increase in the average balance of MBS and a slight increase in the
average rate earned on MBS. The average balance of MBS increased from
$110,044,000 in 1994 to $129,689,000 in 1995, an increase of $19,645,000. The
average rate earned on MBS also increased, from 5.63 percent in 1994 to 5.72
percent in 1995, an increase of 9 basis points.
Interest on investments increased $229,000 for the year ended March 31, 1995
compared with 1994, from $1,275,000 in 1994 to $1,504,000 in 1995. The increase
was primarily the result of the increase in the average rate earned on
investments. The average rate earned on investments increased from 6.13 percent
in 1994 to 7.14 percent in 1995.
Income from interest-bearing deposits in other banks decreased from $121,000
for the year ended March 31, 1994 to $73,000 in 1995, a decrease of $48,000.
Funds are being directed to more profitable investments.
Interest on deposits increased $430,000 for the year ended March 31, 1995
compared with 1994, from $11,833,000 in 1994 to $12,263,000 in 1995. The cause
for the increase was equally distributed between increased volume and increased
rate. The average balance of deposits increased from $348,865,000 for the year
ended March 31, 1994 to $355,365,000 in 1995, an increase of $6,500,000. The
average cost of deposits increased from 3.39 percent for the year ended March
31, 1994 to 3.45 percent in 1995, an increase of 6 basis points.
Interest on long-term debt decreased $378,000, from $1,135,000 for the year
ended March 31, 1994 to $757,000 in 1995. The decrease was generally the result
of paying-off a $5.4 million loan bearing interest at 7.90 percent.
Interest on other borrowed funds increased $806,000 from $69,000 in 1994 to
$875,000 in 1995. The Corporation drew more extensively on its line of credit
with the Federal Home Loan Bank.
Additional borrowings were used to supplement deposit growth.
Provision for Possible Loan Losses
Risk Elements of Loans. The Corporation's loan portfolio is mainly comprised
of loans extended in the State of New Jersey to individuals for the purpose of
financing homeownership and to real estate contractors and developers. Based
upon the concentration of lending in these areas, the Corporation's loan
portfolio is subject to certain inherent risks. The key risk elements which must
be regularly
14
<PAGE>
monitored are the level of unemployment, general market value of real estate,
level of home sales and resales and the general economic conditions in the state
of New Jersey.
Allowance for Loan Losses. The allowance for loan losses is generally
established through a provision for loan losses based on management's evaluation
of the risk inherent in its loan portfolio and the general economy. In
determining the provision for loan losses, management regularly evaluates the
risk of prospective losses in the loan portfolio and the possible amount of such
losses taking into consideration the collateral value of property underlying the
mortgage loans, the history of net loan write-offs, the credit condition of the
borrower, business and economic conditions and trends and the degree of risk
inherent in the composition of the loan portfolio. Evaluating the underlying
value of properties collateralizing the loans is one of the most important
factors to be considered in determining the level of loan loss provision
required, especially in connection with non-accrual loans. Appraisals provide
the primary source of information for determining the value of properties on
non-accrual mortgage loans. Appraisals on non-accrual loans in excess of
$500,000 are generally updated every 24 months, unless circumstances indicate
the need for more timely updates. As a result, loans placed in non-accrual
status do not necessarily require significant valuation allowances because the
underlying value of the property is adequate to support the carrying value of
the loan. The Corporation provides general valuation allowances on non-accrual
loans even when the mortgage value of the property is adequate to satisfy the
carrying value of the loan. Recognition of interest on the accrual method is
generally discontinued when interest or principal payments are 90 days or more
in arrears, or when other factors indicate that the collection of such amounts
is doubtful. At the time a loan is placed on non-accrual status, previously
accrued and uncollected interest is reversed against interest income in the
current period. The Corporation's non-accrual loans at March 31, 1996, 1995,
1994, 1993 and 1992 amounted to $7,782,000, $5,442,000, $8,787,000, $9,752,000,
and $11,576,000, respectively. There were no loans more than 90 days delinquent
at these dates that were still accruing interest. In addition to the loans
delinquent 90 days or more, loans amounting to $365,000 have been classified at
March 31, 1996, indicating concern that the loans will not be paid in accordance
with their terms. Based on current information, management believes that it is
not appropriate to place these loans on nonaccrual status at this time.
A general valuation allowance is provided on the overall loan portfolio,
including loans in current status. The general valuation allowance is determined
based upon a detailed history of loan write-offs by type of loan. This
historical analysis provides the basis for determining the value of the factor
to be applied to the carrying value of the loans to calculate the valuation
allowance to be provided. Besides the historical information, other factors such
as the following are considered in determining the value of the factor to be
used: type of loan, payment status of the loan, current economic factors,
including real estate market and level of unemployment, and input from bank
examiners regarding experience of peer groups.
The Corporation, in determining the amount of the allowance for loan losses,
uses various estimates which are particularly susceptible to changes in
economic, operating or other conditions that may be beyond its control.
Accordingly, there can be no assurance when evaluating the loan portfolio in the
future, the Corporation will not increase the allowance for loan losses. In
addition, state and federal regulatory agencies, as an integral part of their
examination process, periodically review the Corporation's allowance for loan
losses and valuation of real estate owned. Such agencies may require the
Corporation to recognize additions to the allowance based on their judgments
about information available to them at the time of their examination.
15
<PAGE>
An analysis of activity in the allowance for loan losses for each of the 5
years ended March 31, 1996 is presented in the table below.
<TABLE>
<CAPTION>
For the Year Ended March 31,
---------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance, beginning of year ............ $ 2,890 $ 2,652 $ 2,882 $ 2,081 $ 2,554
------- ------- ------- ------- -------
Provisions charged to operations ...... 250 200 300 807 835
------- ------- ------- ------- -------
Recovery on loans ..................... 48 81 76 40 122
Loans written-off ..................... (177) (291) (133) (472) (1,200)
------- ------- ------- ------- -------
Net write-offs .................... (129) (210) (57) (432) (1,078)
Amounts transferred among loan and real
estate allowance accounts ............. 20 248 (473) 426 (230)
------- ------- ------- ------- -------
Balance, end of year .................. $ 3,031 $ 2,890 $ 2,652 $ 2,882 $ 2,081
======= ======= ======= ======= =======
Ratio of net write-offs during the
year to average loans
outstanding during the year ......... 0.05% 0.09% 0.02% 0.19% 0.43%
======= ======= ======= ======= =======
</TABLE>
Loan write-offs for the years ended March 31, 1996, 1995 and 1994 were not
significant. Loans amounting to $472,000 were charged-off to the allowance for
loan losses during the year ended March 31, 1993, of which $118,000 related to a
single loan. During the year ended March 31, 1992, the Corporation charged-off
$1,200,000 to the allowance for loan losses. The charge-offs were generally
related to loans extended to two borrowers, which were determined to meet the
criteria for treatment as in substance foreclosure. A charge of $1,000,000 was
made to the allowance for loan losses which had been specifically provided for
these loans. The remaining fair value of the properties was recorded as real
estate acquired in settlement of loans.
The following table presents a summary of the allowance for loan losses by
type of loan.
<TABLE>
<CAPTION>
March 31,
---------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(In thousands)
Balance at the end of the year applicable
to:
Real estate loans:
<S> <C> <C> <C> <C> <C>
Mortgage........................ $2,750 $2,710 $2,354 $2,633 $1,706
Construction.................... 157 127 290 157 84
Commercial loans ................. 123 52 4 91 285
Consumer loans.................... 1 1 4 1 6
------ ------ ------ ------ ------
$3,031 $2,890 $2,652 $2,882 $2,081
===== ===== ===== ===== =====
</TABLE>
Non-Interest Income
Non-interest income increased $436,000 from $1,094,000 in 1995 to
$1,530,000 in 1996. The increase was basically the result of the increase in
gains from the sales of loans $201,000 and a decrease in the loss from real
estate operations, $195,000. Gains from the sales of loans increased from
$207,000 in 1995 to $408,000 in 1996. The Corporation, as noted previously, sold
most of the first mortgage loans which it originated in 1996. Losses from real
estate operations decrease from $347,000 in 1995
16
<PAGE>
to $152,000 in 1996. The Corporation has significantly reduced its exposure to
real estate projects as noted below.
Non-interest income decreased $764,000, from $1,858,000 in 1994 to
$1,094,000 in 1995. The decrease was basically the result of the decrease in
gains from the sale of loans $1,045,000, partially offset by a reduction in
losses from real estate operations, $339,000. Gains from the sales of loans
decreased from $1,252,000 in 1994 to $207,000 in 1995, while losses from real
estate operations decreased from $686,000 in 1994 to $347,000 in 1995.
In addition to the non-accrual loans previously discussed, the Corporation
has other non-performing assets comprised of: investments in and loans to
non-consolidated entities, real estate held for development and resale and real
estate acquired in settlement of loans. The table below presents a summary of
these other non-performing assets at March 31, 1996, 1995, 1994, 1993 and 1992.
These assets are the subject of regular management evaluations to consider if
additional allowances would be necessary to properly reflect the value of these
assets. Regular evaluations address, among other considerations, current market
conditions, carrying costs and holding period.
<TABLE>
<CAPTION>
March 31,
-----------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(In Thousands)
Real estate held for development and
<S> <C> <C> <C> <C> <C>
resale.............................. $684 $1,334 $2,729 $2,908 $3,000
Real estate acquired in settlement of
loans............................... 27 720 1,055 3,630 3,373
Investments and loans to non-
consolidated entities............... -- -- 50 754 3,009
---- ------ ------ ------ ------
Total................................. $711 $2,054 $3,834 $7,292 $9,382
==== ====== ====== ====== ======
</TABLE>
The Corporation has significantly reduced its real estate operations in
order to focus on its core business. During fiscal 1995, the Corporation
concluded its last real estate joint venture. In 1994, the Corporation accepted
a deed in lieu of foreclosure in connection with a joint venture. During fiscal
1993, a loan extended to one of the joint ventures was eliminated; the
Corporation charged-off its portion of the loan balance $2,130,000 against real
estate valuation allowances previously provided and the joint venture partner
provided the necessary resources to pay off its portion of the loan balance.
Real Estate Held for Development and Resale is made up of a wholly owned land
development project located in New Jersey.
Non-Interest Expense
Non-interest expenses increased $32,000, from $8,500,000 in 1995 to
$8,532,000 in 1996.
Non-interest expenses decreased $422,000, from $8,922,000 in 1994 to
$8,500,000 in 1995. The decrease was primarily attributable to reductions in
salary expense, $152,000, and other expenses, $300,000, caused by the
significant decrease in the origination and sale of loans. Salaries decreased
from $3,829,000 in 1994 to $3,677,000 in 1995 and other expenses decreased from
$1,573,000 in 1995 to $1,273,000.
17
<PAGE>
Interest Rate Sensitivity
The Corporation monitors interest rate sensitivity. Management seeks to
maximize returns, while maintaining an appropriate relationship of interest rate
sensitivity among its interest sensitive assets and liabilities. The adoption of
the Corporation's policy to sell certain loans being originated was made in
order to better manage interest rate risk. The sale of certain fixed-rate
mortgage loans being originated allows cash, which would have been used to fund
long-term fixed-rate mortgage loans, to be alternatively invested in
mortgage-backed securities with substantially shorter maturities. In addition,
revenues are generated from the sales and servicing of the loans.
The table below referred to as a "gap" analysis, is a presentation of the
Corporation's interest rate sensitivity at March 31, 1996. A "positive" gap
results when the amount of interest rate sensitive assets exceeds that of
interest rate sensitive liabilities. A "negative" gap results when the amount of
interest rate sensitive liabilities exceeds that of interest rate sensitive
assets. The Corporation had a negative one year gap of $101,399,000 or 21.65
percent of total assets at March 31, 1996. It should be noted that the
Corporation does not utilize assumptions with respect to loan prepayments or
deposit decay rates for purposes of calculating its gap ratio. To the extent
that the Corporation remains vulnerable to future increases in interest rates,
the Corporation's results of operations would be adversely affected in a rising
interest rate environment.
18
<PAGE>
<TABLE>
<CAPTION>
Interest Rate Sensitivity Table
March 31, 1996
Greater Greater Greater Greater Greater Greater
Than Than Than Than Than Than Greater
Less Than 3 Mos 6 Mos 1 Yr 3 Yr 5 Years 10 Yrs Than
3 Mos to 6 Mos to 1 Yr to 3 Yr to 5 Yr to 10 Yrs to 20 Yrs 20 Yrs Total
----- -------- ------- ------- ------- --------- --------- ------ -----
(In Thousands)
First mortgage loans:
Residential:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed-rate ...............$ 12 $ 12 $ 18 $ 564 $ 1,162 $ 45,467 $ 13,448 $ 14,556 $ 75,239
Adjustable-rate .......... 15,272 16,464 24,571 17,446 300 14,587 -- -- 88,640
Non-residential:
Fixed-rate ............... 72 256 37 53 48 136 16 4,330 4,948
Adjustable-rate .......... 3,192 5,223 9,434 4,183 639 50 -- -- 22,721
Home equity loans .......... 15,484 39 506 601 1,503 3,799 5,578 -- 27,510
Non-mortgage loans:
Consumer loans ........... 291 110 96 277 19 -- -- -- 793
Commercial loans ......... 199 -- -- -- -- -- 59 -- 258
--------- --------- --------- --------- --------- --------- --------- --------- ---------
34,522 22,104 34,662 23,124 3,671 64,039 19,101 18,886 220,109
Investment securities,
including interest-bearing
deposits in other banks
and FHLB stock ............ 4,984 -- 4,552 2,005 10,229 4,998 -- 3,561 30,329
Mortgage-backed securities:
Fixed-rate ............... 228 1,480 -- 2,792 6,926 25,546 -- -- 36,972
Adjustable-rate .......... 84,276 20,616 49,667 -- -- -- -- -- 154,559
Cash and other assets ...... 12,543 -- -- -- 534 -- -- 13,226 26,303
--------- --------- --------- --------- --------- --------- --------- --------- ---------
$ 136,553 $ 44,200 $ 88,881 $ 27,921 $ 21,360 $ 94,583 $ 19,101 $ 35,673 $ 468,272
========= ========= ========= ========= ========= ========= ========= ========= =========
Deposits:
Savings certificates .....$ 35,267 $ 67,051 $ 77,773 $ 27,767 $ 13,613 $ 247 $ -- $ -- $ 221,718
Money market accounts .... 49,758 -- -- -- -- -- -- -- 49,758
Passbook accounts ........ 69,627 -- -- -- -- -- -- -- 69,627
NOW accounts ............. 45,466 -- -- -- -- -- -- -- 45,466
--------- --------- --------- --------- --------- --------- --------- --------- ---------
200,118 67,051 77,773 27,767 13,613 247 -- -- 386,569
Other borrowed funds ....... 22,500 -- -- -- -- -- -- -- 22,500
Other liabilities .......... 3,591 -- -- -- -- -- -- -- 3,591
Stockholders' equity ....... -- -- -- -- -- -- -- 55,612 55,612
--------- --------- --------- --------- --------- --------- --------- --------- ---------
$ 226,209 $ 67,051 $ 77,773 $ 27,767 $ 13,613 $ 247 $ -- $ 55,612 $ 468,272
========= ========= ========= ========= ========= ========= ========= ========= =========
Interest rate
sensitivity gap .........$ (89,656) $ (22,851) $ 11,108 $ 154 $ 7,747 $ 94,336 $ 19,101 $ (19,939)
========= ========= ========= ========= ========= ========= ========= =========
Cumulative gap .............$ (89,656) $(112,507) $(101,399) $(101,245) $ (93,498) $ 838 $ 19,939
========= ========= ========= ========= ========= ========= =========
Cumulative interest
sensitivity gap as a
percentage of total assets.. (19.15%) (24.03%) (21.65%) (21.62%) (19.97%) 0.18% 4.26%
========= ========= ========= ========= ========= ========= =========
</TABLE>
19
<PAGE>
The table above has been prepared using the following general assumptions:
(a) Loans, MBS, investments, savings certificates and borrowed funds are
reflected based on contractual maturity dates or repricing dates, whichever
is shorter.
(b) Cash and other assets reflected in the period less than one year include
cash and interest receivable; amounts in the 3-5 year period represents
investments in real estate which are projected to be disposed of within 5
years; the balance included in the 20 year period represents assets which
are not interest-rate sensitive.
(c) Interest rates on money market accounts, passbook accounts and NOW accounts
may be adjusted at management's discretion.
(d) Other liabilities will generally be liquidated within one year.
(e) Stockholders' equity is not considered interest-rate sensitive.
The Corporation's loan and MBS portfolios have been and remain less
sensitive to general interest rate changes than its deposit base; this is the
result of having a substantial portion of these portfolios comprised of
long-term, fixed-rate loans, while the deposit base is comprised of accounts
with substantially shorter maturities adjusting more readily with current market
conditions. At March 31, 1996, 1995, and 1994, fixed-rate loans and MBS
represented 32.98 percent, 44.0 percent, and 44.1 percent, respectively, of the
Corporation's combined total portfolio of loans and MBS; the remaining
portfolios were primarily comprised of loans and MBS subject to adjustment every
one or three years or with adjustments to the prime rate. The Corporation's
portfolio of fixed-rate MBS has an overall average contractual maturity of less
than ten years.
The following table presents the contractual maturity of loans receivable at
March 31, 1996. In addition, loans due after one year are identified as having
predetermined or adjustable interests rates.
Maturities and Sensitivities of Loans to Changes in Interest Rates
<TABLE>
<CAPTION>
Loans Due After One Year
------------------------
Due After
Due In One Year Floating
1 Year Through Due After Predetermined Interest
Loan Category or Less Five Years Five Years Total Interest Rate Rate
- ------------- ------- ---------- ---------- ----- ------------- ----
(In Thousands)
Real estate:
<S> <C> <C> <C> <C> <C> <C>
Mortgage............... $ 952 $3,931 $211,927 $216,810 $91,261 $124,597
Construction/land...... 2,248 -- -- 2,248 -- --
Commercial............... 199 -- 59 258 59 --
Consumer................. 497 296 -- 793 296 --
------ ------ ---------- --------- ------- ----------
$3,896 $4,227 $211,986 $220,109 $91,616 $124,597
===== ===== ======= ======= ====== =======
</TABLE>
Certificates of deposit of $100,000 or more at March 31, 1996 mature as follows:
Maturity
Amount
------
(In Thousands)
3 Months or less............. $ 1,366
4 Months to 6 months......... 3,607
7 Months to 12 months........ 4,182
Over 12 months............... 2,536
------
$11,691
======
20
<PAGE>
Liquidity
The Corporation is restricted from receiving cash dividends from CJSB (its
only material source of revenue). CJSB's ability to pay dividends or make other
capital distributions to the Corporation is governed by OTS regulations. CJSB, a
Tier 1 institution as defined by OTS regulations, is permitted under these
regulations, after prior notice to (and no objection by) the OTS, to make
capital distributions during a calendar year up to 100 percent of its net income
to date during the calendar year plus the amount that would reduce by one-half
its "surplus capital ratio," which is the percentage by which the ratio of its
regulatory capital to assets exceeds the ratio of its fully phased-in capital
requirement to assets at the beginning of the calendar year.
The Corporation has lines of credit with the Federal Home Loan Bank of New
York ("FHLB") aggregating $45.4 million. The credit lines are used for numerous
purposes, including providing additional liquidity. The terms of the credit
lines are more fully discussed in the accompanying notes to consolidated
financial statements. The Corporation, as previously noted, drew more
extensively on its credit lines in 1996 than in 1995 and will likely continue
its current level of borrowings into the foreseeable future.
The following table presents certain information regarding short-term
borrowings as of and for the year ended March 31, 1996.
(Dollars in
Thousands)
Average balance outstanding......................... $19,577
Average interest rate............................... 5.91%
Balance outstanding at March 31, 1996............... $22,500
Average interest rate at March 31, 1996............. 5.54%
Maximum outstanding at any month-end
during the year ended March 31, 1996................ $25,000
CJSB is required by current OTS regulations to maintain a liquidity ratio
(minimum level of liquid assets to total assets) of 5 percent. Liquidity is a
measure of ability to meet savings withdrawals and payment of short-term
borrowings, and is comprised of cash and eligible investments. Principal sources
of liquidity include deposits, loan principal repayments, proceeds from sales of
loans, advances from the Federal Home Loan Bank, other borrowings and net
interest income. CJSB has maintained a liquidity ratio in excess of this
requirement and at March 31, 1996 the liquidity ratio was 6.77 percent versus
8.29 percent one year earlier. Liquidity reduces interest rate exposure during
periods of increasing interest rates, but also provides a lower yield during
periods of decreasing interest rates. The consolidated statements of cash flows
outline the flow of funds during each of the years presented. The principal use
of this liquidity has been to meet ongoing commitments for daily savings
fluctuations, loan originations and purchases, including purchases of
mortgage-backed securities and liquidity maintenance. The Corporation
anticipates that it will have the appropriate resources to meet such commitments
during the current fiscal year.
21
<PAGE>
Capital
In September 1995, all of the outstanding Convertible Subordinated
Debentures were converted into 704,127 shares of the Corporation's common stock.
The transaction is more fully described in the accompanying notes to
consolidated financial statements.
There are no regulatory capital requirements applicable to the Corporation.
The OTS has established three separate capital requirements which apply to CJSB,
each mandating a minimum capitalization level; the minimum requirements at March
31, 1996 were as follows: tangible capital 1.5 percent, core capital 3.0 percent
and risk-based capital 8.0 percent.
At March 31, 1996 and 1995, CJSB had the following regulatory capital
ratios.
<TABLE>
<CAPTION>
1996 1995
-------------------------- ---------------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Tangible capital........................ $43,457 9.56% $36,400 8.59%
Core capital............................ 43,457 9.56 36,400 8.59
Risk-based capital...................... 45,721 23.63 38,834 19.95
</TABLE>
Impact of Inflation and Changing Prices
The Corporation's assets and liabilities are virtually all monetary in
nature. As a result, interest rates have a more significant impact on
performance than the effects of general levels of inflation. Interest rates do
not necessarily move in the same direction or magnitude as the price of goods
and services since such prices are affected by inflation.
Recent Accounting Pronouncements
Reference should be made to notes to consolidated financial statements
concerning new pronouncements and their impact on the Corporation.
22
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Public Accountants
To the Board of Directors and Stockholders of
Central Jersey Financial Corporation
We have audited the accompanying consolidated statements of financial
condition of Central Jersey Financial Corporation and Subsidiary (CJFC) as of
March 31, 1996 and 1995, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended March 31, 1996. These financial statements are the responsibility of
CJFC's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Central Jersey
Financial Corporation and Subsidiary as of March 31, 1996 and 1995, and the
consolidated results of their operations and cash flows for each of the three
years in the period ended March 31, 1996, in conformity with generally accepted
accounting principles.
As discussed in Note 1 to the financial statements, CJFC changed its method
of accounting for income taxes in the year ended March 31, 1994.
/s/Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
New York, New York
May 23, 1996
23
<PAGE>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
----------------------------------------------
<TABLE>
<CAPTION>
March 31,
--------------------------------
1996 1995
------------ ------------
ASSETS
<S> <C> <C>
Cash and due from depository institutions......................... $ 8,804,911 $ 7,693,873
Investment securities: available for sale (market value:
$8,267,000 at 1996 and $8,081,000 at 1995....................... 8,266,858 8,080,992
Investment securities; portfolio (market value: $18,925,000 at
1996 and $12,514,000 at 1995).................................... 18,501,517 12,479,573
Mortgage-backed securities: portfolio (market value:
$193,005,000 at 1996 and $143,659,000 at 1995)................... 191,530,667 144,925,603
Loans held for sale............................................... 2,231,803 956,472
Loans receivable, less allowance for possible losses:
$3,031,000 at 1996 and $2,890,000 at 1995........................ 220,109,248 245,222,022
Interest receivable on loans, net................................. 1,506,442 1,542,876
Real estate held for development and resale, less allowance for
possible losses: $3,342,000 at 1996 and $3,348,000 at 1995....... 507,490 1,002,830
Real estate acquired in settlement of loans, less allowance for
possible losses: $219,000 at 1996 and $401,000 at 1995........... 26,674 720,163
Investment in capital stock of Federal Home Loan Bank of New York,
at cost......................................................... 3,560,600 3,366,800
Premises and equipment, net....................................... 5,363,567 5,277,199
Excess of cost over fair value of net assets acquired,
less accumulated amortization: $4,418,000 at 1996 and
$4,054,000 at 1995.............................................. 3,791,467 4,154,827
Other assets...................................................... 4,070,726 4,461,191
----------- -----------
Total assets $468,271,970 $439,884,421
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits.......................................................... $386,569,400 $361,213,130
Other borrowed funds.............................................. 22,500,000 22,500,000
Long-term debt.................................................... -- 9,605,000
Advances from borrowers for taxes and insurance................... 1,542,477 1,728,841
Accrued income taxes and other liabilities........................ 2,048,126 2,575,895
----------- -----------
Total liabilities 412,660,003 397,622,866
----------- -----------
COMMITMENTS AND CONTINGENCIES
Serial preferred stock: authorized, 15,000,000 shares for
issuance in series: issued and outstanding, none................. -- --
Common stock: no par value; authorized 25,000,000 shares; issued
and outstanding 2,668,269 at 1996 and 1,964,142 shares at 1995... 2,668,269 1,964,142
Paid-in capital................................................... 18,510,912 10,146,128
Retained earnings-substantially restricted........................ 34,319,114 30,272,371
Net unrealized gain (loss) on securities available for sale....... 113,672 (121,086)
----------- -----------
Total stockholders' equity 55,611,967 42,261,555
----------- -----------
Total liabilities and stockholders' equity $468,271,970 $439,884,421
=========== ===========
</TABLE>
See notes to consolidated financial statements
24
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended March 31,
----------------------------------------------------------------
1996 1995 1994
------------------- --------------------- -------------------
Interest income
<S> <C> <C> <C>
Interest on loans receivable............. $19,344,809 $19,262,803 $20,295,637
Interest on mortgage-backed securities... 11,581,221 7,414,998 6,192.889
Interest on investment securities........ 1,843,214 1,504,709 1,275,361
Interest on deposits in other banks...... 81,426 73,168 121,587
---------- ---------- -----------
Total interest income................. 32,850,670 28,255,678 27,885,474
---------- ---------- -----------
Interest expense
Interest on deposits..................... 16,126,128 12,263,042 11,832,842
Interest on other borrowed funds......... 1,157,091 874,606 69,306
Interest on long-term debt............... 197,543 757,578 1,135,292
----------- ---------- ----------
Total interest expense................ 17,480,762 13,895,226 13,037,440
----------- ---------- ----------
Net Interest Income........................ 15,369,908 14,360,452 14,848,034
Provision for loan losses.................. 250,000 200,000 300,000
---------- ---------- ----------
Net interest income after provision for loan
losses................................. 15,119,908 14,160,452 14,548,034
---------- ---------- ----------
Non-interest income (loss)
Fee income............................... 957,480 1,002,289 1,130,245
Income on investment in Federal Home Loan
Bank.................................. 246,428 231,584 263,892
Loss on sales of investments, net........ -- -- (76,112)
Gain on sales of loans, net.............. 407,759 207,186 1,251,859
Loss from real estate operations......... (151,726) (346,740) (686,315)
Equity in loss of non-consolidated entities -- -- (47,598)
Other.................................... 69,762 -- 21,986
---------- ---------- ----------
Total non-interest income............. 1,529,703 1,094,319 1,857,957
---------- ---------- ----------
Non-interest expenses
Salaries................................. 3,571,606 3,677,011 3,828,810
Employee benefits........................ 744,608 785,989 784,050
Data processing fees and equipment costs. 921,962 826,684 821,139
Federal deposit insurance................ 843,750 805,534 861,079
Net occupancy............................ 539,814 503,349 466,048
Amortization of excess cost over fair
value of net assets acquired.......... 363,360 363,360 363,357
Advertising.............................. 136,855 264,805 224,848
Other.................................... 1,409,721 1,273,499 1,573,199
---------- ---------- ----------
Total non-interest expenses 8,531,676 8,500,231 8,922,530
---------- ---------- ----------
Income before income taxes................. 8,117,935 6,754,540 7,483,461
Income tax expense......................... 2,914,202 2,489,235 2,832,929
---------- ---------- ----------
Income before cumulative effect of a change in
accounting principle..................... 5,203,733 4,265,305 4,650,532
Cumulative effect on prior years (to
March 31, 1993) of adopting SFAS No. 109
"Accounting for Income Taxes"............ -- -- 1,500,000
---------- ---------- ----------
Net income................................. $ 5,203,733 $ 4,265,305 $ 6,150,532
========== ========== ==========
</TABLE>
25
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS - Cont'd
<TABLE>
<CAPTION>
Year Ended March 31,
---------------------------------------------------
1996 1995 1994
--------------- --------------- ---------------
Per share amounts:
Earnings per common share and common share
equivalent assuming no dilution:
Income before cumulative effect of a change in
<S> <C> <C> <C>
accounting principle....................................... $2.15 $2.12 $2.34
Cumulative effect on prior years (to March 31, 1993) of
adopting SFAS No. 109 "Accounting for Income Taxes" -- -- 0.75
Net income.................................................. 2.15 2.12 3.09
Earnings per common share - assuming full dilution:
Income before cumulative effect of a change in accounting
principle.................................................. 1.96 1.75 1.89
Cumulative effect on prior years (to March 31, 1993) of
adopting SFAS No. 109 "Accounting for Income Taxes"........ -- -- 0.55
Net income.................................................. 1.96 1.75 2.44
Average shares outstanding:
Assuming no dilution.......................................... 2,422,200 2,013,464 1,989,071
Assuming full dilution........................................ 2,724,132 2,719,444 2,721,715
</TABLE>
See notes to consolidated financial statements.
26
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Net
Unrealized
Retained Gain/(Loss)
Earnings on Securities
Common Paid-in Substantially Available for
Stock Capital Restricted Sale Total
---------- ----------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Balance, March 31, 1993.............. $1,400,919 $10,106,325 $21,410,627 $32,917,871
Net income........................... -- -- 6,150,532 6,150,532
Cash dividends, $0.31 per share...... -- -- (603,524) (603,524)
Common stock split................... 350,555 (350,555) (5,432) (5,432)
Options exercised.................... 2,284 19,254 -- 21,538
Debentures converted into common stock 2,000 25,921 -- 27,921
--------- ---------- -------- ----------
Balance, March 31, 1994.............. 1,755,758 9,800,945 26,952,203 38,508,906
Net income........................... -- -- 4,265,305 4,265,305
Cash dividends, $0.39 per share...... -- -- (761,695) (761,695)
Common stock dividend................ 175,996 -- (183,442) (7,446)
Options exercised.................... 6,297 28,523 -- 34,820
Debentures converted into common stock 26,091 316,660 -- 342,751
Net unrealized (loss) on securities
available for sale -- -- -- $(121,086) (121,086)
-------- --------- --------- --------- ----------
Balance, March 31, 1995.............. 1,964,142 10,146,128 30,272,371 (121,086) 42,261,555
Net income........................... -- -- 5,203,733 -- 5,203,733
Cash dividends, $0.46 per share...... -- -- (1,156,990) -- (1,156,990)
Debentures converted into common stock 704,127 8,364,784 -- -- 9,068,911
Change in net unrealized gain/(loss)
on securities available for sale... -- -- -- 234,758 234,758
------- --------- --------- ------- ----------
Balance, March 31, 1996.............. $2,668,269 $18,510,912 $34,319,114 $113,672 $55,611,967
========= ========== ========== ======= ==========
</TABLE>
See notes to consolidated financial statements.
27
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended March 31,
--------------------------------------------
1996 1995 1994
------------ ------------ ------------
Cash flows from:
Operating activities
<S> <C> <C> <C>
Net income ................................ $ 5,203,733 $ 4,265,305 $ 6,150,532
Adjustments to reconcile net income to net
cash provided by operating activities
Provision for losses on loans and real
estate, including real estate
acquired in settlement of loans ..... 276,634 350,000 595,000
Accretion of discounts on loans
acquired in business combination .... (207,237) (313,579) (350,661)
Amortization of premiums, discounts and
deferred fees ....................... 470,057 327,750 229,491
Deferred income taxes ................. 216,181 645,033 (787,550)
Amortization of excess cost over fair
value of net assets acquired ........ 363,360 363,360 363,357
Depreciation of premises and
equipment ........................... 351,380 243,204 243,404
Equity in results of non-consolidated
entities ............................ -- -- 7,459
Purchase of trading account securities -- -- (15,527,613)
Proceeds from sales of trading account
securities .......................... -- -- 15,451,501
Loss on sales of trading account
securities .......................... -- -- 76,112
Loans originated for sale ............. (25,961,939) (22,154,813) (88,754,514)
Proceeds from sales of loans held
for sale ............................ 25,094,367 23,884,297 90,075,403
Net gain on the sale of loans ......... (407,759) (207,186) (1,251,859)
Gain on sales of real estate acquired
in settlement of loans .............. -- -- (2,266)
Net (increase) decrease in interest
receivable and other assets ......... (413,384) 2,501,425 (1,604,767)
Net decrease in other liabilities ..... (527,769) (797,726) (1,008,605)
------------ ------------ ------------
Net cash provided by operating
activities ..................... 4,457,624 9,107,070 3,904,424
------------ ------------ ------------
Investing activities
Net (increase) decrease in interest-
bearing deposits in other banks ........ -- 2,142,000 (1,842,000)
Purchases of investment securities:
available for sale ..................... -- (8,298,750) --
Sales of investment securities:
available for sale ...................... 6,817 -- --
Purchases of investment securities:
portfolio ............................... (8,078,267) (3,945,917) (8,836,633)
Maturities of investment securities:
portfolio ............................... 2,049,992 12,203,345 4,707,720
Purchases of mortgage-backed securities:
portfolio ............................... (85,071,190) (56,420,104) (45,308,585)
Maturities of mortgage-backed securities:
portfolio ............................... 38,149,333 25,874,347 34,125,696
Loans originated, less principal
collected ............................... 24,906,704 (7,661,279) 3,362,595
</TABLE>
28
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
<TABLE>
<CAPTION>
Year Ended March 31,
--------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Loans purchased ............................ -- (347,933) (1,718,179)
Distributions from investments in non-
consolidated entities .................... -- 47,919 --
Decrease in real estate held for
development and resale ................... 495,340 1,325,124 158,876
Proceeds from sales of real estate
acquired in settlement of loans .......... 813,317 1,267,053 2,291,315
Purchases of premises and equipment, net ... (437,748) (1,869,781) (93,047)
Purchase of Federal Home Loan Bank stock ... (193,800) (343,500) (81,400)
------------ ------------ ------------
Net cash used by investing activities .... (27,359,502) (36,027,476) (13,233,642)
------------ ------------ ------------
Financing activities
Net increase in deposits ................... 25,356,270 8,384,337 4,631,245
Net increase in short-term borrowings ...... -- 20,700,000 1,800,000
Net proceeds from issuance of long-term debt -- -- 9,263,998
Principal repayments on long-term debt ..... -- -- (5,400,000)
Net increase (decrease) in advances from
borrowers ................................ (186,364) 200,779 41,454
Cash dividends paid on common stock ........ (1,156,990) (769,141) (608,956)
Options exercised .......................... -- 34,820 21,538
------------ ------------ ------------
Net cash provided by
financing activities................ 24,012,916 28,550,795 9,749,279
------------ ------------ ------------
Increase in cash and cash equivalents ........ 1,111,038 1,630,389 420,061
Cash and cash equivalents at beginning of year 7,693,873 6,063,484 5,643,423
------------ ------------ ------------
Cash and cash equivalents at end of year ..... $ 8,804,911 $ 7,693,873 $ 6,063,484
============ ============ ============
</TABLE>
29
<PAGE>
Notes to Consolidated Financial Statements
1. Summary of significant accounting policies
Central Jersey Financial Corporation (the "Corporation") is a thrift
holding company organized under the laws of the State of New Jersey in 1989. The
Corporation's sole subsidiary is Central Jersey Savings Bank, SLA ("CJSB"), a
state chartered savings and loan association organized under the laws of the
State of New Jersey. CJSB operates six branches in Middlesex County, New Jersey,
providing individual and corporate financial services. The Corporation
originates loans primarily to finance the acquisition and development of real
estate within the state of New Jersey. As a result, the Corporation's operations
and credit risk are concentrated in the state of New Jersey and are dependent on
the real estate market and general economics of the state.
The accounting and reporting policies of the Corporation and subsidiary
follow generally accepted accounting principles and general practices applicable
to both the banking and bank related industries. The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates. The policies which materially affect the determination of financial
position, results of operations and cash flows are summarized below.
Principles of consolidation - The consolidated financial statements include
the accounts of the Corporation and its wholly-owned subsidiary, CJSB (which
includes its subsidiary service corporation). All significant intercompany
accounts and transactions have been eliminated in consolidation.
Investment securities and mortgage-backed securities - The Corporation,
classifies its investment securities and mortgage-backed securities into one of
the three following categories prescribed in Statement of Financial Accounting
Standards No. 115 "Accounting for Certain Investments in Debt and Equity
Securities".
o Debt securities that the Corporation has the positive intent and
ability to hold to maturity are classified as "held-to-maturity"
securities and reported at amortized cost under the captions -
investment securities: portfolio and mortgage-backed securities:
portfolio.
o Debt and equity securities that are bought and held principally for the
purpose of selling them in the near term are classified as "trading"
securities and reported at fair value, with unrealized gains and losses
included in earnings.
o Debt and equity securities not classified as either held-to-maturity
securities or trading securities are classified as "available-for-sale"
securities and reported at fair value, with unrealized gains and losses
excluded from earnings and reported in a separate component of
shareholders' equity net of tax.
Gains and losses on sales of securities were based on the specific
identification method and are reflected under the heading noninterest income
(loss) in the accompanying financial statements.
30
<PAGE>
Premiums are amortized and discounts are accreted over the estimated life
of the securities using a method whose result approximates the interest method.
Loans held for sale - The Corporation has a policy to sell most mortgage
loans currently being originated. Management determines which types of loans
will be sold by considering such factors as interest-rate sensitivity,
alternative investments, liquidity and capital requirements. Loans held for sale
are carried at the lower of cost or market value determined in the aggregate.
Gains and losses resulting from the sale of loans is determined on the
specific identification method and reflect sales proceeds less the investment in
the loan (including unearned discounts, premiums and deferred fees at time of
sale).
Generally, loans are sold without recourse. Loans sold which the
Corporation will service are not included with loans receivable or any other
asset in the accompanying consolidated financial statements. Fees earned for
servicing loans for others are reported as income when the related loan payments
are collected. Loan servicing costs are charged to expense as incurred.
Loans - Loans are stated at principal amounts outstanding, net of unearned
discount and deferred loan origination fees and costs. Interest income on loans
is accrued and credited to interest income monthly as earned. Loan origination
fees, commitment fees, if the commitment is exercised, and certain direct loan
origination costs are deferred and the net amount is amortized as an adjustment
of the related loan's yield. Net loan fees are generally amortized over the
contractual lives of the related loans.
Loan performance evaluation - Most of the Corporation's loan portfolio is
comprised of large groups of smaller-balance homogeneous loans which are
collectively evaluated for impairment. The Corporation adopted Statement of
Financial Accounting Standard No. 114 "Accounting by Creditors for Impairment of
a Loan" (SFAS No. 114), on April 1, 1995. Under SFAS No. 114, which specifically
excludes large groups of smaller-balance homogenous loans, a loan is considered
impaired, based on current information and events, if it is probable that the
Corporation will be unable to collect the scheduled payments of principal or
interest when due according to the contractual terms of the loan agreement. The
measurement of impaired loans is generally based on the present value of
expected future cash flows discounted at the historical effective interest rate,
except that all collateral-dependent loans are measured for impairment based on
the fair value of the collateral. The Corporation's impaired loans are almost
entirely comprised of collateral-dependent loans.
Non-performing loans - The Corporation, on April 1, 1995, adopted Statement
of Financial Accounting Standard No. 118, "Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosures" (SFAS No. 118). The
Corporation's policy continues to provide that the recognition of interest on
the accrual method is generally discontinued when interest or principal payments
are ninety days or more in arrears, or when other factors indicate that the
collection of such amounts is doubtful. At the time a loan is placed on
non-accrual status, previously accrued and uncollected interest is reversed
against interest income in the current period. Interest on such loans, if
appropriate, is recognized as income when payments are received. A loan is
returned to accrual status when factors indicating doubtful collectability no
longer exist. The adoption of SFAS Nos. 114 and 118 did not have a material
effect on the financial statements upon adoption.
Allowance for loan losses - An allowance for loan losses is generally
established through charges to earnings in the form of a provision for loan
losses. The provision for loan losses charged to operating
31
<PAGE>
expenses is based upon a review of the loan portfolio, including contracts with
off-balance-sheet-risk, past loan experience, economic conditions and such other
factors that, in management's judgment, warrant current recognition in providing
an adequate allowance. Loans which are determined to be uncollectible are
charged against the allowance account and subsequent recoveries, if any, are
credited to the account.
Real estate held for development and resale - Real estate held for
development and resale consists of an investment in a land development project
and is accounted for at the lower of carrying value or fair value minus
estimated costs to sell. A valuation allowance is provided which is regularly
evaluated to determine its adequacy. The evaluations address, among other
considerations, current market conditions and trends, business and economic
conditions and trends, carrying costs and holding period.
Real estate acquired in settlement of loans - Real estate acquired in
settlement of loans includes property acquired through foreclosure or that prior
to the adoption of SFAS No. 114 met certain criteria as to the nature and
quality of the collateral securing the loans to be considered in-substance
foreclosure and is generally carried at the lower of carrying value or fair
value minus estimated costs to sell. When the property is acquired, any excess
of carrying value over the fair value is charged to the allowance for loan
losses. Subsequent write-downs, if any, are included in losses from real estate
operations.
Premises and equipment - Premises and equipment are stated at cost.
Depreciation is provided principally on the straight-line method over the
estimated useful lives of the assets. Buildings and improvements are depreciated
over ten to fifty years and other fixed assets over three to twenty years;
leasehold improvements are amortized on the straight-line basis over the term of
the related lease or their estimated useful lives, whichever is shorter. Repair
and maintenance costs are expensed as incurred, and major renewals and
betterments are capitalized. Gains and losses resulting from the disposition of
premises and equipment are included in the results of operations.
Excess of cost over fair value of net assets acquired - The excess of cost
over fair value of net assets acquired in business combinations is being
amortized on a straight-line basis over a period of twenty-five years.
Income taxes - On April 1, 1993, the Corporation adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS No.
109). The adoption of SFAS No. 109 was accounted for as the cumulative effect,
through March 31, 1993, of a change in accounting method and is presented
separately in the accompanying statement of operations for the year ended March
31, 1994. The objectives of SFAS No. 109 are to recognize the amount of income
taxes payable or refundable for the current year and the amount of deferred
income tax liabilities and assets attributable to the future tax consequences of
temporary differences. The measurement of current and deferred income tax
liabilities and assets is based on current tax law. Deferred tax liabilities and
assets will be adjusted for any future changes in tax laws or rate, with the
effect included in the results from continuing operations in the year of change.
The Corporation and CJSB file a consolidated Federal income tax return, and
the amount of income tax expense or benefit is computed and allocated on a
separate return basis.
Earnings per share - Earnings per share were computed by dividing net
income by the weighted average number of common shares and common share
equivalents outstanding during the period. Stock options are considered common
stock equivalents and were included in the calculations of the average number of
common shares outstanding using the treasury stock method. Fully diluted
earnings per share,
32
<PAGE>
primarily related to shares issuable in connection with the convertible
debentures, were computed using the if converted method.
Statement of cash flows - The statement of cash flows is presented using
the indirect method of presentation. Cash equivalents, for the purposes of this
statement, are defined as cash and due from depository institutions.
Reclassification - Certain captions in the financial statements presented
for prior periods have been reclassed to conform with the 1996 presentation.
2. Investment securities: available for sale
The amortized cost and estimated market values of investment securities:
available for sale at March 31, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---- ----- ------ -----
March 31, 1996
- --------------
<S> <C> <C> <C> <C>
Obligations of U.S. government agencies...... $8,093,723 $172,230 $ -- $8,265,953
Other securities............................. 905 -- -- 905
--------- -------- ------ ---------
$8,094,628 $172,230 $ -- $8,266,858
========= ======= ====== =========
</TABLE>
<TABLE>
<CAPTION>
March 31, 1995
- --------------
<S> <C> <C> <C> <C>
Obligations of U.S. government agencies...... $8,194,356 $12,167 ($133,253) $8,073,270
Other securities............................. 7,722 -- -- 7,722
--------- ------ --------- ---------
$8,202,078 $12,167 ($133,253) $8,080,992
========= ====== ========= =========
</TABLE>
33
<PAGE>
The amortized cost, estimated market value and the average yield of
investment securities: available for sale at March 31, 1996 by contractual
maturity were as follows:
<TABLE>
<CAPTION>
Estimated
Amortized Market Average
Cost Value Yield
---- ----- -----
Due in one year or less
<S> <C> <C> <C>
Other securities.................................. $ 905 $ 905 4.75%
Due after one year through five years
Obligations of U.S. government agencies........... 8,093,723 8,265,953 8.36
--------- ---------
$8,094,628 $8,266,858 8.36
========= =========
</TABLE>
3. Investment securities: portfolio
The amortized cost and estimated market values of investment securities:
portfolio at March 31, 1996, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---- ----- ------ -----
March 31, 1996
- --------------
Collateralized mortgage obligations issued
<S> <C> <C> <C> <C>
by U.S. government agencies................. $ 5,978,238 $105,512 $ -- $ 6,083,750
Obligations of U.S. government agencies....... 12,523,279 321,384 (3,725) 12,840,938
---------- ------- -------- ----------
$18,501,517 $426,896 $ (3,725) $18,924,688
========== ======= ======== ==========
</TABLE>
<TABLE>
<CAPTION>
March 31, 1995
- --------------
Collateralized mortgage obligations issued by
<S> <C> <C> <C> <C>
U.S. government agencies.................... $5,972,495 $ 6,424 $(18,919) $ 5,960,000
Obligations of U.S. government agencies....... 6,457,080 55,471 (8,646) 6,503,905
Other securities.............................. 49,998 2 -- 50,000
------------ -------- --------- ------------
$12,479,573 $61,897 $(27,565) $12,513,905
========== ====== ======== ==========
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---- ----- ------ -----
March 31, 1994
- --------------
Collateralized mortgage obligations issued by
<S> <C> <C> <C> <C>
U.S. government agencies.................... $7,847,907 $122,426 $ -- $7,970,333
Obligations of U.S. government agencies....... 4,008,497 249,550 -- 4,258,047
Commercial Paper.............................. 8,730,000 -- -- 8,730,000
Other securities.............................. 156,607 465 -- 157,072
---------- ------- --------- ----------
$20,743,011 $372,441 $ -- $21,115,452
========== ======= ========= ==========
</TABLE>
The amortized cost, estimated market value and the average yield of
investment securities: portfolio at March 31, 1996 by contractual maturity were
as follows:
<TABLE>
<CAPTION>
Estimated
Amortized Market Average
Cost Value Yield
---- ----- -----
Due in one year or less
<S> <C> <C> <C>
Obligations of U.S. government agencies........... $ 4,551,968 $ 4,581,563 7.92%
---------- ----------
4,551,968 4,581,563 7.92
---------- ----------
Due after one year through five years
Obligations of U.S. government agencies........... 2,972,766 3,071,875 7.48
Collateralized mortgage obligations issued by
U.S. government agencies......................... 994,792 1,015,000 7.54
---------- ----------
3,967,558 4,086,875 7.50
---------- ----------
Due after five years through ten years
Obligations of U.S. government agencies.......... 4,998,545 5,187,500 7.77
---------- ----------
4,998,545 5,187,500 7.77
---------- ----------
Due after ten years
Collateralized mortgage obligations issued by
U.S. government agencies......................... 4,983,446 5,068,750 5.28
---------- ----------
4,983,446 5,068,750 5.28
---------- ----------
$18,501,517 $18,924,688 7.45
========== ==========
</TABLE>
35
<PAGE>
Sales of investments held in a trading account resulted in realized gains
of $500 and realized losses of $76,612 for the year ended March 31, 1994. No
sales of investments were made during the years ended March 31, 1996 and 1995.
4. Mortgage-backed securities: portfolio
The amortized cost and estimated market values of mortgage-backed
securities: portfolio at March 31, 1996, 1995, and 1994 were as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Market Value
---- ----- ------ ------------
March 31, 1996
- --------------
<S> <C> <C> <C> <C>
Issued by U.S. government agencies........ $180,054,191 $1,648,508 $(201,622) $181,501,077
Other.................................... 11,476,476 55,751 (28,769) 11,503,458
----------- --------- -------- -----------
$191,530,667 $1,704,259 $(230,391) $193,004,535
=========== ========= ======== ===========
</TABLE>
<TABLE>
<CAPTION>
March 31, 1995
- --------------
<S> <C> <C> <C> <C>
Issued by U.S. government agencies........ $137,328,196 $518,793 $(1,669,287) $136,177,702
Other..................................... 7,597,407 414 (116,054) 7,481,767
----------- ------- ---------- -----------
$144,925,603 $519,207 $(1,785,341) $143,659,469
=========== ======= =========== ===========
</TABLE>
<TABLE>
<CAPTION>
March 31, 1994
- --------------
<S> <C> <C> <C> <C>
Issued by U.S. government agencies........ $106,770,041 $891,071 $(794,253) $106,866,859
Other..................................... 7,982,666 15,546 (18,608) 7,979,604
----------- ------- -------- -----------
$114,752,707 $906,617 $(812,861) $114,846,463
=========== ======= ======== ===========
</TABLE>
36
<PAGE>
The amortized cost, estimated market value and average yield of
mortgage-backed securities: portfolio at March 31, 1996 by contractual maturity
were as follows:
<TABLE>
<CAPTION>
Estimated
Amortized Market Average
Cost Value Yield
---- ----- -----
Due one year or less
<S> <C> <C> <C>
Issued by U.S. Government agencies................ $1,708,032 $1,696,121 7.59%
--------- ---------
Due after one year through five years
Issued by U.S. government agencies................ 9,638,833 9,677,089 6.82
Other............................................. 1,260,069 1,251,923 6.96
--------- ---------
10,898,902 10,929,012 6.83
---------- ----------
Due after five years through ten years
Issued by U.S. Government agencies................ 24,936,837 25,188,773 7.26
Other............................................. 609,232 608,435 8.89
---------- ----------
25,546,069 25,797,208 7.30
---------- ----------
Due after ten years
Issued by U.S. government agencies................ 143,770,489 144,939,094 6.88
Other............................................. 9,607,175 9,643,100 7.24
----------- -----------
153,377,664 154,582,194 6.91
----------- -----------
$191,530,667 $193,004,535 6.96
=========== ===========
</TABLE>
Certain mortgage-backed securities have been pledged as collateral in
connection with Other Borrowed Funds.
The Corporation did not sell any mortgage-backed securities during the
three years ended March 31, 1996.
37
<PAGE>
5. Loans receivable
Loans receivable at March 31, 1996 and 1995 consisted of the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
First mortgage real estate loans:
<S> <C> <C>
Conventional............................. $154,636,304 $174,828,462
Commercial............................... 29,496,029 31,455,809
Construction and land.................... 11,505,329 11,129,443
FHA insured and VA guaranteed............ 7,005,926 8,410,600
----------- -----------
202,643,588 225,824,314
Home equity loans........................ 27,509,954 28,658,579
Other consumer loans..................... 792,676 814,296
Other commercial loans................... 276,206 327,858
----------- -----------
231,222,424 255,625,047
Less:
Loans in process...................... 7,569,129 6,824,443
Discount on loans receivable acquired
through business combinations....... -- 207,237
Deferred loan fees..................... 594,936 661,166
Net premium on loans purchased......... (82,368) (179,957)
---------- ----------
223,140,727 248,112,158
Allowance for loan losses.............. 3,031,479 2,890,136
----------- -----------
$220,109,248 $245,222,022
=========== ===========
</TABLE>
Home equity loans consist of conventional equity loans and equity-line
accounts.
Included in loans receivable at March 31, 1996, 1995 and 1994 are loans,
amounting to $7,782,000, $5,442,000 and $8,787,000, respectively, on which the
accrual of interest has been suspended. Interest income that would have been
recorded in each of the years ended March 31, 1996, 1995 and 1994 had these
loans been in accrual status amounted to $497,000, $430,000 and $591,000,
respectively. Interest income of $178,000, $62,000 and $65,000 from loans on
which the accrual of interest has been suspended was included in net income for
the years ended March 31, 1996, 1995 and 1994, respectively.
38
<PAGE>
At March 31, 1996, the recorded investment in loans for which impairment
has been recognized in accordance with SFAS No. 114 totaled $7,782,000 for which
valuation allowances of $1,467,000 have been provided. For the year ended March
31, 1996, the average recorded investment in impaired loans was approximately
$6,177,000.
Loans to related parties at March 31, 1995 amounted to $2,596,000. No new
loans were extended to related parties while repayments were $330,000 for the
year ended March 31, 1996. The balance of related party loans was $2,266,000 at
March 31, 1996.
Loans serviced for others, not included in the Corporation's loans
receivable balance, amounted to $115,468,000, $121,802,000 and $123,304,000 at
March 31, 1996, 1995 and 1994, respectively.
6. Allowance for losses on loans
The table below summarizes the activity in the allowance for loan losses
during each of the three years ended March 31, 1996.
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ----------------- -----------------
<S> <C> <C> <C>
Balance, beginning of year......... $ 2,890,136 $ 2,652,433 $ 2,881,585
Provisions charged to operations... 250,000 200,000 300,000
Recoveries on loans................ 47,652 80,978 75,927
Less, loans written-off............ (176,669) (291,195) (132,571)
Transfers among allowance accounts. 20,360 247,920 (472,508)
--------- --------- --------
Balance, end of year $3,031,479 $2,890,136 $2,652,433
========= ========= =========
</TABLE>
39
<PAGE>
7. Allowance for losses on real estate
The table below summarizes the activity in the allowance for losses on real
estate during each of the three years ended March 31, 1996.
<TABLE>
<CAPTION>
Investments In And Loans Real Estate Held For Real Estate Acquired In
To Non-consolidated Entities Development And Resale Settlement of Loans
---------------------------- ---------------------- -------------------
<S> <C> <C> <C>
Balance March 31, 1993.......... $ 653,405 $ 3,218,789 $ 387,354
Provisions charged to operations 30,000 30,000 235,000
Recoveries...................... -- -- 56,205
Real estate written-off......... (843,300) -- (334,871)
Transfers among allowance accounts 167,348 115,342 189,818
--------- ---------- ----------
Balance March 31, 1994.......... 7,453 3,364,131 533,506
Provisions charges to operations -- 127,000 23,000
Recoveries...................... -- -- 5,248
Real estate written-off......... (1,781) -- (61,356)
Transfers among allowance accounts (5,672) (143,335) (98,913)
--------- --------- ---------
Balance March 31, 1995.......... -- 3,347,796 401,485
Provisions charged to operations -- -- 26,634
Recoveries...................... -- -- 689
Real estate written-off......... -- (5,660) (189,047)
Transfers among allowance accounts -- -- (20,360)
----------- --------- ---------
Balance March 31, 1996.......... $ -- $3,342,136 $ 219,401
=========== ========= =========
</TABLE>
The Corporation's participation in joint ventures was concluded during the
year ended March 31, 1995. Results of operations for the joint ventures amounted
to a net loss of $566 and net income of $556,000, respectively, for each of the
years ended March 31, 1995 and 1994.
8. Premises and equipment
Premises and equipment at March 31, 1996 and 1995 consisted of the
following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Land......................................... $2,523,852 $2,309,306
Buildings and improvements................... 3,515,360 3,485,627
Furniture and equipment...................... 1,239,035 1,157,678
--------- ---------
7,278,247 6,952,611
Less: accumulated depreciation and
amortization................................. 1,914,680 1,675,412
--------- ---------
$5,363,567 $5,277,199
========= =========
</TABLE>
40
<PAGE>
9. Deposits
Deposits with corresponding average nominal rates of interest at March 31,
1996 and 1995 consisted of the following:
<TABLE>
<CAPTION>
1996 % 1995 %
---- --- ---- --
<S> <C> <C> <C> <C>
Savings certificates.......... $221,717,909 5.34% $201,670,384 5.09%
Money market accounts......... 49,758,269 2.84 54,767,563 3.04
Passbook accounts............. 69,627,578 2.75 67,131,970 2.75
Regular NOW accounts.......... 41,633,888 2.00 34,658,951 2.00
Business NOW accounts......... 3,831,756 0.00 2,984,262 0.00
----------- -----------
$386,569,400 $361,213,130
=========== ===========
</TABLE>
The weighted average nominal interest rate on all deposits at March 31,
1996 and 1995 was 4.14% and 3.94%, respectively.
Deposits of $100,000 or more at March 31, 1996 amounted to $25,301,000.
Scheduled maturities of savings certificates for succeeding fiscal years
are $180,091,400 in 1997, $18,598,200 in 1998, $9,168,700 in 1999, $10,302,300
in 2000, $3,310,700 in 2001 and $246,609 thereafter.
Interest expense for each of the three years ended March 31, 1996 was as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Savings certificates................. $12,166,301 $7,911,120 $7,689,584
Money market accounts................ 1,477,061 1,770,722 1,748,346
Passbook accounts.................... 1,812,557 1,940,699 1,796,860
NOW accounts......................... 670,209 640,501 598,052
---------- ---------- ----------
$16,126,128 $12,263,042 $11,832,842
========== ========== ==========
</TABLE>
10. Other borrowed funds
The Corporation has a $22,696,750 overnight line of credit from the Federal
Home Loan Bank of New York ("FHLB"). Advances under the overnight credit
agreement are available on an overnight basis with principal and interest due on
the next business day. Interest rates are determined at time of advance. The
Corporation also has a $22,696,750 one-month overnight repricing line of credit
from the FHLB. The one-month overnight repricing line provides for monthly
advances with interest payable on each
41
<PAGE>
business day and principal payable at maturity. Interest rates are determined at
time of advance and adjusted each business day thereafter. Amounts drawn on the
credit lines are collateralized with mortgage-backed securities having an
aggregate market value of 125 percent of the advance. The credit agreements
extend to September 1996, renewable at the option of the FHLB. Advances and
annual interest rates on the overnight line of credit and the one-month
overnight repricing line of credit at March 31, 1996 were $7,500,000, 5.50
percent, and $15,000,000, 5.56 percent, respectively. At March 31, 1995,
advances under the overnight line of credit amounted to $22,500,000, bearing
interest at 6.25 percent per annum.
11. Long-term debt
The Corporation issued $10,000,000 of Convertible Subordinated Debentures
(the "Debentures") pursuant to an indenture dated April 5, 1993 (the
"Indenture"). The Debentures were unsecured, bore interest at a rate of 7.00
percent per annum and were due April 1, 2003. On September 26, 1995, the
Corporation, in accordance with the terms of the Indenture, redeemed all of the
then outstanding Debentures, amounting to $9,605,000. These Debentures were
converted into common stock of the Corporation at a conversion price of $13.64
per share, resulting in the issuance of 704,127 shares. Previously, Debentures
amounting to $365,000 and $30,000 were converted into 26,091 shares and 2,000
shares of the Corporation's common stock during each of the years ended March
31, 1995 and 1994, respectively.
12. Pension plan
The Corporation has a defined contribution benefit plan covering
substantially all employees. The Plan provides for the Corporation to contribute
3.00 percent of an employee's salary to the Plan. Employees may also make
contributions to the Plan within prescribed statutory limitations. The
Corporation made contributions to the Plan amounting to $106,000, $110,000 and
$114,000, respectively, during each of the years ended March 31, 1996, 1995 and
1994.
13. Financial instruments with off-balance sheet risk
The Corporation, in the normal course of meeting the financing needs of its
customers, is a party to financial instruments with off-balance sheet risk.
These financial instruments include commitments to extend credit, standby
letters of credit and financial guarantees. These instruments involve, to
varying degrees, elements of credit risk in excess of the amount recognized in
the statement of financial position. Credit risk represents the possibility of a
loss occurring from the failure of another party to perform in accordance with
the terms of the contract. The contract amount of these instruments reflects the
extent of involvement the Corporation has in particular classes of financial
instruments.
The Corporation's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for commitments to extend credit and
standby letters of credit and financial guarantees is represented by the
contractual amount of those instruments. The Corporation uses the same credit
policies in making commitments and conditional obligations as it does for
on-balance sheet instruments.
42
<PAGE>
The contractual amounts of the Corporation's off-balance sheet financial
instruments at March 31, 1996 and 1995 are presented below.
<TABLE>
<CAPTION>
1996 1995
---------------------- -------------------------
<S> <C> <C>
Commitments to extend credit................... $25,914,000 $25,113,000
Commitments to originate loans:
At fixed rates............................ 9,405,000* 1,965,000
At adjustable rates....................... 1,096,000 2,371,000
Standby letters of credit...................... 817,000 921,000
Loans sold with recourse....................... 2,343,000 3,077,000
</TABLE>
- ---------------------
(*) The weighted average interest rate on commitments to originate fixed-rate
loans at March 31, 1996 was 7.39 percent
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Corporation evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Corporation, upon extension of credit is based on
management's credit evaluation of the customer.
Standby letters of credit and financial guarantees are conditional
commitments issued by the Corporation to guarantee the performance of a customer
to a third party. Standby letters of credit were primarily issued in connection
with performance bonds, while financial guarantees relate to loans sold with
recourse. Most conditional commitments extend for more than 5 years and expire
in decreasing amounts through 2017. The credit risk involved in conditional
commitments is essentially the same as that involved in extending loans to
customers. Standby letters of credit are unsecured; financial guarantees are
collateralized with real property.
14. Contingencies
The Corporation is involved in various legal proceedings which arise out of
the general operations of its business. These lawsuits primarily involve claims
to enforce liens on real and personal property, condemnation proceedings on real
property and other matters incidental to the Corporation's business. The
Corporation does not believe that the resolution of these lawsuits would have a
material adverse effect on its financial condition or results of operations
15. Stockholders' equity
The Corporation paid a 10 percent common stock dividend on September 2,
1994, resulting in the issuance of 175,996 shares of common stock and the
payment of $7,446 in lieu of issuing fractional shares.
On October 22, 1993, the Corporation affected a five-for-four common stock
split, resulting in the issuance of 350,555 shares of common stock and the
payment of $5,432 in lieu of issuing fractional shares.
43
<PAGE>
At March 31, 1996, approximately 240,000 shares of the Corporation's common
stock were reserved for issuance in connection with the 1984 Stock Option and
Incentive Plan, the 1993 Stock Option and Incentive Plan and the 1993
Non-Employee Director Stock Option Plan.
CJSB is subject to various regulatory capital requirements administered by
federal and state 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 CJSB's
financial statements. The Office of Thrift Supervision ("OTS"), CJSB's primary
regulator, has three separate capital requirements each mandating a minimum
capitalization level. The following table presents CJSB's capital position at
March 31, 1996 and 1995 compared with the minimum OTS capital requirements.
<TABLE>
<CAPTION>
Minimum
Regulatory
1996 1995 Requirement
-------------------------- --------------------------- -------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Tangible capital........... $43,457 9.56% $36,400 8.59% 1.50%
Core capital............... 43,457 9.56 36,400 8.59 3.00
Risk based capital......... 45,721 23.63 38,834 19.95 8.00
</TABLE>
The Corporation is restricted from receiving cash dividends from CJSB (its
only material source of revenue). CJSB's ability to pay dividends or make other
capital distributions to the Corporation is governed by OTS regulations. CJSB, a
Tier 1 institution as defined by OTS regulations, is permitted under these
regulations, after prior notice to (and no objection by) the OTS, to make
capital distributions during a calendar year up to 100 percent of its net income
to date during the calendar year plus the amount that would reduce by one-half
its "surplus capital ratio," which is the percentage by which the ratio of its
regulatory capital to assets exceeds the ratio of its fully phased-in capital
requirement to assets at the beginning of the calendar year.
At the time of CJSB's conversion from a mutual to a stock organization,
eligible deposit account holders were granted a priority in the event of future
liquidation of CJSB by establishing a liquidation account equal to retained
earnings at March 31, 1984 ($5,608,000). In the event of future liquidation, and
only in such event, an eligible deposit account holder, who continues to
maintain their deposit account, shall be entitled to receive a distribution from
the liquidation account in the proportionate amount of the then current adjusted
balance for deposit accounts then held before any liquidation may be made with
respect to capital stock. No dividends may be paid to stockholders if such
dividends would reduce stockholders' equity below the amount required for the
liquidation account.
16. Stock options
The Corporation has two stock option plans, the 1993 Stock Option and
Incentive Plan and the 1993 Non-Employee Director Stock Option Plan. The Plans
provide for the issuance of 171,875 shares of the Corporation's common stock to
officers, directors and other key employees. Awards may be made in the form of
incentive or non-incentive stock options or stock appreciation rights having a
maximum term of ten years from date of grant. There remain 69,218 options
outstanding under the 1984 Stock Option and Incentive Plan which Plan was
canceled, whereby no further grants are permitted under this Plan.
44
<PAGE>
Transactions under the Plans during each of the three years ended March 31,
1996 were as follows:
<TABLE>
<CAPTION>
Average
Option Price
Shares Per Share
------ ---------
<S> <C> <C>
Balance March 31, 1993.......... 77,705
Granted......................... 38,120 $12.314*
Exercised....................... (3,141) 6.858
Canceled........................ (137) 11.909
--------
Balance March 31, 1994.......... 112,547
Granted......................... 24,585 20.174*
Exercised....................... (6,406) 5.435
Canceled........................ (138) 13.818
--------
Balance March 31, 1995.......... 130,588
Granted......................... 28,082 22.250*
------
Balance March 31, 1996.......... 158,670
=======
</TABLE>
* Fair market value at date of grant.
At March 31, 1996, the average option price per share was $11.32 and
137,992 options were exercisable. Options available for future grant at March
31, 1996 and 1995 amounted to 81,377 options and 109,446 options, respectively.
17. Income Taxes
The components of income tax expense for each of the three years ended
March 31, 1996 were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------------------- ------------------- ----------------
Current
<S> <C> <C> <C>
Federal....................... $2,474,578 $1,623,824 $1,928,668
State......................... 223,443 220,378 191,811
--------- --------- ---------
2,698,021 1,844,202 2,120,479
Deferred......................... 216,181 645,033 712,450
--------- --------- ---------
$2,914,202 $2,489,235 $2,832,929
========= ========= =========
</TABLE>
45
<PAGE>
A reconciliation of income taxes computed at the statutory federal income
tax rate to the provision for income taxes in the accompanying consolidated
statements of operations for each of the three years ended March 31, 1996 is as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------------- ------------------- ------------------
Expected statutory income
<S> <C> <C> <C>
tax expense......................... $2,760,098 $2,296,544 $2,544,377
Increase (reduction) of
income taxes resulting
from:
Acquisition accounted for
as a purchase..................... 123,541 123,541 123,541
State taxes, net of federal
income tax effect................. 147,472 143,202 126,595
Other............................... (116,909) (74,052) 38,416
--------- --------- ---------
$2,914,202 $2,489,235 $2,832,929
========= ========= =========
</TABLE>
The sources of temporary differences and the resulting deferred income tax
effect for each of the three years ended March 31, 1996 were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------------------- ------------------- ------------------
Provisions for losses on loans
and other real estate recognized
on tax return in amounts less than
amounts recorded in the consolidated
<S> <C> <C> <C>
financial statements.............. $ 87,826 $ 379,533 $ 311,619
Loan fees and interest income
recognized on tax return in
excess of amounts recorded in the
consolidated financial statements. 36,161 104,267 277,407
Amortization of loan discount....... 70,461 116,024 119,225
Other............................... 21,733 45,209 4,199
------- ------- -------
$216,181 $645,033 $712,450
======= ======= =======
</TABLE>
46
<PAGE>
The deferred tax assets and liabilities resulting from temporary
differences at March 31, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
1996 1995
-------------------- ---------------------
Deferred tax assets:
Provision for losses on loans and
<S> <C> <C>
real estate..................... $2,457,217 $2,602,172
Deferred loan fees and interest... 241,299 276,787
Loan discount..................... -- 76,678
Other............................. 28,413 58,564
--------- ---------
2,726,929 3,014,201
--------- ---------
Deferred tax liabilities:
Accelerated depreciation.......... (90,112) (160,950)
Unrealized gains on securities.... (58,558) --
--------- ---------
(148,670) (160,950)
--------- ---------
Valuation allowance................. (407,344) (407,597)
--------- ---------
Net deferred tax asset.............. $2,170,915 $2,445,654
========= =========
</TABLE>
Retained earnings at March 31, 1996 includes approximately $6,372,000 of
special bad debt deduction for which no provision for income tax has been made.
Reduction of such amount for purposes other than bad debt losses will result in
income for tax purposes only, and will be subject to income tax at the then
current rate.
18. Supplementary cash flow data
The Corporation exchanged mortgage loans for the properties underlying the
mortgages amounting to $186,000, $1,032,000, and $514,000, respectively, during
each of the three years ended March 31, 1996, 1995 and 1994. The value of the
properties at the time of exchange was $126,000, $857,000, and $404,000,
respectively, for each of the three years ended March 31, 1996, 1995 and 1994,
and was recorded as Real Estate Acquired in Settlement of Loans. The difference
between loan balances and the value of the underlying properties was charged to
the allowance for loan losses. In addition, the Corporation, during the year
ended March 31, 1994, accepted a deed in lieu of foreclosure in connection with
a loan, amounting to $1,262,000, extended to a joint venture. The value of the
underlying property at the time of accepting the deed was $420,000 and was
included in Real Estate Acquired in Settlement of Loans. The difference between
the loan balance and the value of the underlying property was charged to
allowances provided for such losses.
Cash paid during each of the three years ended March 31, 1996 for interest
on deposits and borrowed funds amounted to $17,476,000, $13,896,000 and
$13,079,000, respectively. Cash payments made in each of the three years ended
March 31, 1996 for federal and state income taxes amounted to $2,610,000,
$1,845,000 and $3,375,000, respectively.
47
<PAGE>
19. Fair value of financial instruments
The estimated fair value of the Corporation's financial instruments at
March 31, 1996 and 1995 and the assumptions used to determine those estimates
are presented below. The determination of fair value is based on information
available at a specific point in time and does not provide for estimating the
value of anticipated future operations and excludes all nonfinancial
instruments. As a result and for other reasons, the aggregate fair value of
financial instruments does not represent the overall value of the Corporation
taken as a whole.
The following methods and assumptions were used to estimate the fair value
of significant financial instruments at March 31, 1996 and 1995:
Financial assets: The carrying amounts of cash and amounts due from
depository institutions were considered a reasonable estimate of fair value. The
fair values of investment securities and mortgage-backed securities were based
on quoted market prices or dealer quotes. Fair values of loans held for sale
were estimated using quoted rates based upon secondary market sources for
securities backed by similar loans. Loans receivable were segmented into
homogeneous groups by loan type, fixed-rate or adjustable and range of
maturities. The fair value of these loan groups were estimated using quoted
rates based upon secondary market sources for securities backed by similar
loans, adjusted for differences in loan characteristics and estimated
prepayments.
Financial liabilities: The fair value of NOW accounts, savings accounts,
and certain money market deposits were by definition the amounts payable on
demand at March 31, 1996 and 1995. The fair value of fixed-maturity certificates
of deposit was estimated using the rates currently offered for deposits of
similar remaining maturities. Rates currently available to the Corporation for
debt with similar terms and remaining maturities were used to estimate fair
value of existing borrowed funds.
Off-balance sheet financial instruments: The fair value of commitments to
extend credit and originate loans was estimated using the fees currently charged
to enter into similar agreements. For fixed-rate loan commitments, fair value
also considered the difference between current levels of interest rates and the
committed rates. The fair value of standby letters of credit and guarantees was
based on fees currently charged for similar agreements or on the estimated cost
to terminate them at March 31, 1996 and 1995. The fair value of these
off-balance sheet financial instruments was determined to be not significant.
48
<PAGE>
The estimated fair value of financial instruments at March 31, 1996 and
1995 were as follows:
<TABLE>
<CAPTION>
1996 1995
-------------------- --------------------
Financial Assets:
<S> <C> <C>
Cash and due from depository institutions................ $ 8,805,000 $ 7,694,000
Investment securities.................................... 27,192,000 20,595,000
Mortgage-backed securities............................... 193,005,000 143,659,000
Loans held for sale...................................... 2,232,000 956,000
Loans receivable......................................... 226,250,000 245,277,000
Financial Liabilities:
Deposits................................................. $384,849,000 $360,792,000
Borrowed funds and long-term debt........................ 22,500,000 30,679,000
</TABLE>
20. Parent Company
Condensed financial statements of Central Jersey Financial Corporation,
parent company, are presented below:
Condensed Statements of Financial Condition
<TABLE>
<CAPTION>
March 31,
---------------------------------------------------
1996 1995
------------------------- ------------------------
Assets
<S> <C> <C>
Cash.......................................... $ 678 $ 190
Investment securities: available for sale.... 8,266,858 8,080,992
Investment in common stock of CJSB............ 47,220,593 42,899,098
Other......................................... 123,838 886,275
---------- ----------
Total assets.................................. $55,611,967 $51,866,555
========== ==========
Liabilities and stockholders' equity
Convertible subordinated debentures .......... $ -- $ 9,605,000
Stockholders' equity.......................... 55,611,967 42,261,555
---------- ----------
Total liabilities and stockholders' equity.... $55,611,967 $51,866,555
========== ==========
</TABLE>
49
<PAGE>
20. Parent Company (continued)
Condensed Statements of Operations
<TABLE>
<CAPTION>
For the years ended March 31,
----------------------------------------------------------
1996 1995 1994
------------------ ------------------ -----------------
<S> <C> <C> <C>
Interest income..................... $ 577,040 $ 520,221 $ 386,915
Dividends from CJSB................. 643,000 425,000 --
Loss on sales of investments........ -- -- (76,612)
--------- --------- ---------
1,220,040 945,221 310,303
--------- --------- ---------
Interest expense.................... 197,543 757,578 764,678
Other expense....................... 16,500 29,840 16,328
--------- --------- ---------
214,043 787,418 781,006
--------- --------- ---------
Income before income taxes and
equity in undistributed income of
CJSB.............................. 1,005,997 157,803 (470,703)
Income tax provision (benefit)...... 123,759 -- (157,812)
--------- --------- --------
882,238 157,803 (312,891)
Equity in undistributed income of
CJSB............................... 4,321,495 4,107,502 6,463,423
--------- --------- ---------
Net income.......................... $5,203,733 $4,265,305 $6,150,532
========= ========= =========
</TABLE>
50
<PAGE>
20. Parent Company (continued)
Condensed Statements of Cash Flows
<TABLE>
<CAPTION>
For the years ended March 31,
-----------------------------------------------------------
1996 1995 1994
------------------ ------------------ ------------------
Operating activities
<S> <C> <C> <C>
Net income...................................... $5,203,733 $4,265,305 $6,150,532
Adjustments to reconcile net come to net cash
provided by operating activities
Equity in undistributed income of CJSB....... (4,321,495) (4,107,502) (6,463,423)
Purchases of trading account securities...... -- -- (15,527,613)
Proceeds from sales of trading account
securities.................................. -- -- 15,451,001
Loss on sales of trading account securities... -- -- 76,612
Amortization of premiums on investments....... 100,633 104,394 --
(Increase) decrease in other assets........... 167,790 (67,402) (18,485)
--------- --------- ----------
Net cash provided by (used by) operating activities 1,150,661 194,795 (331,376)
--------- --------- ----------
Investing activities
Purchases of investment securities:
available for sale............................ -- (8,298,750) --
Proceeds from sales of investment securities:
available for sale............................ 6,817 -- --
Purchases of investment securities: portfolio.. -- -- (8,836,634)
Maturities of investment securities: portfolio.. -- 8,828,912 475,000
-------- --------- ----------
Net cash provided by (used by) investing activities 6,817 530,162 (8,361,634)
-------- --------- ----------
Financing activities
Cash dividends paid on common stock............. (1,156,990) (769,141) (608,956)
Exercise of stock options....................... -- 34,820 21,538
Proceeds from convertible debenture offering.... -- -- 9,264,127
---------- --------- ---------
Net cash provided by (used by) financing activities (1,156,990) (734,321) 8,676,709
---------- --------- ---------
Net increase (decrease) in cash................... 488 (9,364) (16,301)
Cash, beginning of year........................... 190 9,554 25,855
---------- --------- ---------
Cash, end of year................................. $ 678 $ 190 $ 9,554
========== ========= =========
</TABLE>
51
<PAGE>
21. Recent accounting pronouncements
The Financial Accounting Standards Board ("FASB"), in May 1995, issued
Statement of Financial Accounting Standard No. 122 ("SFAS No. 122") "Accounting
for Mortgage Servicing Rights," an amendment to FASB Statement No. 65,
"Accounting for Certain Mortgage Banking Activities." SFAS No. 122 requires
banking enterprises to recognize as a separate asset rights to service mortgage
loans for others however the servicing rights are acquired. The capitalized
value of the servicing rights must be assessed for impairment based on the fair
value of those rights. Any impairment noted should be recognized through the
establishment of a valuation allowance. The provisions of SFAS No. 122 shall be
applied prospectively in fiscal years beginning after December 15, 1995. The
Corporation will adopt SFAS No. 122 for fiscal 1997 and does not believe that it
will have a material effect on its financial position or results of operations.
In October 1995, the FASB issued SFAS No. 123 "Accounting for Stock-Based
Compensation" effective for financial statements and transactions entered into
in fiscal years that begin after December 15, 1995. SFAS No. 123 encourages
entities to account for employee stock options using a fair value based method.
However, it also allows an entity to continue to measure compensation cost for
those plans using the intrinsic value based method of accounting prescribed by
APB Opinion No. 25, "Accounting for Stock Issued to Employees." Entities
electing to remain with the accounting in Opinion 25 must make pro forma
disclosures of net income and earnings per share, as if the fair value based
method of accounting had been applied.
The Corporation intends to continue accounting for stock-based compensation
under APB No. 25 and will include the pro forma disclosures required by SFAS No.
123 in financial statements issued for fiscal years beginning April 1, 1996.
52
<PAGE>
22. Quarterly financial data (unaudited)
<TABLE>
<CAPTION>
For the Year Ended March 31, 1996
---------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
Interest income....................... $8,012,929 $8,257,831 $8,346,286 $8,233,623
Interest expense...................... 4,347,082 4,464,219 4,398,264 4,271,197
Net interest income................... 3,665,847 3,793,612 3,948,022 3,962,426
Provision for loan losses............. 50,000 100,000 50,000 50,000
Provision for losses on real estate... -- 11,613 -- 15,021
Net income............................ 1,210,629 1,338,156 1,339,089 1,315,859
Per share amounts:
Earnings per common share and
common share equivalent -
assuming no dilution.............. $0.59 $0.60 $0.49 $0.48
Earnings per common share and
common share equivalent -
assuming full dilution............ 0.49 0.49 0.49 0.48
Dividends declared.................. 0.10 0.12 0.12 0.12
</TABLE>
53
<PAGE>
<TABLE>
<CAPTION>
For the Year Ended March 31, 1995
---------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
Interest income................... $6,582,246 $7,075,868 $7,147,960 $7,449,604
Interest expense.................. 3,145,502 3,476,412 3,551,129 3,722,183
Net interest income............... 3,436,744 3,599,456 3,596,831 3,727,421
Provision for loan losses......... 50,000 50,000 50,000 50,000
Provision for losses on real estate 10,000 15,000 50,000 75,000
Net income........................ 970,184 1,013,803 1,116,893 1,164,425
Per share amounts:
Earnings per common share and
common share equivalent -
assuming no dilution.......... $0.49 $0.50 $0.55 $0.58
Earnings per common share and
common share equivalent -
assuming full dilution........ 0.40 0.42 0.45 0.47
Dividends declared.............. 0.09 0.10 0.10 0.10
</TABLE>
23. Subsequent Event
The Corporation, on May 22, 1996, entered into a definitive merger
agreement (the "Agreement") with Summit Bancorp ("Summit"). The Agreement
provides for Summit to acquire the Corporation in a tax-free exchange of stock.
Under the terms of the Agreement, each of the Corporation's common shares would
be exchanged for 0.875 shares of Summit common stock if the average price of
Summit common stock over a certain pricing period is equal to or greater than
$32.57. If the average price of Summit common stock is less than $32.57 but
equal to or greater than $28.75, the Corporation has the right to terminate the
Agreement unless Summit increases the exchange ratio to equal the quotient
obtained by the dividing $28.50 by the average price. If the average price of
Summit common stock is less than $28.75, the Corporation shall have the right to
terminate the Agreement.
Summit was given an option to purchase up to 530,986 shares of the
Corporation's common stock if certain conditions occur. The Agreement also
allows the Corporation to declare quarterly common stock dividends until the
closing date up to the equivalent common stock dividend rate declared by Summit.
The transaction is expected to be completed in the fourth quarter of
calendar 1996, subject to the approval of the Corporation's shareholders,
regulatory approvals and the market price of Summit.
54
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
There were no changes in or any disagreements with accountants concerning
matters of accounting principles or practices, or financial statement
disclosure, occurring within 24 months prior to, or in any subsequent period to,
the most recent financial statements.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth each nominee and continuing director's name,
age, principal occupation during the past five years, the year he or she first
became a director, the year in which his or her current term will expire
(assuming nominees are elected at the Annual Meeting) and the number of shares
and percentage of the Company's Common Stock beneficially owned on June 28,
1996. The following table also sets forth, for all executive officers and
directors as a group and for each executive officer listed in the Summary
Compensation Table under the caption "Executive Compensation," the number of
shares and the percentage of the Company's Common Stock beneficially owned on
June 28, 1996.
<TABLE>
<CAPTION>
Position With Shares of
The Company and Common
Principal Occupation Year First Current Stock
During The Past Elected Term to Beneficially Percent of
Name Age (1) Five Years(2) Director Expire Owned(3) Class
- -------------------------- ------- ------------- ---------- -------- -------- ------
BOARD NOMINEES FOR TERMS TO EXPIRE IN 1999
<S> <C> <C> <C> <C> <C> <C>
Domenick Carratello 59 Owner of Mickey's Gourmet 1993 1996 13,157(5) (6)
Bakery
John J. Doherty 47 Vice President and Chief 1988 1996 16,701(7) (6)
Financial Officer (1989 to
present); Vice President &
Chief Financial Officer of
Association since 1987;
Previously an accountant with
Coopers & Lybrand
Arthur E. Fritsch, Jr. (4) 48 Vice President of E.W. Price 1988 1996 23,898(8) (6)
Agency, Inc., an insurance
agency
Robert V. Noreika 52 Owner of Clarkesburg Inn 1993 1996 1,711(5) (6)
Restaurant
</TABLE>
55
<PAGE>
<TABLE>
<CAPTION>
Position With Shares of
The Company and Common
Principal Occupation Year First Current Stock
During The Past Elected Term to Beneficially Percent of
Name Age (1) Five Years(2) Director Expire Owned(3) Class
- -------------------------- ------- ------------- ---------- -------- -------- ------
DIRECTORS CONTINUING IN OFFICE
<S> <C> <C> <C> <C> <C> <C>
Salvatore Alfieri 38 Attorney and Partner with the 1993 1997 2,949(5) (6)
law firm of Cleary, Alfieri &
Grasso
James J. Kelly 61 Retired. Former Owner and 1987 1997 91,154(9) 3.4%
Chief Operations Officer of
K-D Electrical Contractors
Emile L. LeLand, Jr. 59 Senior Vice President (1989 1988 1997 34,829(10) 1.3%
to present); Senior Vice
President of the Association
since 1984; and an officer of
the Association since 1979.
L. Doris Fritsch (4) 74 President and Chief Executive 1964 1998 170,470(11) 6.3%
Officer (1989 to present);
President & Chief Executive
Officer of Association since
1964 and employee of
Association since 1943
William B. Lewis 72 Retired. Former Executive 1991 1998 3,696(12) (6)
Vice President and Director
of Nutley Savings Bank,
SLA. Former Deputy
Commissioner of Banking,
Savings and Loan Division,
New Jersey Dept. of Banking
Chester J. Pardun, Jr. 70 Retired. Former Secretary 1982 1998 62,744(13) 2.4%
and Treasurer of C. J.
Pardun & Sons, a
construction company
DIRECTOR EMERITUS (14)
Arthur E. Fritsch, Sr. (4) 77 President of E.W. Price 1951 -- 1,323(17) (6)
Agency, Inc., an insurance
agency. Trustee of the
Washington Monumental
Cemetery Association
</TABLE>
56
<PAGE>
<TABLE>
<CAPTION>
Position With Shares of
The Company and Common
Principal Occupation Year First Current Stock
During The Past Elected Term to Beneficially Percent of
Name Age (1) Five Years(2) Director Expire Owned(3) Class
- -------------------------- ------- ------------- ---------- -------- -------- ------
CERTAIN EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
<S> <C> <C> <C> <C>
William M. Sievewright 67 Senior Vice President (1991 4,579(15) (6)
to present); employee of
Association since May 1991;
previously, Senior Vice
President of Shadow Lawn
Savings Bank
All executive officers
and directors as a
group (20 persons) 468,074(16) 16.7%
</TABLE>
- -----------------------
(1) At March 31, 1996.
(2) No nominee, director or director emeritus is a director of any other
company with a class of securities registered pursuant to Section 12 of the
Exchange Act or subject to the requirements of Section 15(d) of the
Exchange Act or of any company registered as an investment company under
the Investment Company Act of 1940.
(3) Unless otherwise noted in this Proxy Statement, all shares are owned
directly by individuals or by their spouses and minor children, over which
shares the individuals effectively exercise sole or shared voting and
investment power.
(4) L. Doris Fritsch, Arthur E. Fritsch, and Arthur E. Fritsch, Jr. are wife,
husband and son.
(5) Includes 1,412 shares subject to stock options exercisable within 60 days
of June 28, 1996. Excludes 173 shares owned as unexercisable stock options.
(6) Less than one percent.
(7) Includes 14,987 shares Mr. Doherty has a right to purchase pursuant to
stock options exercisable within 60 days of June 28, 1996.
(8) Includes 1,541 shares Mr. Fritsch has a right to acquire pursuant to Stock
Options exercisable within 60 days of June 28, 1996 and 7,862 shares owned
by the E.W. Price Agency of which Mr. Fritsch is a 50% owner. Excludes 218
shares Mr. Fritsch owns as unexercisable stock options.
(9) Includes 1,323 shares Mr. Kelly has a right to acquire pursuant to Stock
Options exercisable within 60 days of June 28, 1996. Excludes 218 shares
owned as unexercisable stock options and 4,917 shares owned by Mr. Kelly's
adult children, as to which shares Mr. Kelly disclaims beneficial
ownership.
(10) Includes 25,408 shares Mr. LeLand has a right to purchase pursuant to stock
options exercisable within 60 days of June 28, 1996.
(11) Includes 118,640 shares owned solely by L. Doris Fritsch and 51,830 shares
Mrs. Fritsch has a right to purchase pursuant to the exercise of stock
options exercisable within 60 days of June 28, 1996.
(12) Includes 130 shares Mr. Lewis has a right to acquire pursuant to stock
options exercisable within 60 days of June 28, 1996. Excludes 218 shares
Mr. Lewis owns as unexercisable stock options.
(13) Includes 1,323 shares Mr. Pardun has a right to acquire pursuant to stock
options exercisable within 60 days of June 28, 1996 and 8,285 shares owned
by his wife and daughter. Excludes 218 shares Mr. Pardun owns as
unexercisable stock options.
(14) In such capacity, Mr. Fritsch may attend meetings of the Board of Directors
but he is not entitled to vote.
(15) Includes 3,544 shares Mr. Sievewright has a right to purchase pursuant to
stock options exercisable within 60 days of June 28, 1996. Excludes 2,310
shares Mr. Sievewright owns as unexercisable stock options.
57
<PAGE>
(16) Includes 139,513 shares of Common Stock which officers, directors and
director emeritus as a group have a right to acquire pursuant to stock
options exercisable within 60 days of June 28, 1996. Excludes 12,991 shares
of Common Stock which are unexercisable stock options.
(17) Includes 1,323 shares Mr. Fritsch has a right to acquire pursuant to stock
options exercisable within 60 days of June 28, 1996. Excludes 218 shares
owned as unexercisable stock options.
Section 16(a) Beneficial Ownership Reporting Compliance
The Common Stock of the Company is registered pursuant to Section 12(g)
of the Exchange Act. The executive officers and directors of the Company and
beneficial owners of greater than 10% of the Company's Common Stock ("10%
beneficial owners") are required to file reports on Forms 3, 4 and 5 with the
SEC disclosing changes in beneficial ownership of the Common Stock. Based on the
Company's review of Forms 3, 4 and 5 filed by officers, directors and 10%
beneficial owners of Common Stock, no executive officer, director or 10%
beneficial owners of Common Stock failed to file such ownership reports on a
timely basis during the fiscal year ended March 31, 1996 except Director
Carratello who inadvertently omitted reporting 2,230 shares (purchased in 1990)
on Form 3 in 1992 upon becoming a director and each subsequent Form 4 filing.
ITEM 11. EXECUTIVE COMPENSATION
Directors' Compensation
Each non-officer director of the Company or the Association receives an
attendance fee of $850 for each Board meeting attended with two excused absences
permitted without loss of fee for those meetings; provided, however, that only
one attendance fee is paid in the usual case when Company and Association Board
meetings are held on the same day. Non-officer directors also receive an
attendance fee of $450 for each special meeting attended. All members of the
Salary Committee receive $200 for each meeting attended. The Company paid a
total of $89,800 in directors' and committee fees for the fiscal year ended
March 31, 1996.
Executive Compensation
The Company has no full-time employees, relying upon employees of the
Association for the limited services required by the Company. All Compensation
paid to directors, officers and employees is paid by the Association.
58
<PAGE>
The following table sets forth, for the fiscal years ended March 31,
1996, 1995 and 1994, certain information as to the total remuneration received
by the chief executive officer as well as by each of the other most highly
compensated executive officers of the Company whose total annual salary and
bonus exceeded $100,000 during these periods for services rendered in all
capacities to the Company (the "Named Officers").
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation
--------------------------------------------- ----------------------------
Awards
----------------------------
(a) (b) (c) (d) (e) (f) (g) (h)
Securities
Other Annual Restricted Underlying All Other
Name and Principal Compensation Stock Options/ Compensation
Position Year Salary($) Bonus($) ($)(1) Award(s)($) SARs(#)(2) ($)(3)
-------- ---- --------- -------- ------ ----------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
L. Doris Fritsch 1996 $252,390 $ -- $ -- -- 7,200 $4,500
President and Chief 1995 242,960 -- -- -- 6,000 4,500
Executive Officer 1994 236,687 -- -- -- 7,500 7,100
Emile L. LeLand, Jr. 1996 159,469 20,000 -- -- 3,600 4,500
Director and Senior 1995 153,540 -- -- -- 3,300 4,500
Vice President 1994 149,594 -- -- -- 4,125 4,488
John J. Doherty 1996 108,743 -- -- -- 3,600 3,262
Director, Vice 1995 104,850 -- -- -- 3,300 3,145
President and Chief 1994 102,461 -- -- -- 4,125 3,074
Financial Officer
William M. 1996 96,617 -- -- -- 250 2,899
Sievewright 1995 99,372 -- -- -- 1,100 2,981
Senior Vice President 1994 134,492 -- -- -- 4,125 4,035
</TABLE>
- ------------------
(1) No Named Officer received perquisites (i.e. personal benefits) in excess of
the lesser of $50,000 or 10% of such individual's reported salary and
bonus.
(2) Includes adjustments for stock dividends paid by the Company on September
2, 1994 and a five-for-four stock split on October 22, 1993.
(3) Includes contributions to the Company's 401(k) Plan.
Employment Agreements and Change of Control Arrangements
The Association has in effect employment agreements with President L.
Doris Fritsch, Senior Vice President Emile L. LeLand, Jr. and Vice President
John J. Doherty. President Fritsch's employment agreement with the Association
as last amended on March 20, 1996 is for a three year term commencing on that
date and is extended for an additional year at each annual meeting of the Board
of Directors upon resolution of the Board. President Fritsch's minimum annual
salary is $231,000. The Agreement also provides for certain death and disability
benefits. President Fritsch's agreement also provides that after reaching age
70, she may elect to terminate her full-time employment and become a consultant
to the Association for a period of three years at the annual rate of $50,000 or
one third of her highest compensation during any of the three preceding years.
59
<PAGE>
Senior Vice President LeLand is employed pursuant to an employment
agreement with the Association last amended on March 20, 1996. The Amendment
provides for a term of three years, which term is to be extended one additional
year at each annual meeting of the Board of Directors upon resolution of the
Board. Mr. LeLand's minimum annual salary is $146,000. The Agreement also
provides for certain death and disability benefits.
Vice President Doherty is employed pursuant to an employment agreement
last amended on March 20, 1996. The amendment provides that Mr. Doherty's
employment would be for a term of three years, which term is to be extended one
additional year at each annual meeting of the Board of Directors upon resolution
of the Board. Mr. Doherty's minimum salary is $100,000 per year. The Agreement
also provides for certain death and disability benefits.
The agreements with President Fritsch, Senior Vice President LeLand, and
Vice President Doherty also provide for severance payments in the event the
employee is terminated without "cause" or the agreement is not renewed by the
Association, with special provisions applying following any "change of control"
of the Association. The severance payments following a "change of control" are
2.99 times the employee's "base amount" as defined in Section 280G of the Code,
which will qualify the severance payment for deductibility by the Association
for federal income tax purposes and should be made no later than 10 days after
the termination date. Mrs. Fritsch and Mr. LeLand are also entitled to continue
coverage under the Association's employee benefit plan for a period of four
years after termination. Vice President Doherty's agreement provides that if the
"change of control" is approved by more than 80% of the Board of Directors, the
severance payments will be reduced to 1.5 times his annual compensation. The
term "change of control" includes (i) the termination of the registration of all
classes of the Company's securities under Section 12 of the Exchange Act (ii)
the acquisition by any person or any persons acting in concert of more than 25%
of the outstanding Common Stock or securities of the Company or the Association
entitled to vote in elections of directors, (iii) the election to the Board of
Directors of a majority of directors who have not been nominated by the Company,
(iv) during any period of two consecutive years when the individuals who were
members of the Board of Directors of the Company at the beginning of such period
shall cease for any reason to constitute a majority of the Board, (v) any
"change of control" of the Association or the Company within the meaning of the
applicable federal banking law, or (vi) the acquisition of all or substantially
all of the assets of the Company or the Association.
Benefits
Insurance and Medical Reimbursement. The Association's full-time
officers, without contribution or expense to them, are provided with
hospitalization, major medical, and dental benefits, life insurance, and
disability insurance under group plans which are available generally and on the
same basis to all full-time employees. The Association's directors who are not
full-time employees are provided with the hospitalization, major medical and
dental benefits given to full-time employees.
Savings Plan. Effective as of April 1, 1992, the Association established
the Central Jersey Savings Bank, SLA 401(k) Plan (the "Plan") for the benefit of
its employees. All permanent employees who have been employed for at least 90
days are eligible to participate in the Plan. Under the terms of the Plan, an
employee may choose to defer a portion of pre-tax wages, which the Association
then contributes to the Plan. The Plan operates on a calendar year basis.
Employees may elect to defer up to 15 percent of total compensation, subject to
provisions of the Internal Revenue Code of 1986, as amended (the "Code"), that
limit an employee's pre-tax contributions to an annual amount that for 1995 was
$9,240. The Code also imposes a limitation on the amount of annual additions to
a participant's account that generally affects only certain highly-compensated
employees. In order to pass the non-
60
<PAGE>
discrimination test imposed by the Code, the Association may make discretionary
contributions to the Plan to be allocated ratably to the employees based on
amount of compensation. Amounts contributed to the Plan are invested according
to the investment choices made by the employee based on the menu of investments
offered in the Plan. Each eligible employee is always fully vested in his or her
own contributions and all contributions, if any, made by the Association. The
current trustees of the Plan are John J. Doherty, William M. Sievewright and
James H. Wainwright.
Benefits are generally payable after termination of employment with the
Association. Employed participants may also obtain a distribution of benefits
after attaining age 59-1/2 or on account of suffering certain hardships as
defined in the Plan. In addition, participants may obtain loans from the Plan.
Stock Option Plans. In connection with the conversion of the Association
from mutual to stock form, the Board of Directors of the Association adopted the
Central Jersey Savings Bank, SLA 1984 Stock Option and Incentive Plan (the "1984
Plan"). Pursuant to the 1984 Plan, an aggregate of 139,855 shares of Common
Stock had been reserved for issuance by the Company upon the exercise of stock
options granted to officers, directors and other key employees. Options granted
under the 1984 Plan may be incentive options within the meaning of Section 422
of the Code or such options may be non-incentive stock options. The exercise
price for incentive stock options is not less than the fair market value of the
Common Stock on the day of grant, and all options have a maximum term of 10
years. Non-incentive stock options are granted at an exercise price to be
determined at the time of grant but not less than eighty percent (80%) of the
fair market value of the Common Stock on the day of grant.
The 1984 Plan also contains provisions for stock appreciation rights
("SARs") which may be granted alone or in connection with stock options. The
exercise of SARs, if granted in connection with stock options, requires the
optionee to surrender his stock option for cancellation upon exercise, and the
optionee will receive cash or Common Stock equal to the difference between the
exercise price of the option and the then fair market value of the shares of
Common Stock subject to option.
As the 1984 Plan expired in 1994, the Board adopted, and the
shareholders approved at the 1993 Annual Meeting of Stockholders, the 1993 Stock
Option and Incentive Plan (the "1993 Plan"). The 1993 Plan authorizes the
granting of options and/or SARs covering a total of 100,000 shares of Common
Stock. Options granted under the 1993 Plan may either be incentive stock options
or non-qualified stock options. All options granted under the 1993 Plan will
have a maximum term of 10 years. Subject to the Stock Option Committee's
authority to accelerate exercisability, options granted under the 1993 Plan (i)
are not exercisable until one year after the date such options are granted and
(ii) then generally are exercisable in installments of 20% per annum. The
exercise price for options under the 1993 Plan may not be less than fair market
value for incentive stock options and 80% of fair market value with respect to
non-incentive stock options.
In addition, at the 1993 Annual Meeting of Stockholders, the
stockholders approved a Non- Employee Director Stock Option Plan ("Director
Plan"). The Director Plan authorizes the issuance of stock options covering up
to 25,000 shares of the Company's common stock. Each non-employee director who
first becomes a director of the Company during the term of the Director Plan
will receive a stock option covering 1,000 shares of Common Stock on the date of
his first election as a director. Thereafter, on each August 20 during the term
of the Director Plan, each outside director will receive an option to purchase
100 shares of Common Stock. No outside director shall receive options to
purchase more than 2,000 shares pursuant to the Director Plan. Each option
granted under the Plan generally will have an exercise price equal to fair
market value on the date of grant and a term of 10 years. Generally, options
granted under the Director Plan (i) are not exercisable until one year after the
date of grant and (ii) then generally are exercisable in installments of 33-1/3%
per annum.
61
<PAGE>
The following tables set forth certain information regarding the grant
of stock options and SARs to the Named Officers during fiscal 1996 and the
amount and value of unexercised stock options and SARs held at March 31, 1996 by
each of the Named Officers.
<TABLE>
<CAPTION>
OPTION/SAR GRANTS
Option/SAR Grants in Last Fiscal Year
-------------------------------------
Potential Realizable
Value at Assumed
Annual Rates of Stock
Individual Grants Price Appreciation for
- ------------------------------------------------------------------------------ Option Term(1)
----------------------
(a) (b) (c) (d) (e) (f) (g)
Number of % of Total
Securities Options/SARs
Underlying Granted to Exercise or
Options/SARs Employees in Base Price Expiration
Name Granted (#) Fiscal Year ($/Sh) Date 5% ($) 10% ($)
- ------------ ------------ ----------- ------ ------ -------- --------
<S> <C> <C> <C> <C> <C> <C>
L. Doris Fritsch 7,200 26.4% $22.25 8/23/05 $100,749 $255,318
Emile L. LeLand, Jr. 3,600 13.2 22.25 8/23/05 50,374 127,659
John J. Doherty 3,600 13.2 22.25 8/23/05 50,374 127,659
William M. Sievewright 250 0.9 22.25 8/23/05 3,498 8,865
</TABLE>
- ------------------
(1) Based on actual option term and annual compounding.
<TABLE>
<CAPTION>
OPTION/SAR EXERCISES AND YEAR END VALUE TABLE
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Value
-------------------------------------------------------------------------------
(a) (b) (c) (d) (e)
Number of Securities Value of Unexercised
Underlying Unexercised In-The-Money
Options/SARs Options\SARs
at FY-End (#)(1) at FY-End (2)($)
Shares Acquired
Name on Exercise (#) Value Realized($) Exercisable/Unexercisable Exercisable/Unexercisable
- ---- --------------- ----------------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
L. Doris Fritsch -- -- 51,830/0 $682,502/0
Emile L. LeLand, Jr. -- -- 25,408/0 329,310/0
John J. Doherty -- -- 14,987/0 125,006/0
William M. Sievewright -- -- 3,544/2,310 32,912/18,399
</TABLE>
- ------------------
(1) Includes adjustment for stock dividends paid by the Company on September 2,
1994 and a five-for-four stock split on October 22, 1993.
(2) Market value of the underlying securities at year-end minus the exercise
price.
62
<PAGE>
Long Term Incentive Plans. The Company does not sponsor any long term
incentive plans and has made no awards or payments under any such plans during
the fiscal year ended March 31, 1996.
Compensation Committee Interlocks and Insider Participation
The Company does not have a formal Compensation Committee, but its
functions are served by the Association's Salary Committee of the Board. The
Salary Committee's members are Arthur E. Fritsch (as Director Emeritus), Chester
J. Pardun, Jr. and Salvatore Alfieri. None of such individuals is or was an
officer or employee of the Company or the Association. As stated above, Mr.
Fritsch is the President of E.W. Price Agency, an insurance agency which
provides insurance products for the Company and the Association, and is the
husband of the Company's Chief Executive Officer.
Compensation Report
Decisions on compensation of executive officers of the Company and the
Association generally are made by the Board's Salary Committee (the
"Committee"). Members of the Committee are Salvatore Alfieri, Chester J. Pardun,
Jr. and, ex officio, Arthur E. Fritsch. Mr. Fritsch excluded himself from any
discussions regarding the compensation of L. Doris Fritsch, President and Chief
Executive Officer due
to his relationship with her.
The goals of the Company's and the Association's compensation policies for
executive officers are to provide a competitive level of base salary and other
benefits to attract, retain and motivate high caliber personnel.
Executive officers receive performance and salary reviews each year. Salary
increases are based on an evaluation of the extent to which a particular
executive officer is determined to have assisted the Company in meeting its
business objectives and in contributing to the growth and performance of the
Company. The salaries of Mrs. Fritsch, Messrs. LeLand, Doherty and Sievewright
and other executive officers were established based on an evaluation of their
past experience and/or their contributions to the Company.
The Company believes that its Stock Option Plan plays an important role in
the long-term compensation of executive officers. All stock options are granted
at an exercise price equal to the market price on the grant date. Mrs. Fritsch
and Messrs. LeLand, Doherty and Sievewright have received stock options during
fiscal 1996 as part of their compensation. See "Stock Option Plans" above.
Pursuant to the Company's 401(k) Retirement Plan, the Association makes a
contribution of 3% of the individual's pre-tax income to the Plan. The Company
believes that this Plan is an important element in executive long-term
compensation and fosters the retention and motivation of qualified executives.
Salary Committee:
Salvatore Alfieri
Arthur E. Fritsch
Chester J. Pardun, Jr.
63
<PAGE>
Performance Graph
The following performance graph is for the period from March 31, 1991
through March 31, 1996. The performance graph compares the cumulative total
shareholder return on the Company's Common Stock with (a) the cumulative total
shareholder return on stocks included in the Nasdaq total market index and (b)
the cumulative total shareholder return on stocks included in the Nasdaq bank
index prepared for Nasdaq by the Center for Research of Securities Prices (CRSP)
at the University of Chicago. Comparison with the Nasdaq stock market and bank
indices assumes the investment of $100 as of April 1, 1991. The cumulative total
return for the company is computed assuming the reinvestment of dividends at the
frequency with which dividends were paid during the period.
[GRAPHIC OMITTED]
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
3/31/92 3/31/93 3/31/94 3/31/95 3/31/96
<S> <C> <C> <C> <C> <C>
Central Jersey Financial Corporation $110.90 $246.90 $286.10 $354.80 $519.90
CRSP Index for Nasdaq Stock Market 127.50 146.50 158.10 175.90 238.90
CRSP Index for Nasdaq Bank Stocks 148.70 213.60 217.50 240.20 339.80
- ---------------------------------------------------------------------------------------------
</TABLE>
64
<PAGE>
There can be no assurance that the Company's future stock performance will
be the same or similar to the historical stock performance shown in the graph
below. The Company will neither make nor endorse any predictions as to stock
performance.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Persons and groups owning in excess of 5% of the Company's Common Stock are
required to file certain reports with the Securities and Exchange Commission
("SEC") pursuant to the Securities Exchange Act of 1934, as amended ("Exchange
Act"). At June 28, 1996, L. Doris Fritsch, President and Director of the
Company, beneficially owned an aggregate of 170,470 shares (6.3%) of the
Company's Common Stock. Of the aggregate shares 51,830 shares are shares that L.
Doris Fritsch has a right to acquire pursuant to stock options. Security
ownership of the Named Officers and of the directors is included under Item 10.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Association grants loans to the Company's officers, directors and
employees on the security of their personal residences as well as consumer loans
and loans against savings deposits. Loans to such persons are made in the
ordinary course of business and upon substantially the same terms, including
interest rates and collateral, as those prevailing at the time for comparable
transactions with the Association's other customers and do not involve more than
the normal risk of collectibility or present any other unfavorable features.
Director Emeritus Arthur E. Fritsch is the president of E.W. Price Agency
and Director Arthur E. Fritsch, Jr. is the vice president. E.W. Price, an
insurance agency, is owned by the Fritsch family. The Association and its
affiliates paid premiums to E.W. Price of $197,195, $199,623 and $195,806 for
the fiscal years ending March 31, 1996, 1995 and 1994, respectively. All
transactions between the Association, its affiliates and the agency are made in
the ordinary course of business at the same terms and rates made to unaffiliated
parties.
Director Alfieri is a partner in the law firm of Cleary, Alfieri & Grasso,
to whom the Association paid legal fees of $90,197 in fiscal year 1996. Such
fees were paid in the ordinary course of business at the same terms and rates
charged to unaffiliated parties.
65
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following audited consolidated financial statements and
related documents are set forth in this Annual Report on Form
10-K on the following pages:
Report of Independent Public Accounts.................................23
Central Jersey Financial Corporation and Subsidiary
Consolidated Statements Of Financial Condition.................24
Consolidated Statements Of Operations..........................25
Consolidated Statements Of Stockholders' Equity................27
Consolidated Statements Of Cash Flows..........................28
Notes To Consolidated Financial Statements.....................30
There are no financial statement schedules that are
required to be included in Part II, Item 8.
(b) There were no reports on Form 8-K filed by the Registrant
during the last quarter of the fiscal year ended
March 31, 1996
(c) Exhibits:
The following exhibits are filed as part of this report:
2.1 Agreement and Plan of Merger, dated May 22, 1996,
between Summit Bancorp and Registrant
2.2 Central Jersey Financial Corporation Stock Option
Agreement
10.1 Amendment to Employment Agreement with L. Doris Fritsch
10.2 Amendment to Employment Agreement with Emile L. Leland, Jr.
10.3 Amendment to Employment Agreement with John J. Doherty
11. Calculation of Earnings Per Share.
21. Subsidiaries of the Registrant.
23. Consent of Independent Accountants.
<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.
CENTRAL JERSEY FINANCIAL CORPORATION
July 16, 1996 By: /s/L. Doris Fritsch
-------------------
L. Doris Fritsch, President,
Chief Executive Officer,
Director and Duly Authorized
Representative
Pursuant to the requirement 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.
Signature Title Date
--------- ----- ----
/s/L. Doris Fritsch
- -----------------------
L. Doris Fritsch President, Chief July 16, 1996
Executive Officer
and Director
/s/Emile L. LeLand, Jr.
- -----------------------
Emile L. LeLand, Jr. Senior Vice President July 16, 1996
and Director
/s/John J. Doherty
- -----------------------
John J. Doherty Vice President, July 16, 1996
Chief Financial Officer
and Director
- -----------------------
Arthur E. Fritsch, Jr. Director July ___, 1996
<PAGE>
Signature Title Date
--------- ----- ----
/s/James J. Kelly
- -----------------------
James J. Kelly Director July 16, 1996
/s/Chester J. Pardun
- -----------------------
Chester J. Pardun Director July 16, 1996
/s/William B. Lewis
- -----------------------
William B. Lewis Director July 16, 1996
/s/Salvatore Alfieri
- -----------------------
Salvatore Alfieri Director July 16, 1996
/s/Domenick Carratello
- -----------------------
Domenick Carratello Director July 16, 1996
- -----------------------
Robert V. Noreika Director July ___, 1996
EXHIIBT 2.1
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated May 22, 1996, between Summit Bancorp.,
a New Jersey business corporation ("Summit"), and Central Jersey Financial
Corporation, a New Jersey business corporation ("Central Jersey").
W I T N E S S E T H :
WHEREAS, the respective boards of directors of Summit and Central Jersey
deem it advisable and in the best interests of their respective shareholders to
merge Central Jersey into Summit ("Merger") pursuant to the laws of the State of
New Jersey and this Agreement and Plan of Merger ("Agreement");
WHEREAS, the Board of Directors of Summit and Central Jersey have each
determined that the Merger and the other transactions contemplated hereby are
consistent with, and in furtherance of, their respective business strategies and
goals;
WHEREAS, to effectuate the Merger, the parties hereby adopt a plan of
reorganization in accordance with the provisions of Section 368(a) of the
Internal Revenue Code of 1986, as amended ( "Code");
WHEREAS, Summit and Central Jersey intend on the date after the date of
this Agreement and in consideration of this Agreement to enter into the Stock
Option Agreement ("Option Agreement") attached hereto as Exhibit A; and
WHEREAS, the parties desire to make certain representations, warranties
and agreements in connection with the Merger and also to prescribe certain other
terms and conditions of the Merger.
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements contained herein and in the Option
Agreement, the parties hereto, intending to be legally bound, agree as follows:
ARTICLE I.
GENERAL PROVISIONS
Section 1.01. The Merger.
(a) Upon the terms and subject to the conditions contained in this
Agreement, at the Effective Time (as defined at Section 1.06), Central Jersey
shall be merged with and into Summit pursuant to and in accordance with the
provisions of, and with the effect provided in, the New Jersey Business
Corporation Act, as amended ("New Jersey Act") (Summit as the surviving
corporation being hereinafter sometimes referred to as the "Surviving
Corporation").
<PAGE>
Section 1.02. Capital Stock of Summit. All shares of the capital stock of
Summit outstanding immediately prior to the Effective Time shall be unaffected
by the Merger and shall remain outstanding immediately thereafter.
Section 1.03. Terms of Conversion of Central Jersey Capital Stock.
(a) At the Effective Time, by virtue of the Merger and without any action
on the part of any shareholder of Central Jersey:
(1) All shares of the Common Stock, no par value, of Central Jersey
("Central Jersey Stock") which immediately prior to the Effective
Time are either owned beneficially by Summit or a subsidiary of
Summit (other than Central Jersey Stock held in a fiduciary capacity
or as a result of debts previously contracted), if any, or held in
the treasury of Central Jersey, if any, shall be canceled and
retired and no cash, securities or other consideration shall be paid
or delivered under this Agreement in exchange for such Central
Jersey Stock; and
(2) Subject to Sections 1.03(a)(1), 1.03(a)(3) and 1.08, each share of
Central Jersey Stock outstanding immediately prior to the Effective
Time shall be converted at the Exchange Ratio (as determined in
accordance with this Section 1.03(a)(2)) into the Common Stock, par
value $1.20 per share, of Summit ("Summit Stock"). In the event the
Average Price (as defined in Section 1.03(b) below) is:
(i) equal to or greater than $32.57, the Exchange Ratio shall be
.875 shares of Summit Stock for each share of Central Jersey
Stock; or
(ii) less than $32.57 but equal to or greater than $28.75, the Board
of Directors of Central Jersey shall have the right,
exercisable only until 11:59 p.m. on the third business day
following the Determination Date (as defined in Section 9.01),
to terminate this Agreement by giving Summit notice of such
termination, referring to this Section 1.03(a)(2)(ii), and this
Agreement shall be terminated pursuant to such notice,
effective as of 11:59 p.m. on the third business day following
receipt of such notice by Summit, unless Summit shall, prior to
11:59 p.m. on the third business day following receipt of such
termination notice, send notice to Central Jersey agreeing that
the Exchange Ratio shall be equal to the quotient obtained by
dividing $28.50 by the Average Price, whereupon the Exchange
Ratio shall be such number (rounded to the fourth decimal
place) of shares of Summit Stock for each share of Central
Jersey Stock.
2
<PAGE>
(3) In the event the Average Price is less than $28.75, the Board of
Directors of Central Jersey shall have the right, exercisable only
until 11:59 p.m. on the third business day following the
Determination Date, to terminate this Agreement by giving Summit
notice of such termination, referring to this Section 1.03(a)(3),
and this Agreement shall be terminated pursuant to such notice,
effective upon receipt of such notice by Summit.
(b) For purposes of this Agreement:
(1) "Average Price" means the average (rounded to the nearest penny) of
the closing prices of a share of Summit Stock on the New York Stock
Exchange - Composite Transactions Tape for the 10 consecutive
trading days ending on the Determination Date as reported in The
Wall Street Journal, or if not reported therein, as reported in an
authoritative source mutually agreeable to Summit and Central
Jersey.
(2) "business day" shall mean a calendar day other than a Saturday, a
Sunday or the weekdays that member banks of the Federal Reserve
Board (as defined at Section 4.01) are permitted to close pursuant
to regulations of the Federal Reserve Board.
(c) In the event that, from the date hereof to the Effective Time, the
outstanding Summit Stock shall have been increased, decreased, changed into or
exchanged for a different number or kind of shares or securities through
reorganization, recapitalization, reclassification, stock dividend, stock split,
reverse stock split or there occurs other like changes in the outstanding shares
of Summit Stock, the Exchange Ratio and, if necessary, the form and amount of
Summit capital stock issuable in the Merger in exchange for Central Jersey Stock
shall be appropriately adjusted so that Central Jersey shareholders who are
entitled to receive Summit Stock pursuant to the provisions hereof shall be
entitled to receive such number of shares of Summit Stock or other stock as they
would have received if the Effective Time had occurred prior to the happening of
such event.
Section 1.04. Reservation of Summit Stock; Issuance of Shares Pursuant to
the Merger. Summit shall reserve and make available for issuance to holders of
Central Jersey Stock in connection with the Merger, on the terms and subject to
the conditions of this Agreement, sufficient shares of Summit Stock (which
shares, when issued and delivered, will be duly authorized, legally and validly
issued, fully paid and non-assessable and subject to no preemptive rights). The
shares of Summit Stock to be issued in accordance with this Agreement are
sometimes referred to herein as the "Shares". Upon the terms and subject to the
conditions of this Agreement, including the conversion of Central Jersey Stock
according to the Exchange Ratio, Summit shall issue the Shares upon the
effectiveness of the Merger to Central Jersey Shareholders (as defined in
Section 1.07).
Section 1.05. Exchange Agent Arrangements. Prior to the Effective Time,
Summit shall appoint First Chicago Trust Company of New York, or another entity
reasonably satisfactory to Central Jersey, as the exchange agent ("Exchange
Agent") responsible for exchanging, in connection with and upon consummation of
the Merger and subject to Sections 1.03 and 1.08, certificates
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representing whole shares of Summit Stock ("Summit Certificates") and cash in
lieu of fractional shares of Summit Stock for certificates representing shares
of Central Jersey Stock ("Central Jersey Certificates") and, upon the
effectiveness of the Merger, Summit shall deliver to the Exchange Agent
sufficient Summit Certificates and cash as shall be required to satisfy Summit's
obligations to Central Jersey Shareholders hereunder.
Section 1.06. Effective Time. The Merger shall be effective at the hour
and on the date ("Effective Time") specified in the Certificate of Merger of
Summit and Central Jersey required by this Agreement to be filed with the
Secretary of State of the State of New Jersey in accordance with Section
14A:10-4.1 of the New Jersey Act ("Certificate of Merger"). Summit shall file
the Certificate of Merger as promptly as practicable following the Closing (as
defined at Section 9.01) but in no event later than one business day following
the Closing Date (as defined at Section 9.01).
Section 1.07. Exchange of Central Jersey Certificates.
(a) After the Effective Time, each Central Jersey Shareholder (except
Summit to the extent provided in Section 1.03), upon surrender of all Central
Jersey Certificates to the Exchange Agent, shall be entitled to receive in
exchange therefor a Summit Certificate representing the number of whole shares
of Summit Stock such Central Jersey Shareholder is entitled to receive pursuant
to the conversion effected by Section 1.03 and the terms of Section 1.08 and the
cash payment (by check) such Central Jersey Shareholder may be entitled,
pursuant to Section 1.08, to receive in lieu of a fractional share of Summit
Stock. Until so surrendered, outstanding Central Jersey Certificates held by
each Central Jersey Shareholder, other than Central Jersey Stock not converted
pursuant to Section 1.03, shall be deemed for all purposes (other than as
provided below with respect to unsurrendered Central Jersey Certificates and
Summit's right to refuse payment of dividends or other distributions, if any, in
respect of Summit Stock) to represent the number of whole shares of Summit Stock
into which the shares of Central Jersey Stock have been converted and the right
to receive cash in lieu of fractional shares of Summit Stock, if any, all as
provided in Section 1.08. Until so surrendered, Summit may, at its option,
refuse to pay to the holders of the unsurrendered Central Jersey Certificates
dividends or other distributions, if any, payable to holders of Summit Stock;
provided, however, that upon the surrender and exchange of Central Jersey
Certificates following a dividend or other distribution by Summit there shall be
paid to such Central Jersey Shareholders the amount, without interest, of
dividends and other distributions, if any, which became payable prior thereto
but which were not paid.
(b) Holders of Central Jersey Certificates as of the Effective Time shall
cease to be, and shall have no further rights as, shareholders of Central
Jersey.
(c) As promptly as practicable, but in no event more than 10 days, after
the Exchange Agent receives an accurate and complete list of all holders of
record of outstanding Central Jersey Stock as of the Effective Time ("Central
Jersey Shareholders") (including the address and social security number of and
the number of shares of Central Jersey Stock held by each Central Jersey
Shareholder) from Central Jersey ("Final Shareholder List"), Summit shall cause
the Exchange Agent
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to send to each Central Jersey Shareholder instructions and transmittal
materials for use in surrendering and exchanging Central Jersey Certificates for
the Merger Consideration (as defined in Section 1.08 below). If Central Jersey
Certificates are properly presented to the Exchange Agent (with proper
presentation including satisfaction of all requirements of the letter of
transmittal), Summit shall as soon as practicable, but in no event more than 10
days, after the later to occur of such presentment or the receipt by the
Exchange Agent of an accurate and complete Final Shareholder List from Central
Jersey cause the Exchange Agent to cancel and exchange Central Jersey
Certificates for Summit Certificates and Cash In Lieu Amounts (as defined in
Section 1.08 below), if any.
(d) At and after the Effective Time there shall be no transfers on the
stock transfer books of Central Jersey of the shares of Central Jersey Stock
which were outstanding immediately prior to the Effective Time.
Section 1.08. Fractional Shares. All Central Jersey Stock held in the
aggregate by each Central Jersey Shareholder shall be multiplied by the Exchange
Ratio to determine the number of shares of Summit Stock each such Central Jersey
Shareholder is entitled to receive in the Merger. Each Central Jersey
Shareholder shall be entitled to receive a Summit Certificate for the number of
whole shares of Summit Stock resulting from such multiplication and cash in lieu
of any fractional share of Summit Stock resulting from such multiplication in an
amount ("Cash In Lieu Amount") determined by multiplying the fractional share
interest to which such Central Jersey Shareholder would otherwise be entitled by
the Average Price. The Shares and any Cash In Lieu Amounts payable in the Merger
are sometimes collectively referred to herein as the "Merger Consideration".
Section 1.09. Restated Certificate of Incorporation and By-Laws. The
Restated Certificate of Incorporation of Summit in force immediately prior to
the Effective Time shall be the Restated Certificate of Incorporation of the
Surviving Corporation, except as duly amended thereafter and except to the
extent such is affected by the Certificate of Merger. The By-Laws of Summit in
force immediately prior to the Effective Time shall be the By-Laws of the
Surviving Corporation, except as duly amended thereafter.
Section 1.10. Board of Directors and Officers. The Board of Directors of
the Surviving Corporation shall consist of the members of the Board of Directors
of Summit at the Effective Time. The officers of the Surviving Corporation shall
consist of the officers of Summit at the Effective Time. Such directors and
officers shall serve as such for the terms prescribed in the Restated
Certificate of Incorporation and By-Laws of Summit, or otherwise as provided by
law or until their earlier deaths, resignation or removal.
Section 1.11. Central Jersey Stock Options.
(a) At the Effective Time, each holder of a Central Jersey Option (as
defined below) shall be entitled to receive, in exchange for such Central Jersey
Options, at the election of such holder, either:
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(i) cash equal to the Cash Value (as defined below) of the particular
Central Jersey Option ("Cash Amount"); or
(ii) (A) the whole shares of Summit Stock obtained by dividing the Cash
Value of the particular Central Jersey Option by the Market Price of
a share of Summit Stock , and (B) cash in lieu of any fractional
share of Summit Stock resulting from such division determined by
multiplying such fractional share amount by the Market Price of a
share of Summit Stock (collectively, the "Stock Consideration").
Holders of Central Jersey Options shall deliver to Summit at the Closing (as
defined at Section 9.01) an election to receive under this Section 1.11 either a
Cash Amount or the Stock Consideration with respect to all Central Jersey
Options held by such holder and holders failing to deliver such an election at
the Closing shall be deemed to have elected to receive the Cash Amount with
respect to all Central Jersey Options held by such holder. Summit shall send, no
later than ten business days following the Effective Time, to each holder of a
Central Jersey Option, as appropriate, (i) a check representing the aggregate
Cash Value such holder may be entitled to receive pursuant to this Section 1.11,
or (ii) a certificate representing the aggregate whole shares of Summit Stock
such holder may be entitled to receive pursuant to this Section 1.11 and a check
representing any cash such holder may be entitled to receive pursuant to this
Section 1.11 in lieu of a fractional share of Summit Stock; provided, however,
that with respect to individuals holding more than one Central Jersey Option the
aggregate whole shares of Summit Stock such holder is entitled to receive shall
be determined by adding together the Cash Values of all such Central Jersey
Options and dividing the resultant sum by the Market Price of a share of Summit
Stock and cash such holder is entitled to receive shall be determined by
multiplying the fractional share interest resulting from such division by the
Market Price of a share of Summit Stock. The Central Jersey Options which become
subject to this Section 1.11 shall be deemed terminated as of the Closing Date
(as defined at Section 9.01) and Central Jersey shall not on or after the
Closing Date issue Central Jersey Stock upon any attempted exercise of such
Central Jersey Option. Central Jersey shall deliver to Summit at Closing a list
of all Central Jersey Options (including the address and social security number
of each holder thereof and the Central Jersey Options held by such holder broken
down by plan, type (incentive or nonqualified), grant date, expiration date,
exercise price and the number of shares of Central Jersey Stock subject
thereto).
(b) For purposes of this Section 1.11:
(1) "Central Jersey Option" is hereby defined to mean a stock option for
Central Jersey Stock outstanding on the date hereof granted under the Central
Jersey 1993 Stock Option and Incentive Plan or Central Jersey Non-Employee
Director Stock Option Plan ("Central Jersey Option Plans") or pursuant to
Section 4.05(g), and not subsequently exercised, terminated or expired prior to
the Closing Date.
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(2) "Cash Value" of a Central Jersey Option is hereby defined to be the
amount obtained by multiplying (A) the number of Summit Equivalent Shares (as
defined below) represented by the particular Central Jersey Option, times (B)
the difference obtained by subtracting the Summit Equivalent Exercise Price (as
defined below) of the particular Central Jersey Option from the Market Price (as
defined below) of a share of Summit Stock;
(3) "Market Price" of a share of Summit Stock is hereby defined to mean
the last sale price of a share of Summit Stock on the last trading day
immediately preceeding the Closing Date as reported on the New York Stock
Exchange--Composite Transactions List (by The Wall Street Journal or, in the
event of its unavailability, by any other authoritative source agreeable to
Summit and Central Jersey).
(4) "Summit Equivalent Shares" is hereby defined to mean the number
obtained by multiplying the number of shares of Central Jersey Stock covered by
a particular Central Jersey Option times the Exchange Ratio.
(5) "Summit Equivalent Exercise Price" is hereby defined to mean the
number obtained by dividing the exercise price of the particular Central Jersey
Option by the Exchange Ratio.
Section 1.12. Additional Actions. If, at any time after the Effective
Time, the Surviving Corporation shall consider or be advised that any deeds,
bills of sale, assignments, assurances or any other actions or things are
necessary or desirable to vest, perfect or confirm of record or otherwise in the
Surviving Corporation its right, title or interest in, to or under any of the
rights, properties or assets of Central Jersey acquired or to be acquired by the
Surviving Corporation as a result of, or in connection with, the Merger or
otherwise to carry out this Agreement, the officers and directors of the
Surviving Corporation shall be authorized to execute and deliver, in the name
and on behalf of Central Jersey or otherwise, all such deeds, bills of sale,
assignments and assurances and to take, in the name and on behalf of Central
Jersey, all such other actions and things as may be necessary or desirable to
vest, perfect or confirm any and all right, title and interest in, to and under
such rights, properties or assets in the Surviving Corporation or otherwise to
carry out this Agreement.
Section 1.13. Unclaimed Merger Consideration. If, upon the expiration of
one year following the Effective Time, Merger Consideration remains with the
Exchange Agent due to the failure of Central Jersey Shareholders to surrender
and exchange Central Jersey Certificates for Merger Consideration, Summit may,
at its election, continue to retain the Exchange Agent for purposes of the
surrender and exchange of Central Jersey Certificates or take possession of such
unclaimed Merger Consideration, in which such latter case, Central Jersey
Shareholders who have theretofore failed to surrender and exchange Central
Jersey Certificates shall thereafter look only to Summit for payment of the
Merger Consideration and the unpaid dividends and distributions on the Summit
Stock constituting some or all of the Merger Consideration, without any interest
thereon. Notwithstanding the foregoing, none of Summit, Central Jersey, the
Exchange Agent or any other person shall be liable to any former holder of
shares of Central Jersey Stock for any property properly
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delivered to a public official pursuant to applicable abandoned property,
escheat or similar laws.
Section 1.14. Lost Central Jersey Certificates. In the event any Central
Jersey Certificate shall have been lost, stolen or destroyed, upon the making of
an affidavit of that fact by the person claiming such Central Jersey Certificate
to be lost, stolen or destroyed and, if required by Summit, the posting by such
person of a bond in such amount as Summit may determine is reasonably necessary
as indemnity against any claim that may be made against it with respect to such
Central Jersey Certificate, the Exchange Agent will issue in exchange for such
lost, stolen or destroyed Central Jersey Certificate the Merger Consideration
deliverable in respect thereof pursuant to this Agreement.
Section 1.15. Liquidation Account. The liquidation account established by
Central Jersey pursuant to the plan of conversion adopted in connection with its
conversion from mutual to stock form shall, to the extent required by applicable
law, continue to be maintained after the Effective Time for the benefit of those
persons and entities who were savings account holders of Central Jersey on March
31, 1984, and who continue from time to time to have rights therein.
ARTICLE II.
REPRESENTATIONS AND WARRANTIES OF CENTRAL JERSEY
Central Jersey represents and warrants to Summit as follows:
Section 2.01. Organization, Capital Stock.
(a) Each of Central Jersey and its nonbank subsidiaries, including the
nonbank subsidiaries of bank subsidiaries (the term "subsidiary", as used in
this Agreement, shall mean any corporation or other organization of which 25% or
more of the shares or other interests having by their terms ordinary voting
power to elect a majority of the Board of Directors or other group performing
similar functions with respect to such corporation or other organization is
directly or indirectly owned), all of which are listed, together with their
respective states of incorporation, on Central Jersey Schedule 2.01(a), is a
corporation duly organized, validly existing and in good standing under the laws
of the state of its incorporation, qualified to transact business in under the
laws of all jurisdictions where the failure to be so qualified would be likely
to have a material adverse effect on (i) the business, results of operations,
assets or financial condition of Central Jersey and its subsidiaries on a
consolidated basis, or (ii) the ability of Central Jersey to perform its
obligations under, and to consummate the transactions contemplated by, this
Agreement (a "Central Jersey Material Adverse Change"). However, a Central
Jersey Material Adverse Change will not include a change resulting from a change
in law, rule, regulation or generally accepted or regulatory accounting
principles, or from any other matter affecting banking institutions or their
holding companies generally. Each of Central Jersey and its subsidiaries has all
corporate power and authority and all material licenses, franchises,
certificates, permits and other governmental authorizations which are legally
required to own and
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lease its properties, to occupy its premises and to engage in its business and
activities as presently engaged in, and each has complied in all material
respects with all applicable laws, regulations and orders.
(b) Central Jersey is registered as a unitary savings and loan holding
company under the Home Owners' Loan Act of 1933 ("HOLA").
(c) Central Jersey or one of its subsidiaries is the holder and beneficial
owner of all of the outstanding capital stock of all of Central Jersey's direct
and indirect nonbank subsidiaries.
(d) (1) The authorized capital stock of Central Jersey consists of
25,000,000 shares of Common Stock, each of no par value, and 15,000,000 shares,
each of no par value, of Preferred Stock, and as of the date hereof there were
issued and outstanding 2,668,269 shares of the Common Stock of Central Jersey
and no shares of the Preferred Stock of Central Jersey.
(2) All issued and outstanding shares of the capital stock of Central
Jersey and of each of its nonbank subsidiaries have been fully paid, were duly
authorized and validly issued, are non-assessable and have been issued pursuant
to an effective registration statement under the Securities Act of 1933, as
amended (the "Securities Act") or an appropriate exemption from registration
under the Securities Act and were not issued in violation of the preemptive
rights of any shareholder.
(3) Except as set forth above in this Section 2.01(d) or in Section
2.01(a), except for director and employee stock options outstanding under the
Central Jersey Option Plans and except for Central Jersey Stock issuable in
connection with the Central Jersey Option Plans, there are no other Equity
Securities of Central Jersey or any subsidiary of Central Jersey outstanding, in
existence, the subject of an agreement or reserved for issuance.
(4) "Equity Securities" of an issuer means capital stock or other
equity securities of such issuer, options, warrants, scrip, rights to subscribe
to, call or commitments of any character whatsoever relating to, or securities
or rights convertible into, shares of any capital stock or other Equity
Securities of such issuer, or contracts, commitments, understandings or
arrangements by which such issuer is or may become bound to issue additional
shares of its capital stock or other Equity Securities of such issuer, or
options, warrants, scrip or rights to purchase, acquire, subscribe to, calls on
or commitments for any shares of its capital stock or other Equity Securities.
(5) There are no plans of Central Jersey providing for the granting
of stock options, stock appreciation rights or other securities or derivative
securities to directors or employees other than the Central Jersey Option Plans.
The Central Jersey Option Plans, including all amendments thereto, have been
approved by the shareholders of Central Jersey in accordance with the
shareholder approval requirements of the Code and Rule 16b-3 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). Copies of the
Central Jersey Option Plans, including all amendments thereto, have been
previously provided to Summit. All material information in the aggregate
relating to
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outstanding grants under the Central Jersey Option Plans, including director and
employee stock options and stock appreciation rights ("SARs") (including without
limitation date of grant, expiration date, plan under which granted, type (if
option, whether nonqualified or incentive; if SAR, whether or not granted in
tandem with an option and, if so, the type of tandem option), exercise price,
number of shares subject thereto) is set forth in Central Jersey Schedule
2.01(d)(5).
(e) Central Jersey owns no bank subsidiary other than Central Jersey
Savings Bank, SLA ("Bank")("bank" is hereby defined to include commercial banks,
savings banks, private banks, trust companies, savings and loan associations,
building and loan associations and similar institutions receiving deposits and
making loans). Bank is a bank duly organized, validly existing, and in good
standing under the laws of the State of New Jersey. Bank is duly authorized to
conduct all activities and exercise all powers contemplated by applicable laws
of the State of New Jersey, is an insured bank as defined in the Federal Deposit
Insurance Act, and has all corporate power and authority and all material
licenses, franchises, certificates, permits and other governmental
authorizations which are legally required to own and lease its properties and
assets, to occupy its premises, and to engage in its business and activities as
presently engaged in, and has complied in all material respects with all
applicable laws, regulations and orders.
(f) The authorized and outstanding capital stock of Bank is as set forth
on Central Jersey Schedule 2.01(f). Central Jersey is the holder and beneficial
owner of all shares of the issued and outstanding capital stock of Bank, other
than director qualifying shares. All issued and outstanding shares of the
capital stock of Bank have been fully paid, were duly authorized and validly
issued, are non-assessable, and were not issued in violation of the preemptive
rights of any shareholder. No Equity Securities of Bank exist other than those
set forth on Central Jersey Schedule 2.01(f). No options covering the capital
stock of Bank, warrants to purchase or contracts to issue capital stock of Bank,
or any other contracts, presently exercisable rights (including preemptive
rights), commitments or convertible securities entitling anyone to acquire from
Central Jersey or any of its subsidiaries or obligating them to issue any
capital stock, or securities convertible into or exchangeable for shares of
capital stock, of Bank are outstanding, in existence, or the subject of an
agreement.
(g) All Equity Securities of its direct and indirect subsidiaries
beneficially owned by Central Jersey or a subsidiary of Central Jersey are held
free and clear of any claims, liens, encumbrances or security interests.
Section 2.02. Financial Statements. The financial statements and schedules
contained or incorporated in (a) Central Jersey's annual report to shareholders
for the fiscal year ended March 31, 1995, (b) Central Jersey's annual report on
Form 10-K filed pursuant to the Exchange Act for the fiscal year ended March 31,
1995 and (c) Central Jersey's quarterly reports on Form 10-Q filed pursuant to
the Exchange Act for the fiscal quarters ended June 30, 1995, September 30, 1995
and December 31, 1995 (the "Central Jersey Financial Statements") are true and
correct in all material respects as of their respective dates and each fairly
presents (subject, in the case of unaudited statements, to recurring audit
adjustments normal in nature and amount), in accordance with generally
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accepted accounting principles the consolidated statements of condition, income,
changes in stockholders' equity and cash flows of Central Jersey and its
subsidiaries at its respective date and for the period to which it relates,
except as may otherwise be described therein. The Central Jersey Financial
Statements do not, as of the dates thereof, include any material asset or omit
any material liability, absolute or contingent, or other fact, the inclusion or
omission of which renders the Central Jersey Financial Statements, in light of
the circumstances under which they were made, misleading in any respect.
Section 2.03. No Conflicts. Except as set forth in Schedule 2.03, Central
Jersey and each of its subsidiaries is not in, and has received no notice of,
violation or breach of, or default under, nor will the execution, delivery and
performance of this Agreement by Central Jersey, or the consummation of the
transactions contemplated hereby including the Merger by Central Jersey upon the
terms provided herein (assuming receipt of the Required Consents, as that term
is defined in Section 4.01), violate, conflict with, result in the breach of,
constitute a default under, give rise to a claim or right of termination,
cancellation, revocation of, or acceleration under, or result in the creation or
imposition of any lien, charge or encumbrance upon any of the material rights,
permits, licenses, assets or properties of Central Jersey or any of its
subsidiaries or upon any of the Equity Securities of Central Jersey or any of
its subsidiaries, or constitute an event which could, with the lapse of time,
action or inaction by Central Jersey or any of its subsidiaries or a third
party, or the giving of notice and failure to cure, result in any of the
foregoing, under any of the terms, conditions or provisions, as the case may be,
of:
(a) the Certificate of Incorporation or the By-Laws of Central Jersey or
any of its subsidiaries;
(b) any applicable law, statute, rule, ruling, determination, ordinance or
regulation of or agreement with any governmental or regulatory authority;
(c) any judgment, order, writ, award, injunction or decree of any court or
other governmental authority; or
(d) any material note, bond, mortgage, indenture, lease, policy of
insurance or indemnity, license, contract, agreement or other instrument;
to which Central Jersey or any of its subsidiaries is a party or by which
Central Jersey or any of its subsidiaries or any of their assets or properties
are bound or committed, the consequences of which individually or in the
aggregate would be likely to result in a Central Jersey Material Adverse Change,
or enable any person to enjoin the transactions contemplated hereby.
Section 2.04. Absence of Undisclosed Liabilities. Central Jersey and its
subsidiaries have no liabilities, whether contingent or absolute, direct or
indirect, matured or unmatured (including but not limited to liabilities for
federal, state and local taxes, penalties, assessments, lawsuits or claims
against Central Jersey or any of its subsidiaries), and no loss contingency (as
defined in Statement of
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Financial Accounting Standards No. 5), other than (a) those reflected in the
Central Jersey Financial Statements or disclosed in the notes thereto, (b)
commitments made by Central Jersey or any of its subsidiaries in the ordinary
course of its business which are not in the aggregate material in frequency or
amount to Central Jersey and its subsidiaries, taken as a whole, and (c)
liabilities arising in the ordinary course of its business since March 31, 1995,
which are not in the aggregate material in frequency or amount to Central Jersey
and its subsidiaries, taken as a whole. Other than as reported in the Forms 10-Q
of Central Jersey referred to in Section 2.02, neither Central Jersey nor any of
its subsidiaries has, since March 31, 1995, become obligated on any debt due in
more than one year from the date of this Agreement in excess of $250,000, other
than intra-corporate debt and deposits received, repurchase agreements and
borrowings from the Federal Reserve Bank of New York or the Federal Home Loan
Bank of New York or other like liabilities entered into in the ordinary course
of business.
Section 2.05. Absence of Litigation; Agreements with Bank Regulators.
There is no outstanding order, injunction or decree of any court or governmental
or self-regulatory body against or affecting Central Jersey or its subsidiaries
which materially and adversely affects Central Jersey and its subsidiaries,
taken as a whole, and there are no actions, arbitrations, claims, charges,
suits, investigations or proceedings (formal or informal) material to Central
Jersey and its subsidiaries, taken as a whole, pending or, to Central Jersey's
knowledge, threatened, against or involving Central Jersey or any of its
subsidiaries or their officers or directors (in their capacity as such) in law
or equity or before any court, panel or governmental agency, except as disclosed
in the Forms 10-K and 10-Q of Central Jersey referred to in Section 2.02 and in
Central Jersey Schedule 2.05. Neither Bank nor Central Jersey is a party to any
agreement or memorandum of understanding with, or is a party to any commitment
letter to, or has submitted a board of directors resolution or similar
undertaking to, or is subject to any order or directive by, or is a recipient of
any extraordinary supervisory letter from, any governmental or regulatory
authority which restricts materially the conduct of its business, or in any
manner relates to material statutory or regulatory noncompliance discovered in
any regulatory examinations, its capital adequacy, its credit or reserve
policies or its management. Neither Bank nor Central Jersey has been advised by
any governmental or regulatory authority that it is contemplating issuing or
requesting (or is considering the appropriateness of issuing or requesting) any
of the foregoing. Neither Bank nor Central Jersey has any reason to believe that
it has failed to resolve to the satisfaction of the applicable regulatory agency
any significant deficiencies cited by any such agency in its most recent
examinations of each aspect of Bank's and Central Jersey's business.
Section 2.06. Brokers' Fees. Central Jersey has entered into this
Agreement with Summit as a result of direct negotiations without the assistance
or efforts of any finder, broker, financial advisor or investment banker, other
than Advest, Inc. ("Advest"). Central Jersey Schedule 2.06 consists of true and
complete copies of all agreements between Central Jersey and Advest with respect
to the transactions contemplated by this Agreement.
Section 2.07. Material Filings. At the time of filing, all filings made by
Central Jersey and its subsidiaries after December 31, 1989 with the SEC and the
appropriate bank regulatory authorities do not or did not contain any untrue
statement of a material fact and do not or did not omit to state
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any material fact required to be stated herein or therein or necessary to make
the statements contained therein, in light of the circumstances under which they
were made, not misleading. To the extent such filings were subject to the
Securities Act or Exchange Act, such filings complied in all material respects
with the Securities Act or Exchange Act, as appropriate, and all applicable
rules and regulations thereunder of the SEC. Central Jersey has since December
31, 1993 timely made all filings required by the Securities Act and the Exchange
Act.
Section 2.08. Corporate Action. Assuming due execution and delivery by
Summit, and subject to the requisite approval by the shareholders of Central
Jersey of this Agreement, the Merger and the other transactions contemplated
hereby in accordance with Central Jersey's Certificate of Incorporation and the
New Jersey Act at a meeting of such holders to be duly called and held, Central
Jersey has the corporate power and is duly authorized by all necessary corporate
action to execute, deliver and perform this Agreement. The Board of Directors of
Central Jersey has taken all action required by law, its Certificate of
Incorporation, its By-Laws or otherwise (i) to authorize the execution and
delivery of this Agreement and (ii) for shareholders of Central Jersey to
approve this Agreement and the transactions contemplated hereby including the
Merger by a simple majority of the votes cast at the meeting held in accordance
with Section 4.03. This Agreement is a valid and binding agreement of Central
Jersey enforceable in accordance with its terms except as such enforcement may
be limited by applicable principles of equity, and by bankruptcy, insolvency,
fraudulent transfer, moratorium or other similar laws of general applicability
presently or hereafter in effect affecting the enforcement of creditors' rights
generally and banks the deposits of which are insured by the Federal Deposit
Insurance Corporation. The Board of Directors of Central Jersey in authorizing
the execution of this Agreement has determined, at the date of this Agreement,
to recommend to the shareholders of Central Jersey the approval of this
Agreement, the Merger and the other transactions contemplated hereby.
Section 2.09. Absence of Changes. There has not been, since December 31,
1995, any Central Jersey Material Adverse Change reported in the Forms 10-Q of
Central Jersey referred to in Section 2.02. Except as disclosed in Central
Jersey Schedule 2.09 or reported in the Forms 10-Q of Central Jersey referred to
in Section 2.02, neither Central Jersey nor any of its subsidiaries has since
March 31, 1995: (a) (i) declared, set aside or paid any dividend or other
distribution in respect of its capital stock, other than dividends from
subsidiaries to Central Jersey or other subsidiaries of Central Jersey and an
ordinary cash dividend of $.12 per share per fiscal quarter, or, (ii) directly
or indirectly, purchased, redeemed or otherwise acquired any shares of such
stock held by persons other than Central Jersey and its subsidiaries, other than
the redemption by Central Jersey of its 7% Convertible Subordinated Debentures,
due April 1, 2003, and related conversion into Central Jersey Stock; (b)
incurred current liabilities since that date other than in the ordinary course
of business; (c) sold, exchanged or otherwise disposed of any of their assets
except in the ordinary course of business; (d) made any officers' salary
increase or wage increase not consistent with past practices, entered into any
employment, consulting, severance or change of control contract with any present
or former director, officer or salaried employee, or instituted any employee or
director welfare, bonus, stock option, profit-sharing, retirement, severance or
other benefit plan or arrangement or modified any of the foregoing so as to
increase its obligations thereunder in any material respect; (e) suffered any
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taking by condemnation or eminent domain or other damage, destruction or loss in
excess of $50,000, whether or not covered by insurance, adversely affecting its
business, property or assets, or waived any rights of value in excess of
$50,000; (f) entered into any transactions which in the aggregate exceeded
$250,000 other than in the ordinary course of business; or (g) acquired the
assets or capital stock of another company, except in a fiduciary capacity or in
the course of securing or collecting loans or leases.
Section 2.10. Allowance for Loan and Lease Losses. To the knowledge of
Central Jersey, at March 31, 1995 and thereafter the allowances for loan and
lease losses of Central Jersey and its subsidiaries were and are adequate in all
material respects to provide for all losses on loans and leases outstanding and,
to the best of Central Jersey's knowledge, the loan and lease portfolios of
Central Jersey in excess of such allowances are collectible in the ordinary
course of business. Central Jersey Schedule 2.10 constitutes a list of all loans
and leases made by Central Jersey or any of its subsidiaries that have been
"classified" as to quality by any internal or external auditor, accountant or
examiner, and such list is accurate and complete in all material respects.
Section 2.11. Taxes and Tax Returns. Neither Central Jersey nor any of its
subsidiaries has at any time filed a consent pursuant to Section 341(f) of the
Code or consented to have the provisions of Section 341(f)(2) of the Code apply
to any disposition of a subsection (f) asset (as such term is defined in Section
341(f)(4) of the Code) owned by Central Jersey or any of its subsidiaries. None
of the property being acquired by Summit or its subsidiaries in the Merger is
property which Summit or its subsidiaries will be required to treat as being
owned by any other person pursuant to the provisions of Section 168(f)(8) of the
Internal Revenue Code of 1954, as amended and in effect immediately prior to the
enactment of the Tax Reform Act of 1986 or is "tax-exempt use property" within
the meaning of Section 168(h)(1) of the Code. Amounts required to be withheld
have been withheld from employees by Central Jersey and each of its subsidiaries
for all periods in compliance with the tax, social security, unemployment and
other applicable withholding provisions of applicable federal, state and local
law. Proper and accurate federal, state and local returns have been timely filed
by Central Jersey and each of its subsidiaries for all periods for which returns
were due, including with respect to employee income tax withholding, social
security, unemployment and other applicable taxes, and the amounts shown thereon
to be due and payable have been paid in full or adequate provision therefor has
been included on the books of Central Jersey or its appropriate subsidiary.
Neither Central Jersey nor any of its subsidiaries is required to file tax
returns with any state other than the State of New Jersey. Provision has been
made on the books of Central Jersey or its appropriate subsidiary for all unpaid
taxes, whether or not disputed, that may become due and payable by Central
Jersey or any of its subsidiaries in future periods in respect of transactions,
sales or services previously occurring or performed. The Internal Revenue
Service ("IRS") has audited the consolidated federal income tax returns of
Central Jersey for all taxable years ended on or prior to March 31, 1992 and the
State of New Jersey has not audited the New Jersey income tax returns of Central
Jersey and its subsidiaries during the past nine years. Neither Central Jersey
nor any of its subsidiaries has been notified that it is subject to an audit or
review of its tax returns by any state other than the State of New Jersey.
Central Jersey is not and has not been a United States real property holding
corporation as defined in Section 897(c)(2) of the Code during the applicable
period
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specified in Section 897(c)(1)(A)(ii) of the Code. Neither Central Jersey nor
any of its subsidiaries is currently a party to any tax sharing or similar
agreement with any third party. There are no material matters, assessments,
notices of deficiency, demands for taxes, proceedings, audits or proposed
deficiencies pending or, to Central Jersey's knowledge, threatened against
Central Jersey or any of its subsidiaries and there have been no waivers of
statutes of limitations or agreements related to assessments or collection in
respect of any federal, state or local taxes. Neither Central Jersey nor any of
its subsidiaries has agreed to or is required to make any adjustment pursuant to
Section 481(a) of the Code by reason of a change in accounting method initiated
by Central Jersey or any of its subsidiaries, and neither Central Jersey nor any
of its subsidiaries has any knowledge that the IRS has proposed any such
adjustment or change in accounting method. Central Jersey and its subsidiaries
have complied in all material respects with all requirements relating to
information reporting and withholding (including back-up withholding) and other
requirements relating to the reporting of interest, dividends and other
reportable payments under the Code and state and local tax laws and the
regulations promulgated thereunder and other requirements relating to reporting
under federal law including record keeping and reporting on monetary instruments
transactions.
Section 2.12. Properties. To the knowledge of Central Jersey, it has,
directly or through its subsidiaries, good and marketable title to all of its
properties and assets, tangible and intangible, including those reflected in the
most recent consolidated balance sheet included in the Central Jersey Financial
Statements (except individual properties and assets disposed of since that date
in the ordinary course of business), which properties and assets are not subject
to any mortgage, pledge, lien, charge or encumbrance other than as reflected in
the Central Jersey Financial Statements or which in the aggregate do not
materially adversely affect or impair the operation of Central Jersey and its
subsidiaries taken as a whole. Central Jersey and each of its subsidiaries
enjoys peaceful and undisturbed possession under all material leases under which
it or any of its subsidiaries is the lessee, where the failure to enjoy such
peaceful and undisturbed possession would be likely to result in a Central
Jersey Material Adverse Change, and none of such leases contains any unusual or
burdensome provision which would be likely to materially and adversely affect or
impair the operations of Bank and its subsidiaries taken as a whole.
Section 2.13. Condition of Properties; Insurance. All real and tangible
personal properties owned by Central Jersey or any of its subsidiaries or used
by Central Jersey or any of its subsidiaries in its business are in a good state
of maintenance and repair, are in good operating condition, subject to normal
wear and tear, conform in all material respects to all applicable ordinances,
regulations and zoning laws, and are adequate for the business conducted by
Central Jersey or such subsidiary subject to exceptions which are not, in the
aggregate, material to Central Jersey and its subsidiaries, taken as a whole.
Central Jersey and each of its subsidiaries maintains insurance (with companies
which, to the best of Central Jersey's knowledge, are authorized to do business
in New Jersey) against loss relating to such properties in amounts which are
customary, usual and prudent for corporations or banks, as the case may be, of
their size. Such policies are in full force and effect and are carried in an
amount and form and are otherwise adequate to protect Central Jersey and each of
its subsidiaries from any adverse loss resulting from risks and liabilities
reasonably foreseeable at the date hereof, and are disclosed on Central Jersey
Schedule 2.13. All material claims thereunder have been filed in a due
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and timely fashion. Since December 31, 1991, neither Central Jersey nor any of
its subsidiaries has ever been refused insurance for which it has applied or had
any policy of insurance terminated (other than at its request).
Section 2.14. Contracts.
(a) Except as set forth in Central Jersey Schedule 2.14(a), neither
Central Jersey nor any of its subsidiaries is a party to and neither they nor
any of their assets are bound by any written or oral lease or license with
respect to any property, real or personal, as tenant or licensee involving an
annual consideration in excess of $50,000.
(b) Except as set forth in Central Jersey Schedule 2.14(b), neither
Central Jersey nor any of its subsidiaries is a party to and neither they nor
any of their assets is bound by any written or oral: (i) employment or severance
contract (including, without limitation, any collective bargaining contract or
union agreement) which is not terminable without penalty by Central Jersey or a
subsidiary, as appropriate, on 60 days or less notice; (ii) contract or
commitment for capital expenditures in excess of $75,000 in the aggregate for
any one project or in excess of $250,000 in the aggregate for all projects;
(iii) contract or commitment whether or not made in the ordinary course of
business for the purchase of materials or supplies or for the performance of
services involving consideration in excess of $50,000 (including advertising and
consulting agreements, data processing agreements, and retainer agreements with
attorneys, accountants, actuaries, or other professionals); (iv) contract or
option to purchase or sell any real or personal property other than OREO
property involving consideration in excess of $75,000; or (v) other contracts
material to the business of Central Jersey and its subsidiaries taken as a whole
and not made in the ordinary course of business.
(c) Neither Central Jersey nor any of its subsidiaries is a party to or
otherwise bound by any contract, agreement, plan, lease, license, commitment or
undertaking which, in the reasonable opinion of management of Central Jersey, is
materially adverse, onerous, or harmful to any aspect of the business of Central
Jersey and its subsidiaries taken as a whole.
Section 2.15. Pension and Benefit Plans.
(a) Neither Central Jersey nor any of its subsidiaries maintains an
employee pension benefit plan, within the meaning of Section 3(2) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or has
made any contributions to any such employee pension benefit plan, except
employee pension benefit plans listed in Central Jersey Schedule 2.15(a)
(individually a "Central Jersey Plan" and collectively the "Central Jersey
Plans"). In its present form each Central Jersey Plan complies in all material
respects with all applicable requirements under ERISA and the Code. Each Central
Jersey Plan and the trust created thereunder is qualified and exempt under
Sections 401(a) and 501(a) of the Code, and Central Jersey or the subsidiary
whose employees are covered by such Central Jersey Plan has received from the
IRS a determination letter to that effect. No event has occurred and there has
been no omission or failure to act which would adversely affect such
qualification or exemption. Each Central Jersey Plan has been administered and
communicated
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to the participants and beneficiaries in all material respects in accordance
with its terms and ERISA. No employee or agent of Central Jersey or any
subsidiary whose employees are covered by a Central Jersey Plan has engaged in
any action or failed to act in such manner that, as a result of such action or
failure, (i) the IRS could revoke, or refuse to issue (as the case may be), a
favorable determination as to such Central Jersey Plan's qualification and the
associated trust's exemption or impose any liability or penalty under the Code,
or (ii) a participant or beneficiary or a nonparticipating employee has been
denied benefits properly due or to become due under such Central Jersey Plan or
has been misled as to his or her rights under such Central Jersey Plan. No
Central Jersey Plan is subject to Section 412 of the Code or Title IV of ERISA.
No person has engaged in any prohibited transaction involving any Central Jersey
Plan or associated trust within the meaning of Section 406 of ERISA or Section
4975 of the Code. There are no pending or threatened claims (other than routine
claims for benefits) against the Central Jersey Plans or any fiduciary thereof
which would subject Central Jersey or any of its subsidiaries to a material
liability. All reports, filings, returns and disclosures and other
communications which have been required to be made to the participants and
beneficiaries, other employees, the Pension Benefit Guaranty Corporation
("PBGC"), the SEC, the IRS, the U.S. Department of Labor or any other
governmental agency pursuant to the Code, ERISA, or other applicable statute or
regulation have been made in a timely manner and all such reports,
communications, filings, returns and disclosures were true and correct in all
material respects. No liability has been, or is likely to be, incurred on
account of delinquent or incomplete compliance or failure to comply with such
requirements. "ERISA Affiliate" where used in this Agreement means any trade or
business (whether or not incorporated) which is a member of a group of which
Central Jersey is a member and which is under common control within the meaning
of Section 414 of the Code. There are no unfunded benefit or pension plans or
arrangements, or any individual agreements whether qualified or not, to which
Central Jersey or any of its subsidiaries or ERISA affiliates has any obligation
to contribute. There has been no change in control of any Central Jersey Plan
since the last effective date of any such change of control disclosed to Summit
in Schedule 2.15(a).
(b) All bonus, deferred compensation, profit-sharing, retirement, pension,
stock option, stock award and stock purchase plans and all other employee
benefit plans, including medical, major medical, disability, life insurance or
dental plans covering employees generally maintained by Central Jersey or any of
its subsidiaries other than the Central Jersey Plans with an annual cost in
excess of $25,000 (collectively "Benefit Plans") are listed in Central Jersey
Schedule 2.15(b) (unless already listed in Central Jersey Schedule 2.15(a)) and
comply in all material respects with all applicable requirements imposed by the
Securities Act, the Exchange Act, ERISA, the Code, and all applicable rules and
regulations thereunder. The Benefit Plans have been administered and
communicated to the participants and beneficiaries in all material respects in
accordance with their terms and ERISA, and no employee or agent of Central
Jersey or any of its subsidiaries has engaged in any action or failed to act in
such manner that, as a result of such action or failure: (i) the IRS could
revoke, or refuse to issue, a favorable determination as to a Benefit Plan's
qualification and any associated trust's exemption or impose any liability or
penalty under the Code; or (ii) a participant or beneficiary or a
nonparticipating employee has been denied benefits properly due or to become due
under the Benefit Plans or has been misled as to their rights under the Benefit
Plans. There are no pending or threatened claims (other than routine claims for
benefits) against the Benefit Plans which would
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subject Central Jersey or any of its subsidiaries to liability. Any trust which
is intended to be tax-exempt has received a determination letter from the IRS to
that effect and no event has occurred which would adversely affect such
exemption. All reports, filings, returns and disclosures required to be made to
the participants and beneficiaries, other employees of Central Jersey or any of
its subsidiaries, the PBGC, the SEC, the IRS, the U.S. Department of Labor and
any other governmental agency pursuant to the Code, ERISA, or other applicable
statute or regulation, if any, have been made in a timely manner and all such
reports, filings, returns and disclosures were true and correct in all material
respects. No material liability has been, or is likely to be, incurred on
account of delinquent or incomplete compliance or failure to comply with such
requirements.
Section 2.16. Fidelity Bonds. Since at least January 1, 1991, Central
Jersey and each of its subsidiaries has continuously maintained fidelity bonds
insuring them against acts of dishonesty in such amounts as are customary, usual
and prudent for organizations of its size and business. All material claims
thereunder have been filed in a due and timely fashion. Since January 1, 1991,
the aggregate amount of all claims under such bonds has not exceeded the policy
limits of such bonds (excluding, except in the case of excess coverage, a
deductible amount of not more than $50,000) and neither Central Jersey nor any
of its subsidiaries is aware of any facts which would form the basis of a claim
or claims under such bonds aggregating in excess of the applicable deductible
amounts under such bonds. Neither Central Jersey nor any of its subsidiaries has
reason to believe that its respective fidelity coverage will not be renewed by
its carrier on substantially the same terms as the existing coverage, except for
possible premium increases unrelated to Central Jersey's and its subsidiaries'
past claim experience.
Section 2.17. Labor Matters. Hours worked by and payment made to employees
of Central Jersey and each of its subsidiaries have not been in violation of the
Fair Labor Standards Act or any applicable law dealing with such matters; and
all payments due from Central Jersey and each of its subsidiaries on account of
employee health and welfare insurance have been paid or accrued as a liability
on the books of Central Jersey or its appropriate subsidiary. Central Jersey is
in compliance with all other laws and regulations relating to the employment of
labor, including all such laws and regulations relating to collective
bargaining, discrimination, civil rights, safety and health, plant closing
(including the Worker Adjustment Retraining and Notification Act), workers'
compensation and the collection and payment of withholding and Social Security
and similar taxes. No labor dispute, strike or other work stoppage has occurred
and is continuing or is to its knowledge threatened with respect to Central
Jersey or any of its subsidiaries. Since December 31, 1992, no employee of
Central Jersey or any of its subsidiaries has been terminated, suspended,
disciplined or dismissed under circumstances that are reasonably likely to
result in a material liability. No employees of Central Jersey or any of its
subsidiaries are unionized nor has such union representation been requested by
any group of employees or any other person within the last two years. There are
no organizing activities involving Central Jersey pending with, or, to the
knowledge of Central Jersey, threatened by, any labor organization or group of
employees of Central Jersey.
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Section 2.18. Books and Records. The minute books of Central Jersey and
each of its subsidiaries contain, in all material respects, complete and
accurate records of and fairly reflect all actions taken at all meetings and
accurately reflect all other corporate action of the shareholders and the boards
of directors and each committee thereof. The books and records of Central Jersey
and each of its subsidiaries fairly and accurately reflect the transactions to
which Central Jersey and each of its subsidiaries is or has been a party or by
which their properties are subject or bound, and such books and records have
been properly kept and maintained.
Section 2.19. Concentrations of Credit. No customer or affiliated group of
customers (i) is owed by Central Jersey or any subsidiary of Central Jersey an
aggregate amount equal to more than 5% of the shareholders' equity of Central
Jersey or such subsidiary (including deposits, other debts and contingent
liabilities) or (ii) owes to Central Jersey or any of its subsidiaries an
aggregate amount equal to more than 5% of the shareholders' equity of Central
Jersey or such subsidiary (including loans and other debts, guarantees of debts
of third parties, and other contingent liabilities).
Section 2.20. Trademarks and Copyrights. Neither Central Jersey nor any of
its subsidiaries has received notice or otherwise knows that the manner in which
Central Jersey or any of its subsidiaries conducts its business including its
current use of any material trademark, trade name, service mark or copyright
violates asserted rights of others in any trademark, trade name, service mark,
copyright or other proprietary right.
Section 2.21 Equity Interests. Neither Central Jersey nor any of its
subsidiaries owns, directly or indirectly, except for the equity interest of
Central Jersey in Bank, any equity interest, other than by virtue of a security
interest securing an obligation not presently in default, in any bank,
corporation, partnership or other entity, except: (a) in a fiduciary capacity;
or (b) an interest valued at less than $25,000 acquired in connection with a
debt previously contracted.
Section 2.22. Environmental Matters.
(a) Except as disclosed in Schedule 2.22 or in the Forms 10-K and 10-Q of
Central Jersey referred to in Section 2.02 hereof:
(1) No Hazardous Substances (as hereinafter defined) have been stored,
treated, dumped, spilled, disposed, discharged, released or deposited at,
under or on (1) any property now owned, occupied, leased or held or
managed in a representative or fiduciary capacity ("Present Property") by
Central Jersey or any of its subsidiaries, (2) any property previously
owned, occupied, leased or held or managed in a representative or
fiduciary capacity ("Former Property") by Central Jersey or any of its
subsidiaries during the time of such previous ownership, occupancy, lease;
holding or management or (3) any Participation Facility (as hereinafter
defined) during the time that Central Jersey or any of its subsidiaries
participated in the management of, or may be deemed to be or to have been
an owner or operator of, such Participation Facility;
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(2) Neither Central Jersey nor any of its subsidiaries has disposed of, or
arranged for the disposal of, Hazardous Substances from any Present
Property, Former Property or Participation Facility, and no owner or
operator of a Participation Facility disposed of, or arranged for the
disposal of, Hazardous Substances from a Participation Facility during the
time that Central Jersey or any of its subsidiaries participated in the
management of, or may be deemed to be or to have been an owner or operator
of, such Participation Facility;
(3) No Hazardous Substances have been stored, treated, dumped, spilled,
disposed, discharged, released or deposited at, under or on any Loan
Property (as hereinafter defined), nor is there, with respect to any such
Loan Property, any violation of environmental law which could materially
adversely affect the value of such Loan Property to an extent which could
prevent or delay Central Jersey or any of its subsidiaries from recovering
the full value of its loan in the event of a foreclosure on such Loan
Property.
(b) Neither Central Jersey nor any subsidiary (i) is aware of any
investigations contemplated, pending or completed by any environmental
regulatory authority with respect to any Present Property, Former Property, Loan
Property or Participation Facility, (ii) has received any information requests
from any environmental regulatory authority, or (iii) been named as a
potentially responsible or liable party in any Superfund, Resource Conservation
and Recovery Act, Toxic Substances Control Act or Clean Water Act proceeding or
other equivalent state or federal proceeding.
(c) As used in this Agreement, (a) "Participation Facility" shall mean any
property or facility of which the relevant person or entity (i) has at any time
participated in the management or (ii) may be deemed to be or to have been an
owner or operator, (b) "Loan Property" shall mean any real property in which the
relevant person or entity holds a security interest in an amount greater than
$30,000 and (c) "Hazardous Substances" shall mean (i) any flammable substances,
explosives, radioactive materials, hazardous materials, hazardous substances,
hazardous wastes, toxic substances, pollutants, contaminants and any related
materials or substances specified in any applicable Federal or state law or
regulation relating to pollution or protection of human health or the
environment (including, without limitation, ambient or indoor air, surface
water, groundwater, land surface or subsurface strata) and (ii) friable
asbestos, polychlorinated biphenyls, urea formaldehyde, and petroleum and
petroleum-containing products and wastes.
It shall be considered material for all purposes of this Agreement if the
cost of taking all remedial or other corrective actions and measures (as
required by applicable law, as recommended or suggested by phase two
investigation reports or as may be prudent in light of serious life, health or
safety concerns) with respect to matters required to be disclosed pursuant to
this Section 2.22 but not so disclosed, is in the aggregate in excess of
$1,000,000, as reasonably estimated by an environmental expert retained for such
purpose by Summit at its sole expense, or if the cost of such actions and
measures cannot be so reasonably estimated by such expert to be such amount or
less with any reasonable degree of certainty.
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Section 2.23 Accounting, Tax and Regulatory Matters. Neither Central
Jersey nor any of its subsidiaries has taken or agreed to take any action or has
any knowledge of any fact or circumstance that would (i) prevent the
transactions contemplated hereby from qualifying as a reorganization within the
meaning of Section 368 of the Code or (ii) materially impede or delay receipt of
any approval referred to in Section 4.01 or the consummation of the transactions
contemplated by this Agreement.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF SUMMIT
Summit represents and warrants to Central Jersey as follows:
Section 3.01. Organization, Capital Stock.
(a) Summit is a corporation duly organized, validly existing and in good
standing under the laws of the State of New Jersey with authorized capital stock
consisting of 130,000,000 shares of Common Stock, each of par value $1.20, of
which 93,504,424 shares were issued and outstanding as of April 30, 1996 and
4,000,000 shares of Preferred Stock, each without par value, of which 600,166
shares of Series B Adjustable Rate Cumulative Preferred Stock ($50 stated value)
and 504,481 shares of Series C Adjustable Rate Cumulative Preferred Stock ($25
stated value) were issued and outstanding and 1,000,000 shares of Series R
Preferred Stock were reserved for issuance as of April 30, 1996.
(b) Summit is qualified to transact business in and is in good standing
under the laws of all jurisdictions where the failure to be so qualified would
have a material adverse effect on (i) the business, results of operations,
assets or financial condition of Summit and its subsidiaries on a consolidated
basis, or (ii) the ability of Summit to perform its obligations under, and to
consummate the transactions contemplated by, this Agreement (a "Summit Material
Adverse Change"). However, a Summit Material Adverse Change will not include a
change resulting from a change in law, rule, regulation or generally accepted or
regulatory accounting principles, or from any other matter affecting financial
institutions or their holding companies generally. The bank subsidiaries of
Summit are duly organized, validly existing and in good standing under the laws
of their jurisdiction of organization. Summit and its bank subsidiaries have all
corporate power and authority and all material licenses, franchises,
certificates, permits and other governmental authorizations which are legally
required to own and lease their respective properties, occupy their respective
premises, and to engage in their respective businesses and activities as
presently engaged in. Summit is duly registered as a bank holding company under
the Bank Holding Company Act of 1956, as amended ("Bank Holding Company Act").
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(c) All issued shares of the capital stock of Summit and of each of its
bank subsidiaries have been fully paid, were duly authorized and validly issued,
are non-assessable, have been issued pursuant to an effective registration
statement and current prospectus under the Securities Act or an appropriate
exemption from registration under the Securities Act and were not issued in
violation of the preemptive rights of any shareholder. Summit or one of its
subsidiaries is the holder and beneficial owner of all of the issued and
outstanding capital stock of its bank subsidiaries. No options covering capital
stock of Summit or any of its bank subsidiaries, warrants to purchase or
contracts to issue capital stock of Summit or any of its bank subsidiaries, or
any other contracts, rights (including preemptive rights), commitments or
convertible securities entitling anyone to acquire from Summit or any of its
subsidiaries or obligating them to issue any capital stock, or securities
convertible into or exchangeable for shares of capital stock, of Summit or any
of its bank subsidiaries are outstanding, in existence, or the subject of an
agreement, except for Summit Stock issuable upon the exercise of employee stock
options granted under stock option plans of Summit, Summit Stock issuable
pursuant to Summit's Dividend Reinvestment and Stock Purchase Plan, Savings
Incentive Plan and 1993 Incentive Stock and Option Plan and Series R Preferred
Stock issuable pursuant to the Summit Shareholder Rights Plan.
(d) All Equity Securities of its direct and indirect subsidiaries
beneficially owned by Summit or a subsidiary of Summit are held free and clear
of any claims, liens, encumbrances or security interests.
Section 3.02. Financial Statements. The financial statements and schedules
contained or incorporated in Summit's (a) annual report to shareholders for the
fiscal year ended December 31, 1995, (b) annual report on Form 10-K pursuant to
the Exchange Act for the fiscal year ended December 31, 1995 and (c) quarterly
report on Form 10-Q pursuant to the Exchange Act for the fiscal quarter ended
March 31, 1996 (the "Summit Financial Statements") are true and correct in all
material respects as of their respective dates and each fairly presents, in
accordance with generally accepted accounting principles consistently applied,
the consolidated balance sheets, statements of income, statements of
shareholders' equity and statements of cash flows of Summit and its subsidiaries
at its respective date and for the period to which it relates. Except as may
otherwise be described therein or in the related notes or in accountants'
reports thereon, the Summit Financial Statements were prepared in accordance
with generally accepted accounting principles consistently applied. The Summit
Financial Statements do not, as of the dates thereof, include any material asset
or omit any material liability, absolute or contingent, or other fact, the
inclusion or omission of which renders the Summit Financial Statements, in light
of the circumstances under which they were made, misleading in any respect.
Section 3.03. No Conflicts. Summit is not in, and has received no notice
of, violation or breach of, or default under, nor will the execution, delivery
and performance of this Agreement by Summit, or the consummation of the Merger
by Summit upon the terms and conditions provided herein (assuming receipt of the
Required Consents), violate, conflict with, result in the breach of, constitute
a default under, give rise to a claim or right of termination, cancellation,
revocation of, or acceleration under, or result in the creation or imposition of
any lien, charge or encumbrance upon
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any rights, permits, licenses, assets or properties material to Summit and its
subsidiaries, taken as a whole, or upon any of the capital stock of Summit, or
constitute an event which could, with the lapse of time, action or inaction by
Summit, or a third party, or the giving of notice and failure to cure, result in
any of the foregoing, under any of the terms, conditions or provisions, as the
case may be, of:
(a) the Restated Certificate of Incorporation or the By-Laws of Summit;
(b) any law, statute, rule, ruling, determination, ordinance, or regulation
of any governmental or regulatory authority;
(c) any judgment, order, writ, award, injunction, or decree of any court or
other governmental authority; or
(d) any material note, bond, mortgage, indenture, lease, policy of
insurance or indemnity, license, contract, agreement, or other instrument;
to which Summit is a party or by which Summit, or any of its assets or
properties are bound or committed, the consequences of which would be a Summit
Material Adverse Change, or enable any person to enjoin the transactions
contemplated hereby.
Section 3.04. Absence of Litigation, Agreements with Bank Regulators.
There is no outstanding order, injunction, or decree of any court or
governmental or self-regulatory body against or affecting Summit or its
subsidiaries which materially and adversely affects Summit and its subsidiaries,
taken as a whole, and there are no actions, arbitrations, claims, charges,
suits, investigations or proceedings (formal or informal) material to Summit and
its subsidiaries, taken as a whole, pending or, to Summit's knowledge,
threatened, against or involving Summit or their officers or directors (in their
capacity as such) in law or equity or before any court, panel or governmental
agency, except as disclosed in the Forms 10-K and 10-Q of Summit referred to in
Section 3.02 or as previously provided to Central Jersey. Neither Summit nor any
bank subsidiary of Summit is a party to any agreement or memorandum of
understanding with, or is a party to any commitment letter to, or has submitted
a board of directors resolution or similar undertaking to, or is subject to any
order or directive by, or is a recipient of any extraordinary supervisory letter
from, any governmental or regulatory authority which restricts materially the
conduct of its business, or in any manner relates to its capital adequacy, its
credit or reserve policies or its management. Neither Summit nor any bank
subsidiary of Summit, has been advised by any governmental or regulatory
authority that it is contemplating issuing or requesting (or is considering the
appropriateness of issuing or requesting) any of the foregoing. Summit and the
bank subsidiaries of Summit have resolved to the satisfaction of the applicable
regulatory agency any significant deficiencies cited by any such agency in its
most recent examinations of each aspect of Summit or such bank subsidiary's
business except for examinations, if any, received within the 30 days prior to
the date hereof.
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Section 3.05. Material Information. At the time of filing, all filings
made by Summit and its subsidiaries after December 31, 1989 with the SEC and
appropriate bank regulatory authorities do not contain any untrue statement of a
material fact and do not omit to state any material fact required to be stated
herein or therein or necessary to make the statements contained herein or
therein, in light of the circumstances under which they were made, not
misleading. To the extent such filings were subject to the Securities Act or
Exchange Act, such filings complied in all material respects with the Securities
Act or Exchange Act, as appropriate, and all applicable rules and regulations
thereunder of the SEC. Summit has timely made all filings required by the
Securities Act and the Exchange Act.
Section 3.06. Corporate Action. Assuming due execution and delivery by
Central Jersey, Summit has the corporate power and is duly authorized by all
necessary corporate action to execute, deliver, and perform this Agreement. The
Board of Directors of Summit has taken all action required by law or by the
Restated Certificate of Incorporation or By-Laws of Summit or otherwise to
authorize the execution and delivery of this Agreement. Approval by the
shareholders of Summit of this Agreement, the Merger or the transactions
contemplated by this Agreement are not required by applicable law. This
Agreement is a valid and binding agreement of Summit enforceable in accordance
with its terms except as such enforcement may be limited by applicable
principles of equity, and by bankruptcy, insolvency, moratorium or other similar
laws presently or hereafter in effect affecting the enforcement of creditors'
rights generally.
Section 3.07. Absence of Changes. Except as disclosed in the Summit
Financial Statements, there has not been, since December 31, 1995, any Summit
Material Adverse Change and there is no matter or fact which may result in any
such Summit Material Adverse Change in the future.
Section 3.08. Non-bank Subsidiaries. The non-bank subsidiaries of Summit
did not, taken in the aggregate, constitute a "significant subsidiary" of
Summit, as that term is defined in Rule 1-02(v) of Regulation S-X of the SEC (17
CFR ss.210.1-02(v)), at December 31, 1995.
Section 3.09. Absence of Undisclosed Liabilities. The Summit Financial
Statements are prepared on an accrual basis and reflect all known assets and
liabilities. There are no material undisclosed liabilities, whether contingent
or absolute, direct or indirect..
Section 3.10. Environmental Matters.
(a) Except as disclosed in the Forms 10-K and 10-Q of Summit referred to
in Section 3.02 hereof:
(1) no Hazardous Substances have been stored, treated, dumped, spilled,
disposed, discharged, released or deposited at, under or on any (i)
Present Property of Summit or a subsidiary, (ii) Former Property of
Summit or a subsidiary during the time of previous ownership,
occupancy or lease, or (iii) Participation Facility during the time
that Summit or a subsidiary participated in the management of, or
may be deemed to
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be or to have been an owner or operator of, such facility, where
such storage, treatment, dumping, spilling, disposing, discharging,
releasing, or depositing would have a material adverse effect on
Summit and its subsidiaries, taken as a whole;
(2) neither Summit nor any subsidiary has disposed of or arranged for
the disposal of Hazardous Substances from any Present Property,
Former Property or Participation Facility, and no owner or operator
of a Participation Facility disposed of, or arranged for the
disposal of, Hazardous Substances from a Participation Facility
during the time that Summit or any subsidiary participated in the
management of, or may be deemed to be or to have been an owner or
operator of such Participation Facility, where such disposal or
arranging for disposal would have a material adverse effect on
Summit and its subsidiaries, taken as a whole;
(3) no Hazardous Substances have been stored, treated, dumped, spilled,
disposed, discharged, released or deposited at, under or on any Loan
Property, nor is there with respect to any Loan Property any
violation of an environmental law, where such storage, treatment,
dumping, spilling, disposing, discharging, releasing, depositing or
violation would have a material adverse effect on Summit and its
subsidiaries, taken as a whole.
(b) Neither Summit nor any subsidiary (i) is aware of any investigations
contemplated, pending or completed by any environmental regulatory authority
with respect to any Present Property, Former Property, Loan Property or
Participation Facility which would be likely to result in a Summit Material
Adverse Change, (ii) has received any information requests from any
environmental regulatory authority with respect to a matter which would be
likely to result in a Summit Material Adverse Change, or (iii) been named as a
potentially responsible or liable party in any Superfund, Resource Conservation
and Recovery Act, Toxic Substances Control Act or Clean Water Act proceeding or
other equivalent state or federal proceeding which would be likely to result in
a Summit Material Adverse Change.
Section 3.11. Benefit Plans. Summit is in compliance with all laws and
regulations applicable to its employee benefit plans where the failure to so
comply would be likely to result in a Material Adverse Change.
Section 3.12. Accounting, Tax and Regulatory Matters. Neither Summit nor
any of its subsidiaries has taken or agreed to take any action or has any
knowledge of any fact or circumstance that would (i) prevent the transactions
contemplated hereby from qualifying as a reorganization within the meaning of
Section 368 of the Code or (ii) materially impede or delay receipt of any
approval referred to in Section 4.01 or the consummation of the transactions
contemplated by this Agreement.
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ARTICLE IV.
COVENANTS OF CENTRAL JERSEY
Central Jersey hereby covenants and agrees with Summit that:
Section 4.01. Preparation of Registration Statement and Applications for
Required Consents. Central Jersey will cooperate with Summit in the preparation
of a Registration Statement on Form S-4 (the "Registration Statement") to be
filed with the SEC under the Securities Act for the registration of the offering
of Summit Stock to be issued in connection with the Merger and the proxy
statement-prospectus constituting part of the Registration Statement
("Proxy-Prospectus") that will be used by Central Jersey to solicit shareholders
of Central Jersey for approval of the Merger. In connection therewith, Central
Jersey will furnish all financial or other information, including using best
efforts to obtain customary consents, certificates, opinions of counsel and
other items concerning Central Jersey reasonably deemed necessary by counsel to
Summit for the filing or preparation for filing under the Securities Act and the
Exchange Act of the Registration Statement (including the proxy statement
portion thereof). Central Jersey will cooperate with Summit and provide such
information as may be advisable in obtaining an order of effectiveness for the
Registration Statement, appropriate permits or approvals under state securities
and "blue sky" laws, the required approval under the Bank Holding Company Act of
the Board of Governors of the Federal Reserve System (the "Federal Reserve
Board"), the required approval under HOLA of the Office of Thrift Supervision of
the Department of the Treasury ("OTS"), the listing of the Shares on the New
York Stock Exchange (subject to official notice of issuance) and any other
governmental or regulatory consents or approvals or the taking of any other
governmental or regulatory action necessary to consummate the Merger without a
material adverse effect on the business, results of operations, assets or
financial condition of the Surviving Corporation and its subsidiaries, taken as
a whole (the "Required Consents"). Summit, reasonably in advance of making such
filings, will provide Central Jersey and its counsel a reasonable opportunity to
comment on such filings and regulatory applications and will give due
consideration to any comments of Central Jersey and its counsel before making
any such filing or application; and Summit will provide Central Jersey and its
counsel with copies of all such filings and applications at the time filed if
such filings and applications are made at any time before the Effective Time.
Central Jersey covenants and agrees that all information furnished by Central
Jersey for inclusion in the Registration Statement, the Proxy-Prospectus, all
applications to appropriate regulatory agencies for approval of the Merger, and
all information furnished by Central Jersey to Summit pursuant to this Agreement
or in connection with obtaining Required Consents, will comply in all material
respects with the provisions of applicable law, including the Securities Act and
the Exchange Act and the rules and regulations of the SEC thereunder, and will
not contain any untrue statement of a material fact and will not omit to state
any material fact required to be stated therein or necessary to make the
statements contained therein, in light of the circumstances under which they
were made, not misleading. Central Jersey will furnish to Advest such
information as Advest may reasonably request for purposes of the opinion
referred to in Section 8.07.
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Section 4.02. Notice of Adverse Changes. Central Jersey will promptly
advise Summit in writing of (a) any event occurring subsequent to the date of
this Agreement which would render any representation or warranty of Central
Jersey contained in this Agreement or the Central Jersey Schedules or the
materials furnished pursuant to the Post-Signing Disclosure List (as defined in
Section 4.09), if made on or as of the date of such event or the Closing Date,
untrue or inaccurate in any material respect, (b) any Central Jersey Material
Adverse Change, (c) any inability or perceived inability of Central Jersey to
perform or comply with the terms or conditions of this Agreement, (d) the
institution or threat of institution of litigation or administrative proceedings
involving Central Jersey or any of its subsidiaries or assets, which, if
determined adversely to Central Jersey or any of its subsidiaries, would have a
material adverse effect upon Central Jersey and its subsidiaries taken as a
whole or the ability of the parties to timely consummate the Merger and the
related transactions, (e) any governmental complaint, investigation, hearing, or
communication indicating that such litigation or administrative proceeding is
contemplated, (f) any written notice of, or other communication relating to, a
default or event which, with notice or lapse of time or both, would become a
default, received by Central Jersey or a subsidiary subsequent to the date
hereof and prior to the Effective Time, under any agreement, indenture or
instrument to which Central Jersey or a subsidiary is a party or is subject and
which is material to the business, operation or condition (financial or
otherwise) of Central Jersey and its subsidiaries taken as a whole, and (g) any
written notice or other communication from any third party alleging that the
consent of such third party is or may be required in connection with the
transactions contemplated by this Agreement including the Merger. Central Jersey
agrees that the delivery of such notice shall not constitute a waiver by Summit
of any of the provisions of Articles VI or VII.
Section 4.03. Meeting of Shareholders. Central Jersey will call a meeting
of its shareholders for the purpose of voting upon this Agreement, the Merger
and the transactions contemplated hereby to be held as promptly as practicable
and, in connection therewith, will comply in all material respects with the New
Jersey Act and the Exchange Act and all regulations promulgated thereunder
governing shareholder meetings and proxy solicitations. In connection with such
meeting, Central Jersey shall mail the Proxy-Prospectus to its shareholders and
use, unless in the written opinion of counsel such action would be a breach of
the fiduciary duties by the directors under applicable law, its best efforts to
obtain shareholder approval of this Agreement, the Merger and the transactions
contemplated hereby.
Section 4.04. Copies of Filings. Without limiting the provisions of
Section 4.01, Central Jersey will deliver to Summit, at least twenty-four hours
prior to an anticipated date of filing or distribution, all documents to be
filed with the SEC or any bank regulatory authority or to be distributed in any
manner to the shareholders of Central Jersey or the public.
Section 4.05. No Material Transactions. Until the Effective Time, Central
Jersey will not and will not allow any of its subsidiaries to, without the prior
written consent of Summit: (a) pay (or make a declaration which creates an
obligation to pay) any cash dividends, other than dividends from subsidiaries of
Central Jersey to Central Jersey or other subsidiaries of Central Jersey except
that Central Jersey may declare, set aside and pay a dividend up to and
including the greater of $.12 per
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share or the dividend most recently (as of such date) declared by Summit
multiplied by the Exchange Ratio; (b) declare or distribute any stock dividend
or authorize or effect a stock split; (c) subject to the fiduciary duties of the
Central Jersey Board of Directors, merge with, consolidate with, or sell any
material asset to any other corporation, bank, or person (except for mergers of
subsidiaries of Central Jersey into other subsidiaries of Central Jersey) or
enter into any other transaction not in the ordinary course of business; (d)
incur any liability or obligation other than intracompany obligations, make or
agree to make any commitment or disbursement, acquire or dispose or agree to
acquire or dispose of any property or asset (tangible or intangible), make or
agree to make any contract or agreement or engage or agree to engage in any
other transaction, except transactions in the ordinary course of business or
other transactions of not more than $100,000; (e) subject any of its properties
or assets to any lien, claim, charge, option or encumbrance, except in the
ordinary course of business and for amounts not material in the aggregate to
Central Jersey and its subsidiaries taken as a whole; (f) increase or enter into
any agreement to increase the rate of compensation of any employee on the date
hereof which is not consistent with past practices and policies or which when
considered with all such increases or agreements to increase constitutes an
average annualized rate exceeding five percent (5%), or pay any employee
bonuses; (g) create, adopt or modify any employment or severance arrangement or
any pension or profit sharing plan, bonus, deferred compensation, death benefit,
retirement or other employee or director benefit plan of whatsoever nature, or
change the level of benefits under any such arrangement or plan, or increase any
severance or termination pay benefit or any other fringe benefit, or make,
increase or amend in any manner any grant or award under any compensation plan,
including stock incentive and stock option plans; (h) distribute, issue, sell or
grant any of its Equity Securities or any stock appreciation rights except
pursuant to the exercise of director and employee stock options under the
Central Jersey Option Plans; (i) except in a fiduciary capacity, purchase,
redeem, retire, repurchase, or exchange, or otherwise acquire or dispose of,
directly or indirectly, any of its Equity Securities, whether pursuant to the
terms of such Equity Securities or otherwise, or enter into any agreement
providing for any of the foregoing transactions; (j) amend its Certificate of
Incorporation or By-Laws; (k) modify, amend or cancel any of its existing
borrowings other than intra-corporate borrowings and borrowings of federal funds
from correspondent banks and the Federal Reserve Bank of New York or the Federal
Home Loan Bank of New York or enter into any contract, agreement, lease or
understanding, or any contracts, agreements, leases or understandings other than
those in the ordinary course of business or which do not involve the creation of
any material obligation or release of any material right of Central Jersey or
any of its subsidiaries, taken as a whole; (l) create, or accelerate the
exercisability of, any stock appreciation rights or options or the release of
any restrictions on stock issued under the Central Jersey Benefit Plans; (m)
make any employer contribution to a Central Jersey Plan or a Benefit Plan which
under the terms of the particular plan is voluntary and within the sole
discretion of Central Jersey to make, except such contributions made in
accordance with plan terms in effect on the date hereof; or (n) make any
determination or take any action, by its Compensation Committee or otherwise,
under or with respect to any Central Jersey Option Plan other than routine
administration of outstanding awards thereunder.
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Section 4.06. Operation of Business in Ordinary Course. Central Jersey, on
behalf of itself and its subsidiaries, covenants and agrees that from and after
the date hereof and until the Effective Time, it and its subsidiaries: (a) will
carry on their business substantially in the same manner as heretofore and will
not institute any unusual or novel methods of management or operation of their
properties or business and will maintain such in their customary manner; (b)
will use their best efforts to continue in effect their present insurance
coverage on all properties, assets, business and personnel; (c) will use their
best efforts to preserve their business organization intact, preserve their
present relationships with customers, suppliers, and others having business
dealings with them, and keep available their present employees, provided,
however, that Central Jersey or any of its subsidiaries may terminate any
employee for unsatisfactory performance or other reasonable business purpose,
and provided further, however, that Central Jersey will notify and consult with
Summit prior to terminating any of the five highest paid employees of Central
Jersey; (d) will use their best efforts to continue to maintain fidelity bonds
insuring Central Jersey and its subsidiaries against acts of dishonesty by each
of their employees in such amounts (not less than present coverage) as are
customary, usual and prudent for corporations or banks, as the case may be, of
their size; (e) will not do anything or fail to do anything which will cause a
breach of or default under any representation, warranty or covenant of Central
Jersey or any contract, agreement, commitment or obligation to which they or any
one of them is a party or by which they or any of their assets or properties may
be bound or committed if the consequence of such, individually or in the
aggregate, would be likely to have a material adverse effect on Central Jersey
and its subsidiaries taken as a whole; and (f) will not change their methods of
accounting in effect at March 31, 1995, or change any of their methods of
reporting income and deductions for Federal income tax purposes from those
employed in the preparation of their Federal income tax returns for the taxable
year ending March 31, 1995, except as required by changes in laws, regulations
or generally accepted accounting principles or changes that are to a preferable
accounting method, and approved in writing by Central Jersey's independent
certified public accountants.
Section 4.07. Further Actions. Central Jersey will: (a) execute and
deliver such instruments and take such other actions as Summit may reasonably
require to carry out the intent of this Agreement; (b) use all reasonable
efforts to obtain consents of all third parties and governmental bodies
necessary or reasonably desirable for the consummation of the transactions
contemplated by this Agreement; (c) subject to the fiduciary duties of the
Central Jersey Board of Directors diligently support this Agreement in any
proceeding before any regulatory authority whose approval of any of the
transactions contemplated hereby is required or reasonably desirable or before
any court in which litigation in respect thereof is pending; and (d) use its
best efforts so that the other conditions precedent to the obligations of Summit
set forth in Articles VI and VII hereof are satisfied.
Section 4.08. Cooperation. Until the Effective Time, Central Jersey will
give to Summit and to its representatives, including its accountants, KPMG Peat
Marwick LLP, and its legal counsel, full access during normal business hours to
all of its property, documents, contracts and records relevant to this Agreement
and the Merger, will provide such information with respect to its business
affairs and properties as Summit from time to time may reasonably request, and
will cause its managerial employees, and will use its best efforst to cause its
counsel and independent certified public
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accountants, to be available on reasonable request to answer questions of
Summit's representatives covering the business and affairs of Central Jersey or
any of its subsidiaries.
Section 4.09. Copies of Documents. As promptly as practicable, but not
later than 45 days after the date hereof, Central Jersey will furnish to or make
available to Summit all the documents, contracts, agreements, papers, and
writings referred to in the Central Jersey Schedules or called for by the list
attached hereto as Exhibit B (the "Post-Signing Disclosure List").
Section 4.10. Applicable Laws. Central Jersey and its subsidiaries will
use their best efforts to comply promptly with all requirements which federal or
state law may impose on Central Jersey or any of its subsidiaries with respect
to the Merger and will promptly cooperate with and furnish information to Summit
in connection with any such requirements imposed upon Summit or on any of its
subsidiaries in connection with the Merger.
Section 4.11. Agreements of Affiliated Shareholders. Central Jersey agrees
to furnish to Summit, not later than 10 business days prior to the date of
mailing of the Proxy-Prospectus, a list containing the name of each person who
is identified in a letter received from counsel to Central Jersey as an
affiliate of Central Jersey for the purposes of Rule 145 under the Securities
Act (a "Central Jersey Affiliate") and shall use its best efforts to cause each
Central Jersey Affiliate to enter into, prior to the date of mailing of the
Proxy- Prospectus, an agreement, satisfactory in form and substance to Summit,
substantially in the form of Exhibit C hereto, and effective prior to such date
(an "Affiliate Agreement").
Section 4.12. Loans and Leases to Affiliates. All loans and leases
hereafter made by Central Jersey or any of its subsidiaries to any of its
present or former directors or executive officers or their respective related
interests shall be made only in the ordinary course of business and on the same
terms and at the same interest rates as those prevailing for comparable
transactions with others and shall not involve more than the normal risk of
repayment or present other unfavorable features.
Section 4.13. Confidentiality. All information furnished by Summit to
Central Jersey or its representatives pursuant hereto shall be treated as the
sole property of Summit and, if the Merger shall not occur, Central Jersey and
its representatives shall return to Summit all of such written information and
all documents, notes, summaries or other materials containing, reflecting or
referring to, or derived from, such information, except that any such
confidential information or notes or abstracts therefrom presented to the Board
of Directors of Central Jersey or any committee thereof for the purpose of
considering this Agreement, the Merger and the related transactions may be kept
and maintained by Central Jersey with other records of Board, and Board
committee, meetings subject to a continuing obligation of confidentiality.
Central Jersey shall, and shall use its best efforts to cause its
representatives to, keep confidential all such information, and shall not
directly or indirectly use such information for any competitive or other
commercial purposes. The obligation to keep such information confidential shall
continue for five years from the date the proposed Merger is abandoned and shall
not apply to: (i) any information which (x) was legally in Central Jersey's
possession prior to the disclosure thereof by Summit, (y) was then generally
known to the public, or
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(z) was disclosed to Central Jersey by a third party not bound by an obligation
of confidentiality; or (ii) disclosures made as required by law. It is further
agreed that if, in the absence of a protective order or the receipt of a waiver
hereunder, Central Jersey is nonetheless, in the written opinion of its outside
counsel, compelled to disclose information concerning Summit to any tribunal or
governmental body or agency or else stand liable for contempt or suffer other
censure or penalty, Central Jersey may disclose such information to such
tribunal or governmental body or agency without liability hereunder and shall so
notify Summit. This Section 4.13 shall survive any termination of this
Agreement.
Section 4.14. Dividends. Central Jersey will coordinate with Summit the
declaration of any dividends and the record and payment dates thereof so that
the holders of Central Jersey Stock will not be paid two dividends for a single
calendar quarter with respect to their shares of Central Jersey Stock and any
shares of Summit Stock they become entitled to receive in the Merger or fail to
be paid one dividend in each calendar quarter between the date hereof and the
Effective Time.
Section 4.15. Acquisition Proposals. Central Jersey agrees that neither
Central Jersey nor any of its subsidiaries nor any of the respective officers
and directors of Central Jersey or its subsidiaries shall, and Central Jersey
shall direct and use its best effort to cause its employees, affiliates, agents
and representatives (including, without limitation, any investment banker,
broker, financial or investment advisor, attorney or accountant retained by
Central Jersey or any of its subsidiaries) not to, initiate, solicit or
encourage, directly or indirectly, any inquiries proposals or offers with
respect to, or engage in any negotiations or discussions with any person,
provide any nonpublic information, or authorize or enter into any agreement or
agreement in principle concerning, or recommend or endorse any Acquisition
Proposal (as defined below); provided however, that the Board of Directors of
Central Jersey may furnish or cause to be furnished nonpublic information and
may participate in such discussions and negotiations directly or through its
representatives and may authorize or enter into any agreement or agreement in
principle concerning, or recommend or endorse any Acquisition Proposal (as
defined below), if such Board of Directors has determined, after having
consulted with and received the written opinion of outside counsel to the
effect, that the failure to provide such nonpublic information or participate in
such negotiations and discussions or authorize or enter into or recommend or
endorse any agreement or agreement in principle relating to an Acquisition
Proposal would cause the members of such Board of Directors to breach their
fiduciary duties under applicable laws. "Acquisition Proposal" is hereby defined
to be any offer, including an exchange offer or tender offer, or proposal
concerning a merger, consolidation, or other business combination or takeover
transaction involving Central Jersey or any of its subsidiaries or the
acquisition of any assets (otherwise than as permitted by Section 4.05) or
securities of Central Jersey or any of its subsidiaries. Central Jersey will
immediately cease and cause to be terminated any existing activities, discussion
or negotiations with any parties conducted heretofore with respect to any of the
foregoing. Central Jersey will take the necessary steps to inform the
individuals or entities referred to in the first sentence hereof of the
obligations undertaken in this Section. In addition, Central Jersey will notify
Summit by telephone to its chief executive officer or general counsel promptly
upon receipt of any communication with respect to a proposed Acquisition
Proposal with another person or receipt of a request for information from any
governmental or regulatory authority
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with respect to a proposed acquisition of Central Jersey or any of its
subsidiaries or assets by another party, and will immediately deliver as soon as
possible by facsimile transmission, receipt acknowledged, to the Summit officer
notified as required above a copy of any document relating thereto promptly
after any such document is received by Central Jersey.
Section 4.16 Tax Opinion Certificates. Central Jersey shall execute and
deliver to Thompson & Coburn any tax opinion certificate reasonably required by
Thompson & Coburn in connection with the issuance of one or more of the Tax
Opinions (as defined at Section 6.03), dated as of the date of effectiveness of
the Registration Statement and as of the Closing Date, and Central Jersey shall
use its best efforts to cause each of its executive officers, directors and
holders of five percent (5%) or more of outstanding Central Jersey Stock
(including shares beneficially held) to execute and deliver to Thompson & Coburn
any tax opinion certificate reasonably required by Thompson & Coburn in
connection with the issuance of one or more of the Tax Opinions, dated as of the
date of effectiveness of the Registration Statement and as of the Closing Date.
ARTICLE V.
COVENANTS OF SUMMIT
Summit hereby covenants and agrees with Central Jersey that:
Section 5.01. Approvals and Registrations. Summit will use its best
efforts to prepare and file (a) with the SEC, the Registration Statement, (b)
with the Federal Reserve Board, an application for approval of the Merger, (c)
with the OTS, an application for approval of Summit as a savings and loan
holding company, and (d) with the New York Stock Exchange, an application for
the listing of the shares of Summit Stock issuable upon the Merger, subject to
official notice of issuance, except that Summit shall have no obligation to file
a new registration statement or a post-effective amendment to the Registration
Statement covering any reoffering of Summit Stock by Central Jersey Affiliates.
Summit covenants and agrees that all information furnished by Summit for
inclusion in the Registration Statement, the Proxy-Prospectus, and all
applications and submissions for the Required Consents will comply in all
material respects with the provisions of applicable law, including the
Securities Act and the Exchange Act and the rules and regulations of the SEC,
Federal Reserve Board and OTS, and will not contain any untrue statement of a
material fact and will not omit to state any material fact required to be stated
therein or necessary to make the statements contained therein, in light of the
circumstances under which they were made, not misleading. Summit will furnish to
Advest, investment bankers advising Central Jersey, such information as they may
reasonably request for purposes of the opinion referred to in Section 8.07.
Section 5.02. Notice of Adverse Changes. Summit will promptly advise
Central Jersey in writing of (a) any event occurring subsequent to the date of
this Agreement which would render any representation or warranty of Summit
contained in this Agreement or the Summit Schedules, if made on or as of the
date of such event or the Closing Date, untrue or inaccurate in any material
respect,
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(b) any Summit Material Adverse Change, (c) any inability or perceived inability
of Summit to perform or comply with the terms or conditions of this Agreement,
(d) the institution or threat of institution of material litigation or
administrative proceeding involving Summit or its assets which, if determined
adversely to Summit, would have a material adverse effect on Summit and its
subsidiaries taken as a whole or the Merger, (e) any governmental complaint,
investigation, or hearing or communication indicating that such litigation or
administrative proceeding is contemplated, (f) any written notice of, or other
communication relating to, a default or event which, with notice or lapse of
time or both, would become a default, received by Summit subsequent to the date
hereof and prior to the Effective Time, under any agreement, indenture or
instrument to which Summit is a party or is subject and which is material to the
business, operation or condition (financial or otherwise) of Summit and its
subsidiaries taken as a whole, and (g) any written notice or other communication
from any third party alleging that the consent of such third party is or may be
required in connection with the transactions contemplated by this Agreement
including the Merger. Summit agrees that the delivery of such notice shall not
constitute a waiver by Central Jersey of any of the provisions of Articles VI or
VIII.
Section 5.03. Copies of Filings. Summit shall promptly provide to Central
Jersey and its counsel copies of the applications filed with the Federal Reserve
Board and the OTS and all reports filed by it with the SEC on Forms 10-Q, 8-K
and 10-K.
Section 5.04. Further Actions. Summit will: (a) execute and deliver such
instruments and take such other actions as Central Jersey may reasonably require
to carry out the intent of this Agreement; (b) use all reasonable efforts to
obtain consents of all third parties and governmental bodies necessary or
reasonably desirable for the consummation of the transactions contemplated by
this Agreement; (c) diligently support this Agreement in any proceeding before
any regulatory authority whose approval of any of the transactions contemplated
hereby is required or reasonably desirable or before any court in which
litigation in respect thereof is pending; and (d) use its best efforts so that
the other conditions precedent to the obligations of Central Jersey set forth in
Articles VI and VIII hereof are satisfied.
Section 5.05. Applicable Laws. Summit will use its best efforts to comply
promptly with all requirements which federal or state law may impose on Summit
with respect to the Merger and will promptly cooperate with and furnish
information to Central Jersey in connection with any such requirements imposed
upon Central Jersey or on any of its subsidiaries in connection with the Merger.
Section 5.06. Unpaid Central Jersey Dividends. By virtue of the Merger and
without further action on anyone's part, Summit shall assume the obligation of
Central Jersey to pay dividends, if any, on Central Jersey Stock which have a
record date prior to the Effective Time but which are not payable until after
the Effective Time.
Section 5.07. Cooperation. Until the Effective Time, Summit will provide
such information with respect to its business affairs and properties as Central
Jersey from time to time may reasonably request, and will cause its managerial
employees, counsel and independent certified public
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accountants to be available on reasonable request to answer questions of Central
Jersey's representatives covering the business and affairs of Summit or any of
its subsidiaries.
Section 5.08. Confidentiality. All information furnished by Central Jersey
to Summit or its representatives pursuant hereto shall be treated as the sole
property of Central Jersey and, if the Merger shall not occur, Summit and its
representatives shall return to Central Jersey all of such written information
and all documents, notes, summaries or other materials containing, reflecting or
referring to, or derived from, such information, except that any such
confidential information or notes or abstracts therefrom presented to the Board
of Directors of Summit or any committee thereof for the purpose of considering
this Agreement, the Merger and the related transactions may be kept and
maintained by Summit with other records of Board, and Board committee, meetings
subject to a continuing obligation of confidentiality. Summit shall, and shall
use its best efforts, to cause its representatives to, keep confidential all
such information, and shall not directly or indirectly use such information for
any competitive or other commercial purposes. The obligation to keep such
information confidential shall continue for five years from the date the
proposed Merger is abandoned and shall not apply to: (i) any information which
(x) was legally in Summit's possession prior to the disclosure thereof by
Central Jersey, (y) was then generally known to the public, or (z) was disclosed
to Summit by a third party not bound by an obligation of confidentiality; or
(ii) disclosures made as required by law. It is further agreed that if, in the
absence of a protective order or the receipt of a waiver hereunder, Summit is
nonetheless, in the written opinion of its counsel, compelled to disclose
information concerning Central Jersey to any tribunal or governmental body or
agency or else stand liable for contempt or suffer other censure or penalty,
Summit may disclose such information to such tribunal or governmental body or
agency without liability hereunder and shall so notify Central Jersey in advance
to the extent practicable. This Section 5.08 shall survive any termination of
this Agreement.
Section 5.09. Further Transactions. Summit continually evaluates possible
acquisitions and may prior to the Effective Time enter into one or more
agreements providing for, and may consummate the acquisition by it of another
bank, association, bank holding company, savings and loan holding company or
other company (or the assets thereof) for consideration that may include Summit
Stock. In addition, prior to the Effective Time, Summit may, depending on market
conditions and other factors, otherwise determine to issue equity-linked or
other securities for financing purposes. Notwithstanding the foregoing, Summit
will not take any action that would (i) prevent the transactions and
contemplated hereby from qualifying as a reorganization within the meaning of
Section 368 of the Code or (ii) materially impede or delay receipt of any
Required Consent or the consummation of the transactions contemplated by this
Agreement.
Section 5.10. Indemnification.
(a) Summit shall indemnify, and advance expenses in matters that may be
subject to indemnification to, persons who served as directors and officers of
Central Jersey or any subsidiary of Central Jersey on or before the Effective
Time with respect to liabilities and claims (and related expenses, including
fees and disbursements of counsel) made against them resulting from their
service
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as such prior to the Effective Time in accordance with and subject to the
requirements and other provisions of the Restated Certificate of Incorporation
and By-Laws of Summit in effect on the date of this Agreement and applicable
provisions of law to the same extent as Summit is obliged thereunder to
indemnify and advance expenses to its own directors and officers with respect to
liabilities and claims made against them resulting from their service for
Summit.
(b) For a period of six (6) years after the Effective Time, Summit will
use its best efforts to provide to the persons who served as directors or
officers of Central Jersey or any subsidiary of Central Jersey on or before the
Effective Time insurance against liabilities and claims (and related expenses)
made against them resulting from their service as such prior to the Effective
Time comparable in coverage to that provided by Summit to its own directors and
officers, but, if not available on commercially reasonable terms, then coverage
substantially similar in all material respects to the insurance coverage
provided to them in such capacities at the date hereof; provided, however, that
in no event shall Summit be required to expend more than 200% of the current
amount expended by Central Jersey (the "Insurance Amount") to maintain or
procure insurance coverage pursuant hereto, and, further provided, that if
Summit is unable to maintain or obtain the insurance called for by this Section
5.10, Summit shall use its best efforts to obtain as much comparable insurance
as is available for the Insurance Amount. Central Jersey shall renew any
existing insurance or purchase any "discovery period" insurance provided for
thereunder at Summit's request.
(c) This Section 5.10 shall be construed as an agreement as to which the
directors and officers of Central Jersey referred to herein are intended to be
third party beneficiaries and shall be enforceable by the such persons and their
heirs and representatives.
(d) If Summit or any of its successors or assigns (i) shall consolidate
with or merge into any other corporation or entity and shall not be the
continuing or surviving corporation or entity of such consolidation or merger,
or (ii) shall transfer all or substantially all of its properties and assets to
any individual, corporation or other entity, then in each such case, Summit or
such successor or assign shall take such actions as shall be necessary for the
successors or assigns of Summit to assume the obligations set forth in this
Section 5.10.
Section 5.11. Employee Matters.
(a) After the Effective Time, Summit may in its discretion maintain,
terminate, merge or dispose of (i) the Central Jersey Plans, (ii) the Benefit
Plans, and (iii) all other medical, major medical, disability, life insurance,
accidental death and dismemberment insurance, dental, vision care, or other
health or welfare plan maintained by Central Jersey (the "Health or Welfare
Plans"); provided, however, that any action taken by Summit shall comply with
ERISA and other applicable laws, including laws regarding the preservation of
employee pension benefit plan benefits and, provided further, that if Summit
maintains a plan available to all its employees generally which is similar in
benefits, character or nature to, or which covers risks similar to those covered
by, a Central Jersey Plan, a Benefit Plan or a Health or Welfare Plan available
to all Central Jersey employees generally, then, if such Central Jersey plan is
terminated by Summit or is otherwise rendered inactive by Summit,
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Summit shall offer to the former employees of Central Jersey affected by such
plan termination or cessation of activity the opportunity to participate in the
similar plan of Summit without being subject to any exclusions due to
pre-existing conditions and such employees shall be given credit for years of
service with Central Jersey for purposes of eligibility, vesting and benefit
accrual purposes, except benefit accruals under the Summit Retirement Plan,
Summit supplemental employee retirement plans and Summit severance plans.
(b) After the Effective Time, Central Jersey employees shall not be
entitled to participate automatically in benefits plans, programs or
arrangements of Summit not maintained by Summit for its employees generally,
including without limitation bonus plans, stock option plans, stock award plans,
severance plans and reduction in force plans, but shall be allowed to
participate if and only if selected for participation by the persons authorized
by the terms of such plans to select participants.
(c) Following the Effective Time, Summit shall assume the obligations of
Central Jersey with respect to the following agreements, policies or plans
existing prior to the date hereof which have been disclosed in the Central
Jersey Schedules: (i) employment agreements and (ii) severance pay plan, but
excluding from the coverage of this clause (ii) persons party to employment
agreements covered by clause (i).
(d) If Summit or any of its successors or assigns (i) shall consolidate
with or merge into any other corporation or entity and shall not be the
continuing or surviving corporation or entity of such consolidation or merger,
or (ii) shall transfer all or substantially all of its properties and assets to
any individual, corporation or other entity, then in each such case, Summit or
such successor or assign shall take such actions as shall be necessary for the
successors or assigns of Summit to assume the obligations set forth in this
Section 5.11.
ARTICLE VI.
CONDITIONS PRECEDENT TO THE RESPECTIVE OBLIGATIONS OF SUMMIT
AND CENTRAL JERSEY
The respective obligations of Summit and Central Jersey under this
Agreement to consummate the Merger are subject to the satisfaction of all the
following conditions, compliance with which or the occurrence of which may only
be waived in whole or in part in writing by Summit and Central Jersey in
accordance with Section 10.09:
Section 6.01. Receipt of Required Consents. Summit and Central Jersey
shall have received the Required Consents; the Required Consents shall not, in
the reasonable opinion of Summit or Central Jersey, contain restrictions or
limitations which would materially adversely affect the financial condition of
Summit after consummation of the Merger; the Required Consents and the
transactions contemplated hereby shall not on the Closing Date be contested by
any federal or state governmental authority; and on the Closing Date the
Required Consents needed for the Merger shall have been
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obtained and shall not have been withdrawn or suspended.
Section 6.02. Effective Registration Statement. The Registration Statement
shall have been declared effective by the SEC; no stop order suspending the
effectiveness of the Registration Statement shall have been issued and remain in
effect on the Closing Date; and no proceeding for that purpose shall have been
initiated or, to the knowledge of Summit or Central Jersey, shall be
contemplated or threatened by the SEC on the Closing Date.
Section 6.03. Tax Matters. At the time of effectiveness of the
Registration Statement and at the Closing Date, each of Summit and Central
Jersey shall have received from Thompson & Coburn an opinion (the "Tax
Opinion"), reasonably satisfactory in form and substance to them, to the effect
that (a) the Merger will constitute a tax-free reorganization within the meaning
of Section 368 of the Code, (b) except with respect to fractional share
interests, holders of Central Jersey Stock who receive solely Summit Stock in
the Merger will not recognize gain or loss for federal income tax purposes, (c)
the basis of such Summit Stock (including any fractional share for which cash is
received) will equal the basis of the Central Jersey Stock for which it is
exchanged and (d) the holding period of such Summit Stock (including any
fractional share for which cash is received) will include the holding period of
the Central Jersey Stock for which it is exchanged, assuming that such Central
Jersey Stock is a capital asset in the hands of the holder thereof at the
Effective Time.
In addition, no condition or set of facts or circumstances shall exist at the
Closing Date which will either (x) preclude any of the parties to this Agreement
from satisfying the terms or conditions of, or assumptions made in, the Tax
Opinions, as the case may be, or (y) result in any of the factual assumptions
contained in the Tax Opinions being untrue.
Section 6.04. Absence of Litigation. At the Closing Date, no investigation
by any state or federal agency, and no action, suit, arbitration or proceeding
before any court, state or federal agency, panel or governmental or regulatory
body or authority, shall have been instituted or threatened against Summit or
any of its subsidiaries, or Central Jersey or any of its subsidiaries, that is
material to the Merger or to the financial condition of Summit and its
subsidiaries taken as a whole or Central Jersey and its subsidiaries taken as a
whole, as the case may be. At the Closing Date, no order, decree, judgment, or
regulation shall have been entered or law or regulation adopted by any such
agency, panel, body or authority which enjoined or has a material adverse effect
upon the Merger or on the financial condition of Summit and its subsidiaries
taken as a whole or Central Jersey and its subsidiaries taken as a whole, as the
case may be.
Section 6.05. NYSE Listing. At the Closing Date, the shares of Summit
Stock to be issued in the Merger shall have been listed on the New York Stock
Exchange subject to official notice of issuance.
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ARTICLE VII.
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SUMMIT
The obligation of Summit to consummate the Merger is subject to the
satisfaction of all of the following conditions, compliance with which or the
occurrence of which may be waived in whole or in part by Summit in writing in
accordance with Section 10.09:
Section 7.01. No Adverse Changes. During the period from March 31, 1995 to
the Closing Date there shall not have been any Central Jersey Material Adverse
Change, and Central Jersey and its subsidiaries shall have not sustained any
material loss or damage to their properties, whether or not insured, which
materially affects the ability of Central Jersey and its subsidiaries, taken as
a whole, to conduct their business.
Section 7.02. Representations and Covenants. Except with respect to
matters resulting from transactions specifically contemplated by this Agreement,
all representations and warranties made by Central Jersey in this Agreement and
the Central Jersey Schedules and the material furnished pursuant to the
Post-Signing Disclosure List shall be true and correct in all material respects
on the date of this Agreement, and in all material respects on the Closing Date
with the same force and effect as if such representations and warranties were
made on the Closing Date. Central Jersey shall have complied in all material
respects with all covenants and agreements contained herein to be performed by
Central Jersey on or before the Closing Date.
Section 7.03. Secretary's Certificate. Central Jersey shall have furnished
to Summit a certificate dated the Closing Date to which shall be attached copies
of all resolutions adopted or minutes of actions taken by the Board of Directors
(including committees thereof) and shareholders of Central Jersey relating to
this Agreement, the Merger Agreement and the Merger and related transactions, a
copy of which resolutions shall be attached to such certificate, which such
certificate shall be signed by the Secretary of Central Jersey and certify to
the satisfaction of the condition set forth in Section 7.09 and the trueness,
correctness, completeness and continuing effectiveness of all resolutions and
actions contained or referenced in the aforementioned attachments.
Section 7.04. Officer's Certificate. Central Jersey shall have furnished
to Summit a certificate signed by the President of Central Jersey, dated the
Closing Date, certifying to the satisfaction of the conditions set forth at
Sections 6.01, 6.02 (last clause), 6.03 (last paragraph) and Section 6.04, as
they relate to Central Jersey, and at Sections 7.01, 7.02, 7.07 and 7.10.
Section 7.05. Opinion of Central Jersey's Counsel. Summit shall have
received an opinion of counsel to Central Jersey, dated the Closing Date and
reasonably satisfactory in form and substance to counsel for Summit,
substantially to the effect provided in Exhibit D.
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Section 7.06. Approvals of Legal Counsel. All actions, proceedings,
instruments and documents required to carry out the transactions contemplated by
this Agreement or incidental thereto and all related legal matters shall be
reasonably satisfactory to counsel to Summit, and such counsel shall have been
furnished with certified copies of actions and proceedings and such other
documents and instruments as they shall have reasonably requested.
Section 7.07. Consents to Central Jersey Contracts. All consents,
approvals or waivers, in form and substance reasonably satisfactory to Summit,
required to be obtained in connection with the Merger from other parties to each
mortgage, note, lease, permit, franchise, loan or other agreement, or contract
to which Central Jersey or any of its subsidiaries is a party or by which they
or any of their assets or properties may be bound or committed, which contract
is material to the business, franchises, operations, assets or financial
condition (financial or otherwise) of Central Jersey and its subsidiaries on a
consolidated basis, shall have been obtained.
Section 7.08. FIRPTA Affidavit. Central Jersey shall have delivered to
Summit an affidavit of an executive officer of Central Jersey stating, under
penalties of perjury, that Central Jersey is not and has not been a United
States real property holding company (as defined in Section 897(c)(2) of the
Code) during the applicable period specified in Section 897(c)(1)(A)(ii) of the
Code.
Section 7.09. Shareholder Approval. The shareholders of Central Jersey, at
the meeting contemplated by this Agreement, shall have authorized and approved
the Merger and this Agreement and all transactions contemplated by this
Agreement as and to the extent required by all applicable laws and regulations
and the provisions of Central Jersey's Certificate of Incorporation and By-Laws.
Section 7.10. Absence of Regulatory Agreements. Neither Central Jersey nor
any Central Jersey subsidiary shall be a party to any agreement or memorandum of
understanding with, or commitment letter to, or board of directors resolution
submitted to or similar undertaking made to, or be subject to any order or
directive by, or be a recipient of any extraordinary supervisory letter from,
any governmental or regulatory authority which restricts materially the conduct
of its respective business or has a material adverse effect upon the Merger or
upon the financial condition of Bank or Central Jersey and its subsidiaries
taken as a whole, and neither Central Jersey nor Bank shall have been advised by
any governmental or regulatory authority that such authority is contemplating
issuing or requesting, or considering the appropriateness of issuing or
requesting, any of the foregoing.
The receipt of the documents required by this Article VII by Summit shall in no
way constitute a waiver by Summit of any of the provisions of or its rights
under this Agreement.
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ARTICLE VIII
CONDITIONS PRECEDENT TO THE OBLIGATION OF CENTRAL JERSEY
The obligation of Central Jersey to consummate the Merger is subject to
the satisfaction of all of the following conditions, compliance with which or
the occurrence of which may be waived in whole or in part by Central Jersey in
writing in accordance with Section 10.09:
Section 8.01. No Adverse Changes. During the period from December 31, 1995
to the Closing Date there shall not have been any Summit Material Adverse
Change, and Summit and its subsidiaries shall not have sustained any material
loss or damage to their properties, whether or not insured, which materially
affects the ability of Summit and its subsidiaries, taken as a whole, to conduct
their business.
Section 8.02. Representations and Covenants. Except with respect to
matters resulting from transactions specifically contemplated by this Agreement,
all representations and warranties made by Summit in this Agreement shall be
true and correct in all material respects on the date of this Agreement and, in
all material respects, on the Closing Date with the same force and effect as if
such representations and warranties were made on the Closing Date. Summit shall
have complied in all material respects with all covenants and agreements
contained herein or therein to be performed by Summit on or before the Closing
Date. The entry by Summit after the date hereof into any agreement to acquire
any company or other entity, the issuance of up to $1 billion of debt or equity
or a combination of debt and equity, and the issuance of Series R Preferred
Stock pursuant to Summit's Shareholder Rights Plan, the redemption or repurchase
by Summit of its Common Stock, Series B Adjustable Rate Cumulative Preferred
Stock, Series C Adjustable Rate Cumulative Preferred Stock, the Rights attached
to Summit Common Stock or the Series R Preferred Stock issuable pursuant to
Summit's Shareholder Rights Plan, and any transactions reasonably necessary or
appropriate in connection therewith, are specifically permitted by this
Agreement.
Section 8.03. Secretary's Certificate. Summit shall have furnished to
Central Jersey a certificate dated the Closing Date to which shall be attached
copies of all resolutions adopted or minutes of actions taken by the Board of
Directors (including committees thereof) and shareholders of Summit relating to
this Agreement, the Merger Agreement and the Merger and related transactions, a
copy of which resolutions shall be attached to such certificate, which such
certificate shall be signed by the Secretary of Summit and certify to the
trueness, correctness, completeness and continuing effectiveness of all
resolutions and actions contained or referenced in the aforementioned
attachments.
Section 8.04. Officer's Certificate. Summit shall have furnished to
Central Jersey a certificate signed by the Chairman, Vice Chairman, President or
an Executive Vice President of Summit, dated the Closing Date, certifying to the
satisfaction of the conditions set forth at Sections 6.01 and 6.02, the last
paragraph of Section 6.03, and Sections 6.04 and 6.05, as they relate to Summit,
and Sections 8.01, 8.02 and 8.08.
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Section 8.05. Opinions of Summit Counsel. Central Jersey shall have
received an opinion of the General Counsel for Summit, dated the Closing Date
and reasonably satisfactory in form and substance to counsel for Central Jersey,
substantially to the effect provided in Exhibit E.
Section 8.06. Approvals of Legal Counsel. All actions, proceedings,
instruments and documents required to carry out the transactions contemplated by
this Agreement or incidental thereto and all related legal matters shall be
reasonably satisfactory to counsel to Central Jersey, and such counsel shall
have been furnished with certified copies of actions and proceedings and such
other documents and instruments as they shall have reasonably requested.
Section 8.07. Fairness Opinion. The Proxy-Prospectus shall have contained
the favorable signed opinion of Advest, dated the date of the Proxy-Prospectus
or a date not more than five business days prior thereto, regarding the fairness
from a financial point of view of the consideration to be received by the
shareholders of Central Jersey in the Merger.
Section 8.08. Absence of Regulatory Agreements. Neither Summit nor any of
its bank subsidiaries shall be a party to any agreement or memorandum of
understanding with, or commitment letter to, or board of directors resolution
submitted to or similar undertaking made to, or be subject to any order or
directive by, or be a recipient of any extraordinary supervisory letter from,
any governmental or regulatory authority which restricts materially the conduct
of Summit's business or has a material adverse effect upon the Merger or upon
the financial condition of Summit and its subsidiaries taken as a whole, and
neither Summit nor any of its bank subsidiaries shall have been advised by any
governmental or regulatory authority that such authority is contemplating
issuing or requesting, or considering the appropriateness of issuing or
requesting, any of the foregoing.
Section 8.09. Central Jersey Shareholder Approval. The shareholders of
Central Jersey, at the meeting contemplated by this Agreement, shall have
authorized and approved the Merger and this Agreement and all transactions
contemplated by this Agreement as and to the extent required by all applicable
laws and regulations and the provisions of Central Jersey's Certificate of
Incorporation and By-Laws.
The receipt of the documents required by this Article VIII by Central Jersey
shall in no way constitute a waiver by Central Jersey of any of the provisions
of or its rights under this Agreement.
ARTICLE IX
CLOSING; TERMINATION RIGHTS
Section 9.01. Closing. Unless a different place and time are agreed to by
the parties hereto, the closing of the Merger (the "Closing") shall take place
on a date determined by Summit on at least five business days notice (the
"Closing Notice") given to Central Jersey, at the office of Summit, 301 Carnegie
Center, Princeton, New Jersey, commencing at 10:00 a.m., which date shall not be
later than
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30 days after the last to occur of the following:
(a) the date of the approval of the Merger by the shareholders of Central
Jersey in accordance with Section 7.09;
(b) if the transactions contemplated by this Agreement are being contested
in any legal proceeding, the date that such proceeding has been brought to a
conclusion favorable, in the judgment of Summit and Central Jersey, to the
consummation of the transactions contemplated herein or such prior date as
Summit and Central Jersey shall elect, whether or not such proceeding has been
brought to a conclusion; or
(c) the date of receipt of the last of the Required Consents (and the
expiration of any required waiting period required by statute or incorporated
into such Required Consents);
Such date is sometimes referred to herein as the "Closing Date". In the Closing
Notice, Summit shall specify the "Determination Date" for purposes of
determining the Average Price, which date shall not be more than ten business
days prior to the Closing Date. At the Closing, the parties will exchange
certificates, legal opinions and other documents for the purpose of determining
whether the conditions precedent to the obligations of the parties set forth
herein have been satisfied or waived. After all such conditions have been
satisfied or waived, Summit shall cause the Certificate of Merger to be filed
with the New Jersey Secretary of State in accordance with Section 1.06. All
proceedings to be taken and all documents to be executed and delivered by all
parties at the Closing shall be deemed so taken, executed and delivered
simultaneously, and no proceedings shall be deemed taken or any documents
executed or delivered until all have been taken, executed or delivered.
Section 9.02. Termination Rights.
(a) The Boards of Directors of Central Jersey and Summit may terminate
this Agreement by mutual consent at any time prior to the Effective Time. In
addition, if either party shall refuse to close because, on the date on which
the Closing must be held as determined by Section 9.01, all the conditions
precedent to its obligation to close under Article VI shall not have been met,
the Board of Directors of such party may terminate this Agreement by giving
written notice of such termination to the other party. Furthermore, the Board of
Directors of either party may terminate this Agreement in the event that:
(i) the shareholders of Central Jersey at the meeting of shareholders
contemplated by Section 4.03, called for the purpose of approving the
Merger, this Agreement and the transactions contemplated by this
Agreement, upon voting, shall have failed to approve the Merger, this
Agreement and the transactions contemplated hereby by the requisite vote,
or
(ii) a material breach of a warranty or representation or covenant made by
the other party shall have occurred and such breach has not been cured, or
is not capable of being cured, within 30 days after written notice of the
existence thereof shall have been given to the other
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party (provided that the terminating party is not then in material breach
of any representation, warranty, covenant or other agreement contained
herein);
(iii) Central Jersey's investment banker is unable to deliver to Central
Jersey by September 30, 1996 the opinion required by Section 8.07; or
(iv) the Closing is not consummated on or before March 31, 1997, unless
the failure of such occurrence shall be due solely to the failure of the
party seeking to terminate this Agreement to perform or observe its
agreements set forth in this Agreement required to be performed or
observed by such party on or before the Closing Date.
(b) If either party shall refuse to close because, on the date on which
the Closing must be held as determined by Section 9.01, all the conditions to
its obligation to close (other than a condition set forth in Article VI) shall
not have been met (other than a failure of the condition set forth at Section
7.09 or 8.07 due to the circumstances set forth in Section 9.02(a)(i) hereof or
a failure of the condition set forth at Section 8.07 due to the circumstances
set forth at Section 9.02(a)(iii) hereof), the Board of Directors of such party
may terminate this Agreement by giving written notice of such termination to the
other party.
(c) Upon a termination of this Agreement pursuant to this Section 9.02 or
Sections 1.03(a)(2) or 1.03(a)(3) hereof:
(i) the obligations of the parties under this Agreement (except for those
under this Section 9.02 and Sections 4.13 and 5.08) shall terminate and be
of no further force or effect and each party shall be mutually released
and discharged from liability to the other party or to any third parties
hereunder, and
(ii) no party shall be liable to any other party for any costs or expenses
paid or incurred in connection herewith by such other party, except that
expenses incurred in connection with printing the Proxy Statement and the
Registration Statement, and the filing fees of regulatory authorities or
self-regulatory organizations, shall be borne equally by Summit and
Central Jersey; provided, however, that: (A) if Central Jersey terminates
this Agreement pursuant to Section 9.02(a)(ii) or Section 9.02(b), Summit
shall reimburse Central Jersey for its out-of-pocket expenses reasonably
incurred in connection with this Agreement, including counsel fees and the
printing and filing fees referred to above, but excluding any brokers',
finders' or investment bankers' fees; and (B) if Summit terminates this
Agreement pursuant to Section 9.02(a)(ii), Section 9.02(b) or Section
9.02(d), Central Jersey shall reimburse Summit for its out-of-pocket
expenses reasonably incurred in connection with this Agreement, including
counsel fees and the printing and filing fees referred to above, but
excluding any brokers', finders' or investment bankers' fees.
(d) The Board of Directors of Summit may terminate this Agreement if
Central Jersey does not execute and deliver the Option Agreement by the day
immediately following the date hereof.
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(e) Notwithstanding any termination of this Agreement, (i) Central Jersey
shall indemnify and hold Summit harmless from and against any claim by any
broker or finder asserting a right to brokerage commissions or finders' fees as
a result of any action allegedly taken by or understanding allegedly reached
with Central Jersey and (ii) Summit shall indemnify and hold Central Jersey
harmless from and against any claim by any broker or finder asserting a right to
brokerage commissions or finders' fees as a result of any action allegedly taken
by or understanding allegedly reached with Summit.
(f) Except as provided otherwise herein in the event of a termination of
this Agreement, Central Jersey and its subsidiaries shall bear their own
expenses incident to preparing, entering into and carrying out this Agreement
and to consummating the Merger, provided, however, that Summit shall pay all
printing expenses and filing fees associated with the Registration Statement,
the Proxy- Prospectus and regulatory applications.
ARTICLE X
MISCELLANEOUS
Section 10.01. Press Releases. At all times until the Closing Date or the
termination of this Agreement, each party shall promptly advise and consult with
the other prior to issuing, or permitting any of its subsidiaries, directors,
officers, employees or agents to issue, any press release or other information
to the press or any third party with respect to this Agreement, or the
transactions contemplated hereby.
Section 10.02. Article and Section Headings. Article and section headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement.
Section 10.03. Entire Agreement; Amendments. This Agreement, the Central
Jersey Schedules, and the Exhibits hereto constitute the entire agreement
between the parties pertaining to the subject matter hereof and supersede all
prior and contemporaneous agreements, understandings, negotiations and
discussions, whether oral or written, of the parties, and there are no
warranties, representations or other agreements between the parties in
connection with the subject matter hereof except as specifically set forth
herein or therein. No supplement, modification, waiver or termination of this
Agreement shall be binding unless executed in writing by the party to be bound
thereby (or in the case of a termination occurring pursuant to Section 9.02
hereof by the party exercising a right to terminate this Agreement). No waiver
of any of the provisions of this Agreement shall be deemed or shall constitute a
waiver of any other provision hereof or thereof (whether or not similar), nor
shall any waiver constitute a continuing waiver unless otherwise expressly
provided in the instrument granting such waiver. The parties hereto may amend or
modify this Agreement in such manner as may be agreed upon by a written
instrument executed by the parties, except that, after the meeting described in
Section 7.09 hereof, no such amendment or modification shall reduce the amount
of, or
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change the forms of consideration to be received by the shareholders of Central
Jersey contemplated by this Agreement, unless such modification is submitted to
a vote of the shareholders of Central Jersey.
Section 10.04. Survival of Representations, Warranties and Covenants. No
investigation made by the parties hereto made heretofore or hereafter shall
affect the representations and warranties of the parties which are contained
herein and each such representation and warranty shall survive such
investigation. None of the representations, warranties, covenants and agreements
in this Agreement or in any instrument delivered pursuant to this Agreement
shall survive the Effective Time, except for those representations, covenants
and agreements contained herein and therein which by their terms apply in whole
or in part after the Effective Time.
Section 10.05. Notices. Any notice or other communication required or
permitted hereunder shall be in writing, and shall be deemed to have been given,
unless otherwise specified in a particular provision of this Agreement, if
placed in the mail, registered or certified, postage prepaid, or if delivered
personally or by courier, receipt requested, or by facsimile transmission,
receipt acknowledged addressed as follows:
Summit: Summit Bancorp.
Attn: John G. Collins
301 Carnegie Center
P.O. Box 2066
Princeton, NJ 08543-2066
Telephone No.: 609-987-3422
Facsimile No.: 609-987-3435
With a copy to: Richard F. Ober, Jr., Esq.
Summit Bancorp.
301 Carnegie Center
P.O. Box 2066
Princeton, NJ 08543-2066
Telephone No.: 609-987-3430
Facsimile No.: 609-987-3435
Central Jersey: Central Jersey Financial Corporation
591 Cranbury Road
East Brunswick, New Jersey 08816
Attention: Mrs. L. Doris Fritsch, President
Telephone No.: 908-254-6600
Facsimile No.: 908-254-5364
45
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With a copy to: John J. Spidi, Esq.
Malizia, Spidi, Sloane & Fisch, P.C.
1301 K Street, N.W., Suite 700 East
Washington, DC 20005
Telephone No.: 202-434-4660
Facsimile No.: 202-434-4661
or to such other address as such party may designate by notice to the others,
which change of address shall be deemed to have been given upon receipt.
A notice or other communication hereunder shall be deemed delivered (i) if
mailed by certified or registered mail to the proper address, with adequate
postage prepaid, on the fifth business day following posting or (ii) if
delivered by other means, when received by the party to whom it is directed.
Section 10.06. Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of New Jersey,
without giving effect to the provisions, policies or principles thereof relating
to choice or conflict of laws.
Section 10.07. Counterparts. This Agreement is being executed
simultaneously in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same agreement.
Section 10.08. Binding Effect. All of the terms and provisions of this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and assigns.
Section 10.09. Extensions; Waivers and Consents. Either party hereto, by
written instrument signed by its Chairman, Vice Chairman, President, or Chief
Financial Officer, may extend the time for the performance of any of the
obligations of the other party hereto, and may waive, at any time before or
after approval of this Agreement and the transactions contemplated hereby by the
shareholders of Bank, subject to the provisions of Section 10.03 hereof: (i) any
inaccuracies of the other party in the representations and warranties in this
Agreement or any other document delivered pursuant hereto or thereto; (ii)
compliance with any of the covenants or agreements of the other party contained
in this Agreement; (iii) the performance (including performance to the
satisfaction of a party or its counsel) by the other party of any of its
obligations hereunder or thereunder; and (iv) the satisfaction of any conditions
to the obligations of the waiving party hereunder or thereunder. Any consent or
approval of a party hereunder shall be effective only if signed by the Chairman,
Vice Chairman, President or Chief Financial Officer of such party. Subject to
Section 10.03, no such instrument, consent or approval may modify the form or
amount of consideration to be received by the shareholders of Central Jersey.
46
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IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
in counterparts by their duly authorized officers as of the date first above
written.
SUMMIT BANCORP.
By________________________________________
John G. Collins
Vice Chairman of the Board
CENTRAL JERSEY FINANCIAL
CORPORATION
By /s/L. Doris Fritsch
----------------------
L. Doris Fritsch
President
47
EXHIIBT 2.2
<PAGE>
CENTRAL JERSEY FINANCIAL CORPORATION STOCK OPTION AGREEMENT
THE TRANSFER OF THE OPTION GRANTED BY THIS AGREEMENT IS SUBJECT TO
RESALE RESTRICTIONS ARISING UNDER THE SECURITIES ACT OF 1933, AS
AMENDED.
STOCK OPTION AGREEMENT, dated as of the 23rd day of May, 1996 (this
"Agreement"), between Summit Bancorp., a New Jersey corporation ("Grantee"), and
Central Jersey Financial Corporation, a New Jersey corporation ("Issuer").
WITNESSETH:
WHEREAS, Grantee and Issuer have on a date prior to the date hereof,
entered into an Agreement and Plan of Merger, dated as of the 22nd day of May,
1996 (the "Merger Agreement"). (Capitalized terms used in this Agreement and not
defined herein but defined in the Merger Agreement shall have the meanings
assigned thereto in the Merger Agreement); and
WHEREAS, as a condition and inducement to Grantee's entering into the
Merger Agreement and in consideration therefor, Grantee has required that Issuer
agree, and Issuer has agreed, to grant Grantee the Option (as defined below);
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements set forth herein and in the Merger Agreement, the parties hereto
agree as follows:
SECTION 1. Grant of Option. Issuer hereby grants to Grantee an
unconditional, irrevocable option (the "Option") to purchase, subject to the
terms hereof, up to 530,986 fully paid and nonassessable shares of the common
stock, no par value, of Issuer ("Common Stock") at a price equal to $27.00 per
share (such price, as adjusted as hereinafter provided, the "Option Price"). The
number of shares of Common Stock that may be received upon the exercise of the
Option and the Option Price are subject to adjustment as herein set forth. In no
event shall the number of shares of Common Stock for which this Option is
exercisable exceed 19.9% of the number of shares of Common Stock then issued and
outstanding (without consideration of any shares of Common Stock subject to or
issued pursuant to the Option).
SECTION 2. Exercise of Option. (a) Grantee may exercise the Option, in
whole or part, at any time and from time to time following the occurrence of a
Purchase Event (as defined below); provided that the Option shall terminate and
be of no further force and effect upon the earliest to occur of (i) the time
immediately prior to the Effective Time, (ii) the termination of the Merger
Agreement in accordance with the terms thereof prior to the occurrence of an
Extension Event, other than a termination of the Merger Agreement by the Grantee
pursuant to Section 9.02(a)(ii) thereof, or (iii) 12 months after the
termination of the Merger Agreement following the occurrence of an Extension
Event (as defined below), or the termination of the Merger Agreement by Grantee
pursuant to Section 9.02(c)(ii) thereof, and provided further, that any purchase
of Common Stock upon exercise of the Option shall be subject to applicable law,
and provided further, that the Option may
<PAGE>
not be exercised, if, at the time of exercise, Grantee is in material breach of
any material covenant or obligation contained in the Merger Agreement and, if
the Merger Agreement has not terminated prior thereto, such breach would entitle
Issuer to terminate the Merger Agreement. The events described in clauses (i) -
(iii) in the preceding sentence are hereinafter collectively referred to as
Exercise Termination Events. As provided in Section 7, the rights set forth
therein shall terminate upon an Exercise Termination Event and, as provided in
Section 6 hereof, the rights to deliver requests pursuant to Section 6 shall
terminate 12 months after an Exercise Termination Event, subject, in such case,
to the provisions of Section 8.
(b) The term "Extension Event" shall mean any of the following events or
transactions occurring without the Grantee's prior written consent after the
date hereof:
(i) Issuer or any of its subsidiaries (each an "Issuer Subsidiary"),
shall have entered into an agreement to engage in an Acquisition Transaction (as
defined below) with any person (the term "person" for purposes of this Agreement
having the meaning assigned thereto in Sections 3(a)(9) and 13(d)(3) of the
Securities Exchange Act of 1934, as amended (the "Securities Exchange Act"), and
the rules and regulations thereunder) other than Grantee or any of its
subsidiaries (each a "Grantee Subsidiary") or the Board of Directors of Issuer
shall have recommended that the shareholders of Issuer approve or accept any
Acquisition Transaction with any person other than Grantee or any Grantee
Subsidiary. For purposes of this Agreement, "Acquisition Transaction" shall mean
(w) a merger or consolidation, or any similar transaction, involving Issuer or
any of Issuer's banking subsidiaries ("Bank Subsidiaries"), (x) a purchase,
lease or other acquisition of 10% or more of the aggregate value of the assets
or deposits of Issuer or any Bank Subsidiary, (y) a purchase or other
acquisition (including by way of merger, consolidation, share exchange or
otherwise) of securities representing 10% or more of the voting power of Issuer
or a Bank Subsidiary, or (z) any substantially similar transaction, provided,
however, that in no event shall (i) any merger, consolidation or similar
transaction involving Issuer or any Bank Subsidiary in which the voting
securities of Issuer outstanding immediately prior thereto continue to represent
(either by remaining outstanding or being converted into voting securities of
the surviving entity of any such transaction) at least 75% of the combined
voting power of the voting securities of the Issuer or the surviving entity
outstanding after the consummation of such merger, consolidation, or similar
transaction, or (ii) any internal merger or consolidation involving only Issuer
and/or Issuer Subsidiaries, be deemed to be an Acquisition Transaction, provided
that any such transaction is not entered into in violation of the terms of the
Merger Agreement;
(ii) Any person (other than Grantee or any Grantee Subsidiary) shall
have acquired beneficial ownership or the right to acquire beneficial ownership
of securities representing 10% or more of the aggregate voting power of Issuer
or any Bank Subsidiary (the term "beneficial ownership" for purposes of this
Agreement having the meaning assigned thereto in Section 13(d) of the Securities
Exchange Act, and the rules and regulations thereunder);
(iii) Any person other than Grantee or any Grantee Subsidiary shall
have made a bona fide proposal to Issuer or its shareholders, by public
announcement or written communication
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<PAGE>
that is or becomes the subject of public disclosure, to engage in an Acquisition
Transaction (including, without limitation, any situation in which any person
other than Grantee or any Grantee Subsidiary shall have commenced (as such term
is defined in Rule 14d-2 under the Exchange Act), or shall have filed a
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to, a tender offer or exchange offer to purchase
any shares of Common Stock such that, upon consummation of such offer, such
person would own or control securities representing 10% or more of the aggregate
voting power of Issuer or any Bank Subsidiary);
(iv) After any person other than Grantee or any Grantee Subsidiary
has made or disclosed an intention to make a proposal to Issuer or its
shareholders to engage in an Acquisition Transaction, Issuer shall have breached
any covenant or obligation contained in the Merger Agreement and such breach (x)
would entitle Grantee to terminate the Merger Agreement and (y) shall not have
been cured prior to the Notice Date (as defined below);
(v) Any person other than Grantee or any Grantee Subsidiary shall
have filed an application with, or given a notice to, whether in draft or final
form, the Board of Governors of the Federal Reserve System (the "Federal Reserve
Board"), the Office of Thrift Supervision of the Department of Treasury ("OTS")
or other governmental authority or regulatory or administrative agency or
commission, domestic or foreign (each, a "Governmental Authority"), for approval
to engage in an Acquisition Transaction; or
(vi) the holders of Common Stock shall not have approved the Merger
Agreement at the meeting of such shareholders held for the purpose of voting on
the Merger Agreement, such meeting shall not have been called by the Board of
Directors of Issuer in accordance with Section 4.03 of the Merger Agreement or
held or shall have been canceled prior to termination of the Merger Agreement or
Issuer's Board of Directors shall have withdrawn or modified in a manner adverse
to the consummation of the Merger the recommendation of Issuer's Board of
Directors with respect to the Merger Agreement, in each case after an Extension
Event;
(vii) any Purchase Event (as defined below).
(c) The term "Purchase Event" shall mean either of the following events or
transactions occurring after the date hereof:
(i) The acquisition by any person other than Grantee or any Grantee
Subsidiary of beneficial ownership of securities representing 25% or more of the
aggregate voting power of Issuer or any Bank Subsidiary; or
(ii) The occurrence of an Extension Event described in Section
2(b)(i) except that the percentage referred to in clauses (x) and (y) shall be
25%.
(d) Issuer shall notify Grantee promptly in writing of the occurrence
of any Extension
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<PAGE>
Event or Purchase Event; provided however, that the giving of such notice by
Issuer shall not be a condition to the right of Grantee to exercise the Option.
(e) In the event that Grantee is entitled to and wishes to exercise the
Option, it shall send to Issuer a written notice (the date of which being herein
referred to as the "Notice Date") specifying (i) the total number of shares of
Common Stock it will purchase pursuant to such exercise, (ii) a place and date
not earlier than three business days nor later than 40 business days from the
Notice Date for the closing of such purchase (the "Closing Date") and (iii) that
the proposed exercise of the Option shall be revocable by Grantee in the event
that the transaction constituting a Purchase Event that gives rise to such
written notice shall not have been consummated prior to exercise of the Option;
provided that if prior notification to or approval of the Federal Reserve Board,
OTS or any other Governmental Authority is required in connection with such
purchase, Grantee shall promptly file the required notice or application for
approval and shall expeditiously process the same and the period of time that
otherwise would run pursuant to this sentence shall run from the later of (x)
the date on which any required notification periods have expired or been
terminated and (y) the date on which such approvals have been obtained and any
requisite waiting period or periods shall have expired. For purposes of Section
2(a), any exercise of the Option shall be deemed to occur on the Notice Date
relating thereto. Grantee shall have the right to revoke its proposed exercise
of the Option in the event that the transaction constituting a Purchase Event
that gives rise to such right to exercise shall not have been consummated prior
to exercise of the Option, pursuant to the statement of such right in the
written notice exercising the Option as provided in clause 2(e)(iii) above.
(f) At the closing referred to in Section 2(e), Grantee shall surrender
this Agreement (and the Option granted hereby) to Issuer and pay to Issuer the
Option Price for the shares of Common Stock purchased pursuant to the exercise
of the Option in immediately available funds by wire transfer to a bank account
designated by Issuer; provided, however, that failure or refusal of Issuer to
designate such a bank account shall not preclude Grantee from exercising the
Option.
(g) At such closing, simultaneously with the delivery of the Option Price
in immediately available funds as provided in Section 2(f), Issuer shall deliver
to Grantee a certificate or certificates representing the number of shares of
Common Stock purchased by Grantee and, if the Option should be exercised in part
only, a new Option Agreement granting a new Option evidencing the rights of
Grantee thereof to purchase the balance of the shares of Common Stock
purchasable hereunder.
(h) Certificates for Common Stock delivered at a closing hereunder shall
be endorsed with a restrictive legend substantially as follows:
"The transfer of the shares represented by this certificate is subject to
resale restrictions arising under the Securities Act of 1933, as amended,
and to certain provisions of an agreement between Summit Bancorp. and
Central Jersey Financial Corporation ("Issuer") dated as of the day of
May, 1996. A copy of such agreement is on file at the principal office of
Issuer and will be provided to the holder hereof without charge upon
receipt by Issuer of a written request therefor."
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<PAGE>
It is understood and agreed that: (i) the reference to the resale restrictions
of the Securities Act in the above legend shall be removed by delivery of
substitute certificate(s) without such reference if Grantee shall have delivered
to Issuer a copy of a letter from the staff of the Securities and Exchange
Commission (the "SEC"), or an opinion of counsel, in form and substance
satisfactory to Issuer and its counsel, to the effect that such legend is not
required for purposes of the Securities Act; (ii) the reference to the
provisions of this Agreement in the above legend shall be removed by delivery of
substitute certificate(s) without such reference if the shares have been sold or
transferred in compliance with the provisions of this Agreement and under
circumstances that do not require the retention of such reference; and (iii) the
legend shall be removed in its entirety if the conditions in the preceding
clauses (i) and (ii) are both satisfied. In addition, such certificates shall
bear any other legend as may be required by law.
(i) Upon the giving by Grantee to Issuer of the written notice of exercise
of the Option provided for in Section 2(e) and the tender of the Option Price on
the Closing Date in immediately available funds, Grantee shall be deemed to be
the holder of record of the shares of Common Stock issuable upon such exercise,
notwithstanding that the stock transfer books of Issuer shall then be closed or
that certificates representing such shares of Common Stock shall not then
actually be delivered to Grantee. Issuer shall pay all expenses and any and all
United States federal, state and local taxes and other charges that may be
payable in connection with the preparation, issue and delivery of stock
certificates under this Section 2 in the name of Grantee or its nominee.
SECTION 3. Reservation of Shares. Issuer agrees: (i) that it shall at all
times until the termination of this Agreement have reserved for issuance upon
the exercise of the Option that number of authorized shares of Common Stock
equal to the maximum number of shares of Common Stock at any time and from time
to time issuable hereunder, all of which shares will, upon issuance pursuant
hereto, be duly authorized, validly issued, fully paid, nonassessable, and
delivered free and clear of all claims, liens, encumbrances and security
interests and not subject to any preemptive rights; (ii) that it will not, by
amendment of its certificate of incorporation or through reorganization,
consolidation, merger, dissolution or sale of assets, or by any other voluntary
act, avoid or seek to avoid the observance or performance of any of the
covenants, stipulations or conditions to be observed or performed hereunder by
Issuer; (iii) promptly to take all action as may from time to time be required
(including (x) complying with all premerger notification, reporting and waiting
period requirements specified in 15 U.S.C. ss. 18a and regulations promulgated
thereunder and (y) in the event, under the Bank Holding Company Act of 1956, as
amended (the "BHC Act"), the Home Owners' Loan Act of 1933 ("HOLA") or the
Change in Bank Control Act of 1978, as amended, or any state banking law, prior
approval of or notice to the Federal Reserve Board or to any other Governmental
Authority is necessary before the Option may be exercised, cooperating with
Grantee in preparing such applications or notices and providing such information
to the Federal Reserve Board and each other Governmental Authority as they may
require) in order to permit Grantee to exercise the Option and Issuer duly and
effectively to issue shares of Common Stock pursuant hereto; and (iv) to take
all action provided herein to protect the rights of Grantee against dilution.
SECTION 4. Division of Option. This Agreement (and the Option granted
hereby) are
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<PAGE>
exchangeable, without expense, at the option of Grantee, upon presentation and
surrender of this Agreement at the principal office of Issuer, for other
agreements providing for Options of different denominations entitling the holder
thereof to purchase, on the same terms and subject to the same conditions as are
set forth herein, in the aggregate the same number of shares of Common Stock
purchasable hereunder. The terms "Agreement" and "Option" as used herein include
any agreements and related options for which this Agreement (and the Option
granted hereby) may be exchanged. Upon receipt by Issuer of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this
Agreement, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Agreement, if mutilated, Issuer will execute and deliver a new Agreement of like
tenor and date. Any such new Agreement executed and delivered shall constitute
an additional contractual obligation on the part of Issuer, whether or not the
Agreement so lost, stolen, destroyed or mutilated shall at any time be
enforceable by anyone.
SECTION 5. Adjustment upon Change of Capitalization. The number of shares
of Common Stock purchasable upon the exercise of the Option shall be subject to
adjustment from time to time as follows:
(a) Subject to the last sentence of Section 1, in the event of any change
in the Common Stock by reason of stock dividends, split-ups, mergers,
recapitalizations, combinations, subdivisions, conversions, exchanges of shares
or the like, the type and number of shares of Common Stock purchasable upon
exercise hereof shall be appropriately adjusted and proper provision shall be
made so that, in the event that any additional shares of Common Stock are to be
issued or otherwise to become outstanding as a result of any such change (other
than pursuant to an exercise of the Option), the number of shares of Common
Stock that remain subject to the Option shall be increased so that, after such
issuance and together with shares of Common Stock previously issued pursuant to
the exercise of the Option (as adjusted on account of any of the foregoing
changes in the Common Stock), it equals 19.9% of the number of shares of Common
Stock then issued and outstanding (without consideration of any shares of Common
Stock subject to or issued pursuant to the Option).
(b) Whenever the number of shares of Common Stock purchasable upon
exercise hereof is adjusted as provided in this Section 5, the Option Price
shall be adjusted by multiplying the Option Price by a fraction, the numerator
of which shall be equal to the number of shares of Common Stock purchasable
prior to the adjustment and the denominator of which shall be equal to the
number of shares of Common Stock purchasable after the adjustment. In no event
shall the Option Price be adjusted to less than the par value of the Common
Stock to be issued at such Option Price.
(c) It is intended by the parties hereto that the adjustments provided by
this Section 5 shall fully preserve the economic benefits of this Agreement for
Grantee.
SECTION 6. Registration Rights.
(a) Demand Registration Rights. After the occurrence of a Purchase
Event that occurs prior to an Exercise Termination Event, Issuer shall, at the
request of Grantee (whether on its own
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<PAGE>
behalf or on behalf of any subsequent holder of the Option (or part thereof)
delivered prior to an Exercise Termination Event or at the request of a holder
of any of the shares of Common Stock issued pursuant hereto) delivered no later
than 12 months after such Exercise Termination Event, promptly prepare, file and
keep current a registration statement under the Securities Act relating to a
delayed or continuous offering (as contemplated by Rule 415 of the SEC under the
Securites Act) (a "shelf registration") covering this Option and any shares
issued and issuable pursuant to the Option (the "Option Shares") and shall use
its best efforts to cause such registration statement to become effective and
remain current and to qualify this Option or any such Option Shares or other
securities for sale under any applicable state securities laws in order to
permit the sale or other disposition of this Option or any Option Shares in
accordance with any plan of disposition requested by Grantee; provided, however,
that Issuer may postpone filing a registration statement relating to a
registration request by Grantee under this Section 6 for a period of time (not
in excess of 90 days) if in its judgment such filing would require the
disclosure of material information that Issuer has a bona fide business purpose
for preserving as confidential. Issuer will use its best efforts to cause such
registration statement first to become effective as soon as practicable after
the filing thereof and then to remain effective for such period not in excess of
180 days from the day such registration statement first becomes effective, or
such shorter time as may be necessary to effect such sales or other
dispositions. Grantee shall provide all information reasonably requested by
Issuer for inclusion in any registration statement to be filed hereunder. In
connection with any such registration, Issuer and Grantee shall provide each
other with representations, warranties, and other agreements customarily given
in connection with such registrations. If requested by any Grantee in connection
with such registration, Issuer and Grantee shall become a party to any
underwriting agreement relating to the sale of Option Shares, but only to the
extent of obligating themselves in respect of representations, warranties,
indemnities and other agreements customarily included in such underwriting
agreements. Notwithstanding the foregoing, if Grantee revokes any exercise
notice or fails to exercise any Option with respect to any exercise notice
pursuant to Section 2(e), Issuer shall not be obligated to continue any
registration process with respect to the sale of Option Shares.
(b) Additional Persons With Registration Rights. Upon receiving any
request under this Section 6 from any Grantee, Issuer agrees to send a copy
thereof to any other person known to Issuer to be entitled to registration
rights under this Section 6, in each case by promptly mailing the same, postage
prepaid, to the address of record of the persons entitled to receive such
copies. Notwithstanding anything to the contrary contained herein, in no event
shall Issuer be obligated to effect more than one registration pursuant to this
Section 6 by reason of the fact that there shall be more than one Grantee as a
result of any assignment or division of this Agreement; provided, however, that
such registration shall be a shelf registration as provided above.
(c) Expenses. Except where applicable state law prohibits such payments,
Issuer will pay all expenses (including without limitation registration fees,
qualification fees, blue sky fees and expenses (including the fees and expenses
of counsel), legal expenses, including the reasonable fees and expenses of one
counsel to the holders whose Option Shares are being registered, printing
expenses and the costs of special audits or "cold comfort" letters, expenses of
underwriters, excluding discounts and commissions but including liability
insurance if Issuer so desires or the underwriters
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<PAGE>
so require) in connection with the registration pursuant to this Section 6
(including the related offerings and sales by holders of Option Shares) and all
other qualifications, notification or exemptions pursuant to Section 6.
(d) Indemnification. In connection with any registration under this
Section 6, Issuer hereby indemnifies the Grantee, and each officer, director and
controlling person of Grantee, and each underwriter thereof, including each
person, if any who controls such holder or underwriter within the meaning of
Section 15 of the Securities Act, against all expenses, losses, claims, damages
and liabilities caused by any untrue, or alleged untrue, statement contained in
any registration statement or prospectus or notification or offering circular
(including any amendments or supplements thereto) or any preliminary prospectus,
or caused by any omission, or alleged omission, to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, except insofar as such expenses, losses, claims, damages or
liabilities of such indemnified party are caused by any untrue statement or
alleged untrue statement that was included by Issuer in any such registration
statement or prospectus or notification or offering circular (including any
amendments or supplements thereto) in reliance upon and in conformity with,
information furnished in writing to Issuer by such indemnified party expressly
for use therein, and Issuer and each officer, director and controlling person of
Issuer shall be indemnified by such Grantee, or by such underwriter, as the case
may be, for all such expenses, losses, claims, damages and liabilities caused by
any untrue, or alleged untrue, statement, that was included by Issuer in any
such registration statement or prospectus or notification or offering circular
(including any amendments or supplements thereto) in reliance upon, and in
conformity with, information furnished in writing to Issuer by such holder or
such underwriter, as the case may be, expressly for such use.
Promptly upon receipt by a party indemnified under this Section 6(d) of
notice of the commencement of any action against such indemnified party in
respect of which indemnity or reimbursement may be sought against any
indemnifying party under this Section 6(d), such indemnified party shall notify
the indemnifying party in writing of the commencement of such action, but the
failure so to notify the indemnifying party shall not relieve it of any
liability which it may otherwise have to any indemnified party under this
Section 6(d). In case notice of commencement of any such action shall be given
to the indemnifying party as above provided, the indemnifying party shall be
entitled to participate in and, to the extent it may wish, jointly with any
other indemnifying party similarly notified, to assume the defense of such
action at its own expense, with counsel chosen by it and reasonably satisfactory
to such indemnified party. The indemnified party shall have the right to employ
separate counsel in any such action and participate in the defense thereof, but
the fees and expenses of such counsel (other than reasonable costs of
investigation) shall be paid by the indemnified party unless (i) the
indemnifying party either agrees to pay the same, (ii) the indemnifying party
fails to assume the defense of such action with counsel satisfactory to the
indemnified party, or (iii) the indemnified party has been advised by counsel
that one or more legal defenses may be available to the indemnifying party that
may be contrary to the interests of the indemnified party. No indemnifying party
shall be liable for the fees and expenses of more than one separate counsel for
all indemnified parties or for any settlement entered into without its consent,
which consent may not be unreasonably withheld.
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<PAGE>
If the indemnification provided for in this Section 6(d) is unavailable to
a party otherwise entitled to be indemnified in respect of any expenses, losses,
claims, damages or liabilities referred to herein, then the indemnifying party,
in lieu of indemnifying such party otherwise entitled to be indemnified, shall
contribute to the amount paid or payable by such party to be indemnified as a
result of such expenses, losses, claims, damages or liabilities in such
proportion as is appropriate to reflect the relative fault of Issuer, the
Grantee and the underwriters in connection with the statements or omissions
which resulted in such expenses, losses, claims, damages or liabilities, as well
as any other relevant equitable considerations. The amount paid or payable by a
party as a result of the expenses, losses, claims, damages and liabilities
referred to above shall be deemed to include any legal or other fees or expenses
reasonably incurred by such party in connection with investigating or defending
any action or claim; provided, however, that in no case shall any Grantee be
responsible, in the aggregate, for any amount in excess of the net offering
proceeds attributable to its Option Shares included in the offering. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation. Any obligation by any Grantee
to indemnify shall be several and not joint with other Grantees.
(e) Miscellaneous Reporting. Issuer shall comply with all reporting
requirements and will do all such other things as may be necessary to permit the
expeditious sale at any time of any Option Shares by the Grantee thereof in
accordance with and to the extent permitted by any rule or regulation
promulgated by the SEC from time to time, including, without limitation, Rule
144A.
SECTION 7. Substitute Option in the Event of Corporate Change. (a) In the
event that prior to an Exercise Termination Event, Issuer shall enter into an
agreement (i) to consolidate or merge with any person, other than Grantee or a
Grantee Subsidiary, and shall not be the continuing or surviving corporation of
such consolidation or merger, (ii) to permit any person, other than Grantee or a
Grantee Subsidiary, to merge into Issuer and Issuer shall be the continuing or
surviving corporation, but, in connection with such merger, the then outstanding
shares of Common Stock shall be changed into or exchanged for stock or other
securities of any other person or cash or any other property or the then
outstanding shares of Common Stock shall after such merger represent less than
50% of the aggregate voting power of the merged company, or (iii) to sell or
otherwise transfer all or substantially all of its assets to any person, other
than Grantee or a Grantee Subsidiary, then, and in each such case, the agreement
governing such transaction shall make proper provision so that the Option shall,
upon the consummation of such transaction and upon the terms and conditions set
forth herein, be converted into, or exchanged for, an option (the "Substitute
Option"), at the election of Grantee, of either (x) the Acquiring Corporation
(as defined below) or (y) any person that controls the Acquiring Corporation
(the Acquiring Corporation and any such controlling person being hereinafter
referred to as the Substitute Option Issuer)
(b) The Substitute Option shall be exercisable for such number of shares
of the Substitute Common Stock (as is hereinafter defined) as is equal to the
market/offer price (as defined below) multiplied by the number of shares of the
Common Stock for which the Option was theretofore exercisable, divided by the
Average Price (as is hereinafter defined) The exercise price of the
-9-
<PAGE>
Substitute Option per share of the Substitute Common Stock (the "Substitute
Purchase Price") shall then be equal to the Option Price multiplied by a
fraction in which the numerator is the number of shares of the Common Stock for
which the Option was theretofore exercisable and the denominator is the number
of shares of Substitute Common Stock for which the Substitute Option is
exercisable. The term "market/offer price" shall mean the highest of (i) the
price per share of Common Stock at which a tender offer or exchange offer
therefor has been made after the date hereof and on or prior to the Request
Date, (ii) the price per share of Common Stock paid or to be paid by any third
party pursuant to an agreement with Issuer (whether by way of a merger,
consolidation or otherwise), (iii) the highest last sale price for shares of
Common Stock within the 90-day period ending on the Request Date quoted on the
Nasdaq National Market (as reported by The Wall Street Journal, or, if not
reported thereby, another authoritative source), (iv) in the event of a sale of
all or substantially all of Issuer's assets, the sum of the price paid in such
sale for such assets and the current market value of the remaining assets of
Issuer as determined by a nationally-recognized independent investment banking
firm selected by Grantee or the Owner, as the case may be, divided by the number
of shares of Common Stock outstanding at the time of such sale. In determining
the market/offer price, the value of consideration other than cash shall be
determined by a nationally-recognized independent investment banking firm
selected by Grantee or the Owner, as the case may be, whose determination shall
be conclusive and binding on all parties.
(c) The Substitute Option shall otherwise have the same terms as the
Option, provided that if the terms of the Substitute Option cannot, for legal
reasons, be the same as the Option, such terms shall be as similar as possible
and in no event less advantageous to Grantee.
(d) The following terms have the meanings indicated:
(i) "Acquiring Corporation" shall mean (i) the continuing or
surviving corporation of a consolidation or merger with Issuer (if other
than Issuer), (ii) Issuer in a merger in which Issuer is the continuing or
surviving person, and (iii) the transferee of all or any substantial part
of the Issuer's assets (or the assets of Issuer Subsidiaries).
(ii) "Substitute Common Stock" shall mean the common stock issued by
the Substitute Option Issuer upon exercise of the Substitute Option.
(iii) "Average Price" shall mean the average last sale price of a
share of the Substitute Common Stock (as reported by The Wall Street
Journal or, if not reported therein, by another authoritative source) for
the one year immediately preceding the consolidation, merger or sale in
question, but in no event higher than the last sale price of the shares of
the Substitute Common Stock on the day preceding such consolidation,
merger or sale; provided that if Issuer is the issuer of the Substitute
Option, the Average Price shall be computed with respect to a share of
common stock issued by Issuer, the person merging into Issuer or by any
company which controls or is controlled by such person, as Grantee may
elect.
(e) In no event, pursuant to any of the foregoing paragraphs, shall the
Substitute Option
-10-
<PAGE>
be exercisable for more than 19.9% of the aggregate of the shares of the
Substitute Common Stock outstanding prior to the exercise of the Substitute
Option. In the event that the Substitute Option would be exercisable for more
than 19.9% of the aggregate of the shares of Substitute Common Stock but for
this clause (e), the Substitute Option Issuer shall make a cash payment to
Grantee equal to the excess of (i) the value of the Substitute Option without
giving effect to the limitation in this clause (e) over (ii) the value of the
Substitute Option after giving effect to the limitation in the clause (e). This
difference in value shall be determined by a nationally recognized investment
banking firm selected by Grantee and the Substitute Option Issuer.
SECTION 8. Extension of Time for Regulatory Approvals. Notwithstanding
Sections 2(e), 6 and 10 if Grantee has given the notice referred to in one or
more of such Sections, the exercise of the rights specified in any such Section
shall be extended (a) if the exercise of such rights requires obtaining
regulatory approvals, to the extent necessary to obtain all regulatory approvals
for the exercise of such rights, and (b) to the extent necessary to avoid
liability under Section 16(b) of the Securities Exchange Act by reason of such
exercise; provided that in no event shall any closing date occur more than 12
months after the related Notice Date, and, if the closing date shall not have
occurred within such period due to the failure to obtain any required approval
by the Federal Reserve Board or any other Governmental Authority despite the
reasonable efforts of Issuer or the Substitute Option Issuer, as the case may
be, to obtain such approvals, the exercise of the Option shall be deemed to have
been rescinded as of the related Notice Date. In the event (a) Grantee receives
official notice that an approval of the Federal Reserve Board, OTS or any other
Governmental Authority required for the purchase and sale of the Option Shares
will not be issued or granted or (b) a closing date has not occurred within 12
months after the related Notice Date due to the failure to obtain any such
required approval, Grantee shall be entitled to exercise the Option in
connection with the resale of the Option Shares pursuant to a registration
statement as provided in Section 6. Nothing contained in this Agreement shall
restrict Grantee from specifying alternative exercising of rights pursuant to
Sections 2(e), 6 and 10, hereof in the event that the exercising of any such
rights shall not have occurred due to the failure to obtain any required
approval referred to in this Section 8.
SECTION 9. Issuer Warranties. Issuer hereby represents and warrants to
Grantee as follows:
(a) Issuer has the requisite corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been approved by the Board of Directors of
Issuer and no other corporate proceedings on the part of Issuer are necessary to
authorize this Agreement or to consummate the transactions so contemplated. This
Agreement has been executed and delivered by, and constitutes a valid and
binding obligation of, Issuer, enforceable against Issuer in accordance with its
terms, except as enforceability thereof may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium and other similar laws affecting the
enforcement of creditors' rights generally and institutions the deposits of
which are insured by the Federal Deposit Insurance Corporation and except that
the availability of the equitable remedy of specific performance or injunctive
relief is subject to the discretion of the court before
-11-
<PAGE>
which any proceeding may be brought.
(b) Issuer has taken all necessary corporate action to authorize and
reserve and to permit it to issue, and at all times from the date hereof through
the termination of this Agreement in accordance with its terms will have
reserved for issuance upon the exercise of the Option, that number of shares of
Common Stock equal to the maximum number of shares of Common Stock at any time
and from time to time issuable hereunder, and all such shares, upon issuance
pursuant hereto, will be duly authorized, validly issued, fully paid,
nonassessable, and will be delivered free and clear of all claims, liens,
encumbrances and security interests and not subject to any preemptive rights.
(c) Upon receipt of the necessary regulatory approvals as contemplated by
this Agreement, the execution, delivery and performance of this Agreement does
not or will not, and the consummation by Issuer of any of the transactions
contemplated hereby will not, constitute or result in (i) a breach or violation
of, or a default under, its certificate of incorporation or by-laws, or the
comparable governing instruments of any of its subsidiaries, or (ii) a breach or
violation of, or a default under, any agreement, lease, contract, note,
mortgage, indenture, arrangement or other obligation of it or any of its
subsidiaries (with or without the giving of notice, the lapse of time or both)
or under any law, rule, ordinance or regulation or judgment, decree, order,
award or governmental or non-governmental permit or license to which it or any
of its subsidiaries is subject, that would in any case give any other person the
ability to prevent or enjoin Issuer's performance under this Agreement in any
material respect.
SECTION 10. Assignment of Option by Grantee. (a) Neither of the parties
hereto may assign any of its rights or delegate any of its obligations under
this Agreement or the Option created hereunder to any other person without the
express written consent of the other party, except that Grantee may assign this
Agreement to a wholly owned subsidiary of Grantee and Grantee may assign its
rights hereunder in whole or in part after the occurrence of a Purchase Event;
provided, however, that until the date 15 days following the date at which the
Federal Reserve Board approves an application by Grantee under the BHC Act or
the OTS approves an application by Grantee under HOLA to acquire the shares of
Common Stock subject to the Option, Grantee may not assign its rights under the
Option except in (i) a widely dispersed public distribution, (ii) a private
placement in which no one party acquires the right to purchase securities
representing in excess of 2% of the aggregate voting power of Issuer, (iii) an
assignment to a single party (e.g., a broker or investment banker) for the
purpose of conducting a widely dispersed public distribution on Grantee's
behalf, or (iv) any other manner approved by the Federal Reserve Board or OTS.
Grantee will pay any reasonable out-of-pocket costs and expenses of Issuer in
connection with any such assignment. The term "Grantee" as used in this
Agreement shall also be deemed to refer to Grantee's permitted assigns.
(b) Any assignment of rights of Grantee to any permitted assignee of
Grantee hereunder shall bear the restrictive legend at the beginning thereof
substantially as follows:
"The transfer of the option represented by this assignment and the related
option agreement is subject to resale restrictions arising under the
Securities Act of 1933, as
-12-
<PAGE>
amended and to certain provisions of an agreement between Summit Bancorp.
and Central Jersey Financial Corporation ("Issuer") dated as of the day of
May, 1996. A copy of such agreement is on file at the principal office of
Issuer and will be provided to any permitted assignee of the Option
without change upon receipt by Issuer of a written request therefor."
It is understood and agreed that (i) the reference to the resale restrictions of
the Securities Act in the above legend shall be removed by delivery of
substitute assignments without such reference if Grantee shall have delivered to
Issuer a copy of a letter from the staff of the SEC, or an opinion of counsel,
in form and substance satisfactory to Issuer and its counsel, to the effect that
such legend is not required for purposes of the Securities Act; (ii) the
reference to the provisions of this Agreement in the above legend shall be
removed by delivery of substitute assignments without such reference if the
Option has been sold or transferred in compliance with the provisions of this
Agreement and under circumstances that do not require the retention of such
reference; and (iii) the legend shall be removed in its entirety if the
conditions in the preceding clauses (i) and (ii) are both satisfied. In
addition, such assignments shall bear any other legend as may be required by
law.
SECTION 12. Application for Regulatory Approval. If Grantee is entitled to
exercise the Option and has sent a notice to Issuer pursuant to Section 2(e),
each of Grantee and Issuer will use its reasonable efforts to make all filings
with, and to obtain consents of, all third parties and the Federal Reserve
Board, the OTS and other Governmental Authorities necessary to the consummation
of the transactions contemplated by this Agreement, including, without
limitation, making application for listing or quotation, as the case may be, of
the shares of Common Stock issuable hereunder on the NASDAQ National Market
System and applying to the Federal Reserve Board under the BHC Act, the OTS
under HOLA and to state banking authorities for approval to acquire the shares
issuable hereunder.
SECTION 13. Specific Performance. The parties hereto acknowledge that
damages would be an inadequate remedy for a breach of this Agreement by either
party hereto and that the obligations of the parties shall hereto be enforceable
by either party hereto through injunctive or other equitable relief. Both
parties further agree to waive any requirement for the securing or posting of
any bond in connection with the obtaining of any such equitable relief and that
this provision is without prejudice to any other rights that the parties hereto
may have for any failure to perform this Agreement.
SECTION 14. Separability of Provisions. If any term, provision, covenant
or restriction contained in this Agreement is held by a court or a federal or
state regulatory agency of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions and covenants and
restrictions contained in this Agreement shall remain in full force and effect,
and shall in no way be affected, impaired or invalidated. If for any reason such
court or regulatory agency determines that Grantee is not permitted to acquire,
or Issuer is not permitted to repurchase, pursuant to Section 7, the full number
of shares of Common Stock provided in Section 1 (as adjusted pursuant hereto),
it is the express intention of Issuer to allow Grantee to acquire or to require
Issuer to repurchase such
-13-
<PAGE>
lesser number of shares as may be permissible, without any amendment or
modification hereof.
SECTION 15. Notices. All notices, requests, claims, demands and other
communications hereunder shall be deemed to have been duly given when delivered
in person, by cable, telegram, telecopy or telex, or by registered or certified
mail (postage prepaid, return receipt requested) at the respective addresses of
the parties set forth in the Merger Agreement.
SECTION 16. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New Jersey.
SECTION 17. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
SECTION 18. Expenses. Except as otherwise expressly provided herein, each
of the parties hereto shall bear and pay all costs and expenses incurred by it
or on its behalf in connection with the transactions contemplated hereunder,
including fees and expenses of its own financial consultants, investment
bankers, accountants and counsel.
SECTION 19. Entire Agreement; No Third-Party Beneficiaries. Except as
otherwise expressly provided herein or in the Merger Agreement, this Agreement
contains the entire agreement between the parties with respect to the
transactions contemplated hereunder and supersedes all prior arrangements or
understandings with respect thereof, written or oral. The terms and conditions
of this Agreement shall inure to the benefit of and be binding upon the parties
hereto and their respective successors and permitted assigns. Nothing in this
Agreement, expressed or implied, is intended to confer upon any party, other
than the parties hereto, and their respective successors and assigns, any
rights, remedies, obligations or liabilities under or by reason of this
Agreement, except as expressly provided herein.
SECTION 20. Merger Agreement. Nothing contained in this Agreement shall
be deemed to authorize Issuer or Grantee to breach any provision of the Merger
Agreement.
SECTION 21. Majority in Interest. In the event that any selection or
determination is to be made by Grantee or the Owner hereunder and at the time of
such selection or determination there is more than one Grantee or Owner, such
selection shall be made by a majority in interest of such Grantees or Owners.
SECTION 22. Further Assurances. In the event of any exercise of the Option
by Grantee, Issuer and such Grantee shall execute and deliver all other
documents and instruments and take all other action that may be reasonably
necessary in order to consummate the transactions provided for by such exercise.
SECTION 23. No Rights as Shareholder. Except to the extent Grantee
exercises the
-14-
<PAGE>
Option, Grantee shall have no rights to vote or receive dividends or have any
other rights as a shareholder with respect to shares of Common Stock covered
hereby.
SECTION 24. Grantee Representation. The Option and any Option Shares or
other securities acquired by Grantee upon exercise of the Option are not being,
and will not be, as the case may be, acquired with a view to the public
distribution thereof in the United States except as provided for in Sections 6
and 11 hereof and neither the Option nor any Option Shares or other securities
acquired by Grantee upon exercise of the Option will be transferred or otherwise
disposed of by Grantee except in a transaction registered or exempt from
registration under the Securities Act.
-15-
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Stock Option
Agreement to be executed on its behalf by their officers thereunto duly
authorized, all as of the date first above written.
Summit Bancorp.
By /s/John G. Collins
-------------------------
John G. Collins
Vice Chairman of the Board
Central Jersey Financial Corporation
By /s/L. Doris Fritsch
-------------------------
L. Doris Fritsch
President
-16-
EXHIBIT 10.1
<PAGE>
CENTRAL JERSEY SAVINGS BANK, SLA
AMENDMENT TO EMPLOYMENT AGREEMENT
---------------------------------
THIS AMENDMENT TO EMPLOYMENT AGREEMENT ("Amendment") made as of the 20th
day of March 1996, by and between CENTRAL JERSEY SAVINGS BANK, SLA (the
"Association"), with its principal office in East Brunswick, New Jersey, and L.
Doris Fritsch ("Executive"), an individual residing in the State of New Jersey.
WITNESSETH THAT:
WHEREAS, the Association and Executive have been parties to an Employment
Agreement which was originally effective as of April 1, 1984 and has
subsequently been amended (the "Agreement"); and
WHEREAS, the Association and Executive desire to make certain additional
amendments to the Agreement which will be in their mutual interest; and
WHEREAS, Paragraph 14(a) of the Agreement provides for the amendment of the
Agreement by an instrument in writing signed by the Association and the
Executive.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the Agreement is hereby amended as follows:
1. Paragraph 7 of the Agreement shall be amended by deleting Section
7(c)(i) in its entirety and replacing the deleted language with the following
paragraph.
"The Association shall pay to the Executive a lump sum amount, no later
than ten days after the termination date, equal to 2.99 times Executive's
"base amount," as defined in Section 280G of the Code. The base amount
shall be computed in accordance with Section 280G of the Code, at the
expense of the Association, by the independent certified public accountants
to the Association in charge of the Association's account immediately prior
to the Change of Control (the "Accountants"), whose computation shall be
conclusive and binding upon the Executive and the Association. Such
payments due under this paragraph 7(c)(i) shall hereinafter be referred to
as the "Termination Compensation."
2. Paragraph 7 of the Agreement shall be further amended by deleting
Section 7(c)(v) in its entirety, and renumbering Section 7(c)(vi) as Section
7(c)(v).
1
<PAGE>
3. Paragraph 7 of the Agreement shall be further amended by deleting the
second sentence in Section 7(c)(vi) (which will be renumbered as Section
7(c)(v)) and replacing the deleted language with the following sentence.
"Accordingly, if the Executive shall receive payments or benefits in
addition to this Agreement, or under paragraphs 7(c)(ii), (iii), or (iv)
which would, in the opinion of the Accountants, subject the Executive to
the excise tax imposed by Section 4999 of the Code, such benefits shall be
reduced by the smallest amount necessary, in the opinion of the
Accountants, to avoid such excise tax. As a result of reducing the other
benefits to be received by the Executive under this Agreement or otherwise,
so that the Executive would not be subject to the excise tax of Section
4999 of the Code, the Termination Compensation amount shall not be
reduced."
4. Nothing contained herein shall be held to alter, vary or affect any of
the terms, provisions, or conditions of the Agreement other than as stated
above.
By signing this amendment and pursuant to Section 14 of the Agreement, the
Association and Executive agree that such amendment shall be binding upon both
the parties herein.
CENTRAL JERSEY SAVINGS BANK, SLA
March 20, 1996 By:
Date Domenick Carratello, Director
Attest:_____________________________________
(SEAL)
March 20, 1996
Date L. Doris Fritsch, Executive
March 20, 1996
Date Witness
2
EXHIBIT 10.2
<PAGE>
CENTRAL JERSEY SAVINGS BANK, SLA
AMENDMENT TO EMPLOYMENT AGREEMENT
---------------------------------
THIS AMENDMENT TO EMPLOYMENT AGREEMENT ("Amendment") made as of the 20th
day of March 1996, by and between CENTRAL JERSEY SAVINGS BANK, SLA (the
"Association"), with its principal office in East Brunswick, New Jersey, and
Emile Leland, Jr. ("Executive"), an individual residing in the State of New
Jersey.
WITNESSETH THAT:
WHEREAS, the Association and Executive have been parties to an Employment
Agreement which was originally effective as of April 1, 1984 and has
subsequently been amended (the "Agreement"); and
WHEREAS, the Association and Executive desire to make certain additional
amendments to the Agreement which will be in their mutual interest; and
WHEREAS, Paragraph 14(a) of the Agreement provides for the amendment of the
Agreement by an instrument in writing signed by the Association and the
Executive.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the Agreement is hereby amended as follows:
1. Paragraph 7 of the Agreement shall be amended by deleting Section
7(c)(i) in its entirety and replacing the deleted language with the following
paragraph.
"The Association shall pay to the Executive a lump sum amount, no later
than ten days after the termination date, equal to 2.99 times Executive's
"base amount," as defined in Section 280G of the Code. The base amount
shall be computed in accordance with Section 280G of the Code, at the
expense of the Association, by the independent certified public accountants
to the Association in charge of the Association's account immediately prior
to the Change of Control (the "Accountants"), whose computation shall be
conclusive and binding upon the Executive and the Association. Such
payments due under this paragraph 7(c)(i) shall hereinafter be referred to
as the "Termination Compensation."
2. Paragraph 7 of the Agreement shall be further amended by deleting
Section 7(c)(v) in its entirety, and renumbering Section 7(c)(vi) as Section
7(c)(v).
1
<PAGE>
3. Paragraph 7 of the Agreement shall be further amended by deleting the
second sentence in Section 7(c)(vi) (which will be renumbered as Section
7(c)(v)) and replacing the deleted language with the following sentence.
"Accordingly, if the Executive shall receive payments or benefits in
addition to this Agreement, or under paragraphs 7(c)(ii), (iii), or (iv)
which would, in the opinion of the Accountants, subject the Executive to
the excise tax imposed by Section 4999 of the Code, such benefits shall be
reduced by the smallest amount necessary, in the opinion of the
Accountants, to avoid such excise tax. As a result of reducing the other
benefits to be received by the Executive under this Agreement or otherwise,
so that the Executive would not be subject to the excise tax of Section
4999 of the Code, the Termination Compensation amount shall not be
reduced."
4. Nothing contained herein shall be held to alter, vary or affect any of
the terms, provisions, or conditions of the Agreement other than as stated
above.
By signing this amendment and pursuant to Section 14 of the Agreement, the
Association and Executive agree that such amendment shall be binding upon both
the parties herein.
CENTRAL JERSEY SAVINGS BANK, SLA
March 20, 1996 By:
Date L. Doris Fritsch
Its: President and Chief Executive Officer
Attest:____________________________________
(SEAL)
March 20, 1996
Date Emile Leland, Jr., Executive
March 20, 1996
Date Witness
2
EXHIBIT 10.3
<PAGE>
CENTRAL JERSEY SAVINGS BANK, SLA
AMENDMENT TO EMPLOYMENT AGREEMENT
---------------------------------
THIS AMENDMENT TO EMPLOYMENT AGREEMENT ("Amendment") made as of the 20th
day of March 1996, by and between CENTRAL JERSEY SAVINGS BANK, SLA (the
"Association"), with its principal office in East Brunswick, New Jersey, and
John J. Doherty ("Executive"), an individual residing in the State of New
Jersey.
WITNESSETH THAT:
WHEREAS, the Association and Executive have been parties to an Employment
Agreement which was originally effective as of October 21, 1987 and has
subsequently been amended (the "Agreement"); and
WHEREAS, the Association and Executive desire to make certain additional
amendments to the Agreement which will be in their mutual interest; and
WHEREAS, Paragraph 14(a) of the Agreement provides for the amendment of the
Agreement by an instrument in writing signed by the Association and the
Executive.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the Agreement is hereby amended as follows:
1. Paragraph 7 of the Agreement shall be amended by deleting the second
sentence of Section 7(c) in its entirety.
2. Paragraph 7 of the Agreement shall be further amended by deleting
Section 7(d)(ii) in its entirety and replacing the deleted language with the
following paragraph.
"The Association shall pay to the Executive a lump sum amount, no later
than ten days after the termination date, equal to 2.99 times Executive's
"base amount," as defined in Section 280G of the Code. The base amount
shall be computed in accordance with Section 280G of the Code, at the
expense of the Association, by the independent certified public accountants
to the Association in charge of the Association's account immediately prior
to the Change of Control (the "Accountants"), whose computation shall be
conclusive and binding upon the Executive and the Association. Such
payments due under this paragraph 7(c)(i) shall hereinafter be referred to
as the "Termination Compensation."
3. Paragraph 7 of the Agreement shall be further amended by deleting
Section 7(d)(vii) in its entirety, and renumbering Section 7(d)(viii) as Section
7(d)(vii).
1
<PAGE>
4. Paragraph 7 of the Agreement shall be further amended by deleting the
second sentence in Section 7(d)(viii) (which will be renumbered as Section
7(d)(vii)) and replacing the deleted language with the following sentence.
"Accordingly, if the Executive shall receive payments or benefits in
addition to this Agreement, or under paragraphs 7(d)(iii), (iv), (v), or
(vi) which would, in the opinion of the Accountants, subject the Executive
to the excise tax imposed by Section 4999 of the Code, such benefits shall
be reduced by the smallest amount necessary, in the opinion of the
Accountants, to avoid such excise tax. As a result of reducing the other
benefits to be received by the Executive under this Agreement or otherwise,
so that the Executive would not be subject to the excise tax of Section
4999 of the Code, the Termination Compensation amount shall not be
reduced."
5. Nothing contained herein shall be held to alter, vary or affect any of
the terms, provisions, or conditions of the Agreement other than as stated
above.
By signing this amendment and pursuant to Section 14 of the Agreement, the
Association and Executive agree that such amendment shall be binding upon both
the parties herein.
CENTRAL JERSEY SAVINGS BANK, SLA
March 20, 1996 By:
Date L. Doris Fritsch
Its: President and Chief Executive Officer
Attest:____________________________________
(SEAL)
March 20, 1996 __
Date John J. Doherty, Executive
March 20, 1996
Date Witness
2
EXHIBIT 11
<PAGE>
EXHIBIT 11 - STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
For the Year Ended March 31,
----------------------------------------------
1996 1995 1994
-------------- ------------- --------------
Primary EPS
- -------------------------------------------------
<S> <C> <C> <C>
Average shares outstanding....................... 2,343,287 1,945,561 1,928,268
Net effect of dilutive
stock options: based on the treasury
stock method using the average
market price................................... 78,913 67,903 60,803
---------- ---------- ----------
Totals................................... 2,422,200 2,013,464 1,989,071
========= ========= =========
Income before cumulative effect of
accounting change.............................. $ 5,203,733 $ 4,265,305 $ 4,650,532
Cumulative effect of accounting change........... -- -- 1,500,000
------------ ------------ ---------
Net income....................................... $ 5,203,733 $ 4,265,305 $ 6,150,532
========= ========= =========
Per share amount:
Before cumulative effect of accounting
change......................................... $ 2.15 $ 2.12 $ 2.34
Cumulative effect of accounting change........... 0.00 0.00 0.75
Net income....................................... $ 2.15 $ 2.12 $ 3.09
Fully Diluted EPS
- -------------------------------------------------
Average shares outstanding....................... 2,343,287 1,945,561 1,928,268
Net effect of dilutive stock
options: based on the treasury stock
method using the quarter-end market price which
is greater than the average market price....... 87,351 69,516 62,313
Assumed conversion of 7.00% convertible
subordinated debentures........................ 293,494 704,367 731,134
--------- --------- ---------
Totals................................... 2,724,132 2,719,444 2,721,715
========= ========= =========
Income before cumulative effect of
accounting change.............................. $ 5,203,733 $ 4,265,305 $ 4,650,532
Add interest on convertible subordinated
debentures, net of federal income tax effect... 130,378 490,367 503,682
--------- --------- ---------
5,334,111 4,755,672 5,154,214
Cumulative effect of accounting change........... -- -- 1,500,000
------------ ------------ -----------
Net income, as adjusted.......................... $ 5,334,111 $ 4,755,672 $ 6,654,214
========= ========= =========
Per share amount: assuming full dilution:
Before cumulative effect of accounting
change....................................... $ 1.96 $ 1.75 $ 1.89
Cumulative effect of accounting change......... 0.00 0.00 0.55
Net income..................................... $ 1.96 $ 1.75 $ 2.44
</TABLE>
EXHIBIT 21
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
OWNED BY STATE OF
NAME PARENT PARENT INCORPORATION
---- ------ ------ -------------
<S> <C> <C> <C>
Central Jersey Savings Central Jersey Financial 100% New Jersey
Bank, SLA Corporation
The Old Reliable Central Jersey Savings 100% New Jersey
Corporation Bank, SLA
</TABLE>
EXHIBIT 23
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
Central Jersey Financial Corporation on Form S-8 (File No.33-68204) of our
report dated May 23, 1996, on our audits of the consolidated financial
statements of Central Jersey Financial Corporation as of March 31, 1996 and
1995, and for the years ended March 31, 1996, 1995 and 1994, which report is
included in this Annual Report on Form 10-K.
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
New York, New York
July 12, 1996
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 8,805
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 8,267
<INVESTMENTS-CARRYING> 8,095
<INVESTMENTS-MARKET> 8,267
<LOANS> 223,140
<ALLOWANCE> 3,031
<TOTAL-ASSETS> 468,272
<DEPOSITS> 386,569
<SHORT-TERM> 22,500
<LIABILITIES-OTHER> 3,591
<LONG-TERM> 0
0
0
<COMMON> 2,668
<OTHER-SE> 52,944
<TOTAL-LIABILITIES-AND-EQUITY> 468,272
<INTEREST-LOAN> 19,345
<INTEREST-INVEST> 1,843
<INTEREST-OTHER> 11,663
<INTEREST-TOTAL> 32,851
<INTEREST-DEPOSIT> 16,126
<INTEREST-EXPENSE> 17,481
<INTEREST-INCOME-NET> 15,370
<LOAN-LOSSES> 250
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 8,532
<INCOME-PRETAX> 8,118
<INCOME-PRE-EXTRAORDINARY> 8,118
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,204
<EPS-PRIMARY> 2.15
<EPS-DILUTED> 1.96
<YIELD-ACTUAL> 7.54
<LOANS-NON> 7,782
<LOANS-PAST> 7,782
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 365
<ALLOWANCE-OPEN> 2,890
<CHARGE-OFFS> 177
<RECOVERIES> 48
<ALLOWANCE-CLOSE> 3,031
<ALLOWANCE-DOMESTIC> 3,031
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
