SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
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[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
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[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Interchange Financial Services Corporation
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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Notice of 2002 Annual Meeting of Shareholders
and Proxy Statement
Dear Fellow Shareholders:
Please accept this invitation to attend our 2002 Annual Shareholders'
Meeting. The meeting will be held Thursday, April 25, at 3:00 p.m. at the
Marriott Hotel, Garden State Parkway at Route 80 in Saddle Brook, New Jersey.
Our agenda will include the election of four directors, the approval of the
amendment of the Company's Stock Option and Incentive Plan of 1997 to increase
shares of common stock reserved for issuance and the ratification of the
appointment of Deloitte & Touche, LLP as the Company's independent auditors for
the year ending December 31, 2002.
In order to ensure that your shares are represented at the Annual Meeting,
please promptly vote, date, sign and return your proxy for the meeting even if
you plan to attend. You may vote in person at that time if you so desire.
Please accept our thanks for your continued confidence in our Company. We
look forward to seeing you at the meeting.
Sincerely,
/s/ Anthony D. Andora
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Anthony D. Andora
Chairman of the Board
/s/ Anthony S. Abbate
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Anthony S. Abbate
President and Chief Executive Officer
March 28, 2002
Table of Contents
NOTICE OF THE 2002 ANNUAL MEETING OF SHAREHOLDERS . . . . . . . . . . 1
PROXY STATEMENT
Questions and Answers . . . . . . . . . . . . . . . . . . . . . . . 2
Nominees and Directors . . . . . . . . . . . . . . . . . . . 5
Board and Committee Meetings . . . . . . . . . . . . . . . . 7
Compensation/Stock Option Committee Interlocks and Insider
Participation . . . . . . . . . . . . . . . . . . . . . . . . 8
Director Compensation . . . . . . . . . . . . . . . . . . . . 8
Executive Officers . . . . . . . . . . . . . . . . . . . . . . . . 9
Amount and Nature of Beneficial Ownership . . . . . . . . . . . . . 9
Annual Executive Compensation. . . . . . . . . . . . . . . . . . . 10
Summary Compensation . . . . . . . . . . . . . . . . . . . . 10
Stock Option Grants in Last Fiscal Year. . . . . . . . . . . 11
Aggregated Option Exercises in Last Fiscal and Year End
Option Values . . . . . . . . . . . . . . . . . . . . . . . . 11
Pension Plan and Supplemental Executives' Retirement Plan . . 11
Capital Investment Plan. . . . . . . . . . . . . . . . . . . . 12
Change-in-Control Arrangements. . . . . . . . . . . . . . . . . 12
Compensation/Stock Option Committee Report on Executive Compensation . 13
Compensation Strategy. . . . . . . . . . . . . . . . . . . . . 13
Base Salary. . . . . . . . . . . . . . . . . . . . . . . . . . 13
Annual Bonus. . . . . . . . . . . . . . . . . . . . . . . . . 13
Stock Option and Incentive Plan. . . . . . . . . . . . . . . . 14
CEO Compensation . . . . . . . . . . . . . . . . . . . . . . . 14
Audit Committee Report. . . . . . . . . . . . . . . . . . . . . . . 15
Fees Paid to Our Independent Auditors. . . . . . . . . . . . . 15
Other Information. . . . . . . . . . . . . . . . . . . . . . . . . . 19
Transactions with Management. . . . . . . . . . . . . . . . . 19
Compliance with Section 16(a) of the Securities Exchange Act
of 1934. . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Other Matters. . . . . . . . . . . . . . . . . . . . . . . . . 20
Submission of Shareholder Proposals. . . . . . . . . . . . . . 20
Solicitation Expenses. . . . . . . . . . . . . . . . . . . . . 20
Financial Materials . . . . . . . . . . . . . . . . . . . . . 20
Performance Graph . . . . . . . . . . . . . . . . . . . . . . 21
Notice of the 2002 Annual Meeting of Shareholders
March 28, 2002
To Our Shareholders:
The Annual Meeting of Shareholders of Interchange Financial Services
Corporation will be held at 3:00 p.m. on Thursday, April 25, 2002 at the
Marriott Hotel, Garden State Parkway at Route 80 in Saddle Brook, New Jersey to
consider and take action on the following proposals:
1. Elect four directors: Anthony S. Abbate, Anthony R. Coscia, John J.
Eccleston and Eleanore S. Nissley, each for a term of three years;
2. Approve the amendment of the Company's Stock Option and Incentive Plan of
1997 to increase shares of common stock reserved for issuance;
3. Ratify the Board's appointment of Deloitte & Touche, LLP as our independent
auditors for 2002; and
4. Such other business as may properly come before the Meeting.
Shareholders who owned shares of our stock at the close of business on
March 25, 2002 are entitled to notice of and to vote at the Annual Meeting. This
notice, the proxy statement, a proxy and voting instruction card, and the 2001
Annual Report are being distributed on or about March 28, 2002.
Regardless of whether you plan to attend the meeting in person, we urge you
to vote in favor of each of the proposals as soon as possible.
By Order of the Board of Directors
/s/ Benjamin Rosenzweig
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Benjamin Rosenzweig
Secretary
Your vote is important. Please complete, date, sign, and return promptly the
enclosed proxy in the postage-paid envelope provided even if you plan to attend
the Annual Meeting in person. If you do attend the Annual Meeting, you may then
withdraw your proxy and vote in person, if you wish.
Questions and Answers
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Q: Why did I receive this Proxy Statement?
A: The Board of Directors of Interchange Financial Services Corporation (the
"Company" or "we" or "us") is soliciting proxies to be voted at the Annual
Meeting of Shareholders ("annual meeting") to be held on Thursday, April
25, 2002, and at any adjournment of the annual meeting. When the Company
asks for your proxy, we must provide you with a proxy statement that
contains certain information specified by law.
Q: Who is entitled to vote?
A: Shareholders who own Company stock as of the close of business on March 25,
2002 (the "Record Date") may vote at the annual meeting. Each share is
entitled to one vote with respect to each matter considered at the annual
meeting. There were 6,531,018 shares of our stock outstanding on the Record
Date.
Q: What is the proxy card?
A: The proxy card enables you to appoint Jeremiah F. O'Connor, Robert P.
Rittereiser and Benjamin Rosenzweig as your representatives at the annual
meeting. By completing and returning the proxy card, you are authorizing
them to vote your shares at the meeting as you instructed on your proxy
card. This way, you shares will be voted whether or not you attend the
meeting. Even if you plan to attend the meeting, it is a good idea to
complete and return your proxy card before the meeting date just in case
your plans change.
Q: What am I voting on?
A: You are voting on:
|X| the election of four directors (Anthony S. Abbate, Anthony R. Coscia,
John J. Eccleston and Eleanore S. Nissley);
|X| increasing the number of shares of common stock reserved for issuance
in the Company's Stock Option and Incentive Plan of 1997; and
|X| the ratification of the board's appointment of Deloitte & Touche, LLP
as our independent auditors for the 2002 fiscal year.
Q: Will there be any other items of business on the agenda?
A: We do not expect any other items of business because the deadlines for
shareholder proposals and nominations have already passed. Nonetheless, in
case there is an unforeseen need, the accompanying proxy gives
discretionary authority to the persons named on the proxy with respect to
any other matters that might be brought before the annual meeting. Those
persons intend to vote that proxy in accordance with their best judgment.
Q: How do I vote?
A: You may vote by mail. Mark you choices on the enclosed proxy card and sign,
date and return it in the enclosed, self-addressed envelope. If you sign
your proxy card but do not make any selections, your shares will be voted:
|X| FOR the four named nominees for directors;
|X| FOR the increase in shares of common stock reserved for issuance in
the Company's Stock Option and Incentive Plan of 1997; and
|X| FOR the ratification of the independent auditors.
You may vote in person at the meeting. We will distribute written ballots
to anyone who wants to vote at the meeting. However, if you hold your
shares in street name, you must request a proxy from your stockbroker in
order to vote at the meeting. Holding shares in "street name" means you
hold them in an account at a brokerage firm.
Q: What does it mean if I get more than one proxy card?
A: Your shares are probably registered differently or are in more than one
account. Vote all proxy cards to ensure that all your shares are voted.
Unless you need multiple accounts for specific purposes, we recommend that
you consolidate as many of your accounts as possible under the same name
and address. If the shares are registered in your name, contact our
transfer agent, Continental Stock Transfer and Trust Company
(212-509-4000); otherwise, contact your brokerage firm.
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Q: How do I revoke my proxy?
A: You may revoke your proxy and change your vote at any time before the polls
close at the meeting. You may do this by:
|X| filing with the Secretary of the Company at or before the annual
meeting a written notice of revocation bearing a later date than the
proxy;
|X| duly executing a subsequent proxy relating to the same shares and
delivering it to the Secretary of the Company at or before the annual
meeting; or
|X| attending the annual meeting and voting in person (although attendance
at the annual meeting will not in itself constitute revocation of a
proxy).
Any written notice revoking a proxy should be delivered to Benjamin
Rosenzweig, Secretary, Interchange Financial Services Corporation, Park 80
West/Plaza II, Saddle Brook, New Jersey, 07663.
Q: Will my shares be voted if I do not return my proxy card?
A: If your shares are held in your name, they will not be voted at the meeting
unless you either submit a signed proxy, or attend the meeting and vote in
person.
If your shares are held in street name, your brokerage firm, under certain
circumstances, may vote your shares. Under NASD rules, brokerage firms have
authority to vote customers' unvoted shares on "routine" matters.
If you do not give a proxy to vote your shares, your brokerage firm may
either:
|X| vote your shares on routine matters, or
|X| leave your shares unvoted.
You may have granted to your stockbroker discretionary voting authority
over your account. Depending on the terms of your agreement with your
stockbroker, the firm may be able to vote your shares. We encourage you to
provide instructions to your brokerage firm by giving your proxy. This
ensures your shares will be voted at the meeting.
Q: How are abstentions, withholding of votes and broker non-votes treated?
A: The affirmative vote of the holders of a majority of the shares of our
common stock present and voting at the meeting is required to approve the
proposals (other than the election of directors). Abstentions and
withholding of votes as to any proposal will not be counted as votes cast
in favor of or against the proposal. In addition, shares held in street
name which have been designated by brokers on proxy cards as not voted as
to any proposal (so-called broker non-votes) will not be counted as votes
cast with respect to the proposal. Proxies marked as abstentions, withhold
or as broker non-votes, however, will be treated as shares present for
purposes of determining whether a quorum is present.
Q: How many shares must be present to hold the meeting?
A: To hold the meeting and conduct business, a majority of our shares
outstanding as of March 25, 2002, must be present at the meeting. This is
called a quorum.
Shares are counted as present at the meeting if the shareholder:
|X| is present and votes in person at the meeting, or
|X| has properly submitted a proxy card.
Q: How many votes must the nominees have to be elected as directors?
A: The four nominees receiving the highest number of yes votes will be elected
as directors. This number is called a plurality. (We use the phrase "yes
vote" to mean a vote for a proposal.)
Q: What happens if a nominee is unable to stand for election?
A: The Board may reduce the number of directors or select a substitute
nominee. In the latter case, if you have completed and returned your proxy
card, Messrs. O'Connor, Rittereiser and Rosenzweig can vote your shares for
a substitute nominee. They cannot vote for more than four nominees.
3
Q: How many votes must the proposal to increase shares of common stock in the
Company's Stock Option and Incentive Plan of 1997 have to pass?
A: To pass, the proposal must receive the yes vote of a majority of the shares
present at the meeting in person or by proxy, but not less than a majority
of the shares required for a quorum.
Q: How many votes must the proposal to ratify the auditors have to pass?
A: To pass, the proposal must receive the yes vote of a majority of the shares
present at the meeting in person or by proxy, but not less than a majority
of the shares required for a quorum.
Q: How are votes counted?
A: On the proposal to elect directors, you may vote"for" all nominees (except
as marked), or "withhold" your vote from all nominees. On the proposals to
increase shares of common stock in the Company's Stock Option and I" or
"abstain."
If you abstain and withhold your vote as to any proposal, it will not be
counted as a vote cast in favor of or against the proposal. If you return
your proxy without voting instructions, your shares will be counted as a
yes vote for each nominee, for the increase of shares of common stock in
the Company's Stock Option and Incentive Plan of 1997 and for the
ratification of the auditors.
Voting results are tabulated and certified by our transfer agent,
Continental Stock Transfer and Trust Company.
Q: Is my vote kept confidential?
A: Proxies, ballots and voting tabulations identifying shareholders are kept
confidential and will not be disclosed except as may be necessary to meet
legal requirements.
Q: Where do I find the voting results of the meeting?
A: We will announce preliminary voting results at the meeting. Final results
will be published in our quarterly report on Form 10-Q for the second
quarter of 2002. We will file that report with the Securities and Exchange
Commission. You may obtain a copy by calling Shareholder Relations (201)
703-2265 or the SEC at (800) SEC-0330 for the location of its nearest
public reference room. You can also get a copy on the Internet through the
SEC's electronic data system called EDGAR at www.sec.gov
4
1. Election of Directors
(Item 1 on the Proxy)
The first item to be acted upon at the Annual Meeting is the election of
four directors to serve until the 2005 Annual Meeting of Shareholders. The
Company's Board of Directors currently consists of twelve members. In accordance
with the Company's Certificate of Incorporation, the Board is divided into three
classes, each of which contains approximately one-third of the Board.
Approximately one-third of the directors are elected annually. Directors of the
Company are generally elected to serve for three-year terms or until their
respective successors are elected and qualified.
Each nominee is currently a director of the Company and was elected by the
shareholders at a previous annual meeting. Each nominee for director and each
continuing director also serves as director of Interchange Bank (the "Bank"), a
subsidiary of the Company. If a nominee should become unavailable to serve as a
director for any reason, which management does not anticipate, the proxy will be
voted for a substitute nominee selected by the Board of Directors or, if no
substitute is selected, the number of directors may be reduced. There are no
arrangements or understandings between any director or nominee and any other
person pursuant to which such director or nominee was selected, and no director,
nominee or executive officer is related to any other director, nominee or
executive officer by blood, marriage or adoption.
The Board of Directors recommends that you vote FOR election of the four
nominees listed below. Unless contrary instruction is given, it is intended that
the named proxies will vote in favor of each of the four nominees listed below.
Nominees and Directors
Nominees to be elected Directors for terms of three years expiring in 2005
Anthony Abbate, age 62, is President and Chief Executive Officer of the Company.
Mr. Abbate has been a Director of the Company since 1984 and the Bank since
1981. He is a member of the Executive Committee and the Corporate Planning and
Finance Committee and serves in an ex-officio capacity on all committees.
Anthony R. Coscia, age 42, is a partner and executive committee member of the
law firm of Windels Marx Lane & Mittendorf, LLP in New York and New Brunswick,
New Jersey. He is currently serving his fourth term as Chairman of the New
Jersey Economic Development Authority. Mr. Coscia has been a Director of the
Company and the Bank since 1997. He serves on the Audit Committee and is an
alternate member of the Executive Committee.
John J. Eccleston, age 76, is a principal in the firm of R.D. Hunter & Company,
Certified Public Accountants. Prior to January 1995, he was Senior Partner of
John J. Eccleston & Company, Certified Public Accountants. Mr. Eccleston has
been a Director of the Company since 1984 and the Bank since 1969. He is
Chairman of the Audit Committee and a member of the Executive Committee and
Corporate Planning and Finance Committee.
Eleanore S. Nissley, age 70, is a commercial real estate investor, and she
serves as Vice Chairperson of Hackensack Meadowlands Development Commission.
Mrs. Nissley has been a Director of the Company and of the Bank since 1992. She
is a member of the Audit Committee, the Nominating Committee and is an alternate
member of the Executive Committee.
5
Directors to continue in office for terms expiring in 2004
Anthony D. Andora, age 71, is a member of Andora & Romano, LLC, a law firm in
Paramus, New Jersey. Mr. Andora has been a Director of the Company since 1984
and of the Bank since 1969. He is Chairman of the Board, and serves on, the
Executive Committee and the Nominating Committee. He is a member of the
Corporate Planning and Finance Committee and serves in an ex-officio capacity on
all committees.
David R. Ficca, age 70, is a retired director of Richton International
Corporation and the retired Vice Chairman of Kidde, Inc, a multi-market
manufacturing and service organization. He has been a Director of the Company
since 1984 and of the Bank since 1983. He is a member of the Executive
Committee, the Corporate Planning and Finance Committee and the
Compensation/Stock Option Committee.
Nicholas R. Marcalus, age 58, is President and Chief Executive Officer of Marcal
Paper Mills, Inc., a manufacturer of paper products, in Elmwood Park, New
Jersey, and serves on the board of directors of that organization. Mr. Marcalus
has been a Director of the Company and the Bank since 1997, and serves on the
Compensation/Stock Option Committee and is an alternate member of the Executive
Committee.
Benjamin Rosenzweig, age 76, is Vice President of Azco Steel Company, a division
of Bushwick Steel Corp. He has been a Director of the Company since 1984 and of
the Bank since 1976 and is Secretary of the Company and the Bank. He serves as a
member of the Executive Committee, Compensation/Stock Option Committee and the
Nominating Committee.
Directors to continue in office for terms expiring in 2003
Donald L. Correll, age 51, is a retired Chairman of United Water Resources,
Inc., a holding company whose subsidiaries are active in public water supply,
water-related services and real estate. Mr. Correll has been a Director of the
Company and the Bank since 1995 and serves on the Audit Committee, Nominating
Committee, Corporate Planning and Finance Committee, and Compensation/Stock
Option Committee and is an alternate member of the Executive Committee.
James E. Healey, age 60, is a practicing Certified Public Accountant in Park
Ridge, New Jersey. He is also a Director of Marcal Paper Mills, Inc. In
addition, he is a Trustee of Pace University in New York City and a Trustee of
St. Joseph's Hospital and Medical Center in Paterson, New Jersey. In December
2000, Mr. Healey retired as Executive Vice President and Chief Financial Officer
of Nabisco Holdings Corp., a position he held since June 1997, and retired as
Senior Vice President and Chief Financial Officer of Nabisco Group Holdings,
Inc., a position he held since June 1999. Mr. Healey was formerly Vice President
and Treasurer (1995 - 1997) of BestFoods (formerly CPC International, Inc.) and
Comptroller (1987 - 1995). Mr. Healey has been a Director of the Company and the
Bank since 1993. He is Chairman of the Compensation/Stock Option Committee and
serves on the Audit Committee, Corporate Planning and Finance Committee and is
an alternate member of the Executive Committee.
Jeremiah F. O'Connor, age 68, is currently a principal of NW Financial Group
(since 1996), a financial advisory firm. Mr. O'Connor was formerly a Managing
Director of NatWest Financial Markets Group (since 1994). Mr. O'Connor has been
a Director of the Company since 1984 and the Bank since 1969. He is Vice
Chairman of the Board. He serves on the Executive Committee, Corporate Planning
and Finance Committee, Nominating Committee and Compensation/Stock Option
Committee.
Robert P. Rittereiser, age 63, is Chairman and Chief Executive Officer of
Gruntal Financial Corporation, an investment services firm based in New York
City. He also serves as Chairman of Yorkville Associates Corp., a private
investment and financial advisory concern formed in April 1989. He served as a
Trustee of the DBL Liquidating Trust from April 1992 until April 1996. He has
been a Director of the Company and of the Bank since July 1989. He is Chairman
of the Corporate Planning and Finance Committee and a member of the
Compensation/Stock Option Committee and the Executive Committee.
6
Board and Committee Meetings
During 2001, the Board of Directors of the Company and the Bank held 12
meetings each. All incumbent directors attended at least 75% of the aggregate
meetings of such Boards of Directors and the committees of such Board of
Directors on which they served which were held during fiscal year 2001.
Company Committees
The following committees serve both the Company and the Bank.
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Name of Committee and
Members Functions of the Committee Meetings in 2001
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Audit Reviews significant audit, accounting and other principles, 3
John J. Eccleston, Chairman policies and practices, the activities of independent auditors
James E. Healey and of the Company's internal auditors, and the conclusion and
Donald L. Correll recommendations of auditors and the reports of regulatory
Anthony R. Coscia examiners upon completion of their respective audits and
Eleanor S. Nissley examinations.
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Compensation/Stock Option Administers management incentive compensation plans, 3
James E. Healey, Chairman including the Company's stock option and incentive plan. The
Jeremiah F. O'Connor committee makes recommendations to the Board of Directors
Donald L. Correll with respect to compensation of directors and executive
David R. Ficca officers.
Nicholas R. Marcalus
Robert R. Ritterreiser
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Corporate Planning and Responsible for the review of the annual budget, capital 2
Finance expenditures and other financial transactions.
Robert P. Ritterreiser,
Chairman
Donald L. Correll
Anthony S. Abbate
Anthony D. Andora
John J. Eccleston
David R. Ficca
James E. Healey
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Executive Has authority to exercise all of the powers of the Board 11
Anthony D. Andora, of Directors with respect to the affairs of the Company, except
Chairman that the Executive Committee may not: (1) Exercise such
Anthony Abbate powers while a quorum of the Board of Directors is actively
John J. Eccleston convened for the conduct of business; (2) Declare a dividend or
David R. Ficca approve any other distribution to stockholders; (3) Elect or
Jeremiah F. O'Connor appoint any officer or director; and (4) Make, alter or repeal
Robert P. Rittereriser the By-Laws of the Bank.
Benjamin Rosenzweig
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Nominating Advises and makes recommendations to the Board of Directors 2
Anthony D. Andora concerning the selection of candidates as nominees for election
Chairman as directors. The committee will consider nominations
Jeremiah F. O'Connor recommended by shareholders. In accordance with the
Anthony R. Coscia Company's by-laws, such nnominations, together with
Nicholas R. Marcalus accompanying biographical material, must be in writing and
Eleanor S. Nissley should be addressed to the Secretary of the Company and must
Benjamin Rosenzweig be received not later than January 2 of the year of the annual
meeting of shareholders.
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7
Compensation/Stock Option Committee Interlocks and Insider Participation
No member of the Compensation/Stock Option Committee was, during 2001, an
employee of the Company. During 2001, no executive officer of the Company (i)
served as a member of the compensation committee of another entity, one of whose
executive officers served on the Compensation/Stock Option Committee of the
Company, (ii) served as a director of another entity, one of whose executive
officers served on the Compensation/Stock Option Committee of the Company, or
(iii) was a member of the compensation committee of another entity, one of whose
executive officers served as a Director of the Company.
Director Compensation
In 2001, each director of the Company not employed by the Company was paid
a retainer of $1,000. The Company's Chairman of the Board, Vice-Chairman of the
Board and Secretary of the Board received additional retainers of $500, $250 and
$100, respectively. In addition, each director of the Bank not employed by the
Bank was paid a retainer at an annual rate of $10,000, a fee of $400 for each
board meeting attended, a fee of $300 for each executive committee meeting
attended and a fee of $250 for attendance at other committee meetings. The
Bank's Chairman of the Board, the Vice-Chairman of the Board and Secretary of
the Company and the Bank received additional retainers of $16,500, $13,500 and
$2,000, respectively. Directors who are chairmen of committees, which act in a
dual capacity for the Company and the Bank, receive an additional retainer of
$2,000 annually. A director who is an employee of the Company or any subsidiary
receives no retainer or fees.
Directors, excluding directors who are employed by the Company or the Bank
and participate in a separate plan, participate in a retirement benefit plan
which entitles the director to receive upon retirement either (1) an amount
equal to the annual retainer being paid directors (exclusive of additional
amounts paid to the Chairman of the Board, the Vice Chairman of the Board, the
Secretary of the Company and the Bank and to committee chairmen) multiplied by
his or her years of service on the board; or (2) an amount based on the cash
surrender value of a life insurance or annuity contract purchased by the Bank.
The insurance policies or annuity contracts are owned by the Bank and annual
contributions of $5,000 are made by the Bank for each director who has completed
five years of service as a director. The Bank's contribution increases by $1,000
for each year's service until it reaches $10,000 annually, the level at which it
remains. Benefits to a director who retires after ten years of service are equal
to the greater of (1) or (2) above. Any director who retires after completing at
least five years, but less than ten years, of service are entitled to benefits
only under (2) above.
The Outside Director Incentive Compensation Plan ("Plan") is designed to
attract qualified personnel to accept positions of responsibility as outside
directors with the Company and to provide incentives for persons to remain on
the Board of the Company as outside directors. The Compensation/Stock Option
Committee administers the Plan, reviews the awards and submits recommendations
to the full Board of Directors for action. Stock options are granted on the
first anniversary date of the initial grant date, and each anniversary date
thereafter (each such date being considered an additional "Grant Date"), such
Outside Director shall be granted 1,000 additional Options, with each such
Option representing the right to purchase, upon exercise, one share of common
stock with an exercise price equal to the price of a share of stock at the close
of business on the date of the grant as reported by the NASDAQ National Market.
Stock options may be exercisable between one and ten years from the date
granted. All options granted under the Plan shall be Non-Qualified Stock Options
not entitled to special tax treatment under the Internal Revenue Code of 1986,
as amended.
A total of 100,000 shares of common stock were made available for Option
awards under the Plan of which options to purchase 22,000 shares have been
granted to date. 11,000 Options were granted to the outside directors in 2001.
8
Executive Officers
Anthony S. Abbate, age 62, is President and Chief Executive Officer of the Bank
since 1981; Senior Vice President and Controller from October 1980. Engaged in
the banking industry since 1959.
Anthony J. Labozzetta, age 38, Executive Vice President and Chief Financial
Officer since September 1997; Treasurer from 1995. Engaged in the banking
industry since 1989. Formerly a senior manager with an international accounting
firm, specializing in the financial services industry.
Frank R. Giancola, age 48, Senior Vice President - Operations since September
1997; Senior Vice President-Retail Banking from 1993; Senior Vice
President-Operations of the Bank from 1984; Senior Operations Officer from 1982;
Vice President/Branch Administrator from 1981. Engaged in the banking industry
since 1971.
Patricia D. Arnold, age 43, Senior Vice President & Chief Credit Officer since
August 1998, Senior Vice President Commercial Lending since August 1997; First
Vice President from 1995; Department Head Vice President from 1986; Assistant
Vice President from 1985; Commercial Loan Officer-Assistant Treasurer from 1983.
Engaged in the banking industry since 1981.
Amount and Nature of Beneficial Ownership
The following table sets forth information concerning the ownership of the
common stock as of March 1, 2002, for (a) certain beneficial owners known to the
Company to own more than five percent of the common stock; (b) each director and
nominee for director; (c) each of the named executive officers (as defined in
Note (1) of the Summary Compensation Table, herein) not listed as a director;
and (d) all directors and executive officers as a group. Except as otherwise
noted, the nominees, the directors and the executive officers or family members
had sole voting and investment power with respect to such securities.
Beneficially Right to Deferral Percent
Name Owned Acquire (1) Plans (2) Total of Class
- ----------------------------------------- ------------ ----------- ---------- -------- --------
(a)
Banc Funds Company, LLC
208 South Lasalle Street, Suite 1680
Chicago, IL 60604. . . . . . . . . . . . 438,404 - - 438,404 6.7
(b)
Anthony S. Abbate . . . . . . . . . . . . 169,844 39,494 19,286 228,624 3.5
Anthony D. Andora . . . . . . . . . . . . 150,830 1,000 - 151,830 2.3
Donald L. Correll . . . . . . . . . . . . 8,103 1,000 - 9,103 *
Anthony R. Coscia . . . . . . . . . . . . 7,050 1,000 - 8,050 *
John J. Eccleston . . . . . . . . . . . . 81,851 1,000 - 82,851 1.3
David R. Ficca . . . . . . . . . . . . . 84,057 (3) 1,000 - 85,057 1.3
James E. Healey . . . . . . . . . . . . . 34,425 1,000 - 35,425 *
Nicholas R. Marcalus. . . . . . . . . . . 5,822 667 - 6,489 *
Eleanore S. Nissley . . . . . . . . . . . 45,660 1,000 - 46,660 *
Jeremiah F. O'Connor. . . . . . . . . . . 57,811 1,000 - 58,811 *
Robert P. Rittereiser . . . . . . . . . . 27,168 1,000 - 28,168 *
Benjamin Rosenzweig . . . . . . . . . . . 116,917 1,000 - 117,917 1.8
(c)
Patricia D. Arnold . . . . . . . . . . . 5,838 13,800 13,156 32,794 *
Frank R. Giancola . . . . . . . . . . . . 10,788 22,895 20,762 54,445 *
Anthony Labozzetta . . . . . . . . . . . 16,759 14,750 11,889 43,398 *
(d)
Directors and executive officers as a
group (15 persons) . . . . . . . . . . 822,923 101,601 65,092 989,616 14.8
- -----------------------------------------
<FN>
* Does not exceed one percent of class
1. Includes stock acquirable by exercise of stock options exercisable within 60 days of the date of the Proxy Statement.
2. Shares held in deferred compensation accounts to which individuals have sole power to vote but no investment power.
3. Includes beneficial ownership of 1,689 shares held by a foundation to which Mr. Ficca has sole voting power and shared
investment power.
</FN>
9
Annual Executive Compensation
- --------------------------------------------------------------------------------
The following table sets forth certain information regarding the
compensation paid by the Company and its subsidiaries during 2001 to Mr. Abbate,
the Chief Executive Officer, and all other executive officers of the Company
whose total annual salary and bonus exceeded $100,000.
SUMMARY COMPENSATION TABLE
Annual Compensation Long-term Compensation
-------------------------------------------------------------
Other Restricted All Other
Annual Stock Options Compensation
Name and Principal Position (1) Year Salary($) Bonus($) Compensation($) Awards($)(3) (No.of Shares) ($) (2)
- ------------------------------- ----------- ----------- ---------- --------------- ------------ -------------- ------------
Anthony S. Abbate . . . . . . . 2001 $360,000 $166,680 - $148,680 30,000 $46,118
President and CEO 2000 347,500 121,625 - 104,250 15,000 65,160
1999 327,500 117,081 - 100,706 12,500 77,999
Anthony Labozzetta . . . . . . . 2001 162,000 52,650 $17,552 34,425 7,000 6,539
Executive Vice President and 2000 152,000 38,000 12,667 31,160 4,000 4,655
Chief Financial Officer 1999 132,000 33,600 11,199 26,400 4,000 4,477
Frank R. Giancola . . . . . . . . 2001 139,500 45,338 - 22,320 7,000 6,115
Senior Vice President 2000 135,500 32,500 - 29,810 4,000 6,059
1999 131,000 33,405 - 10,551 (5) 4,000 5,793
Patricia D. Arnold . . . . . . . 2001 140,000 46,150 2,756 23,075 7,000 4,627
Senior Vice President 2000 130,000 33,870 1,214 20,150 4,000 4,629
1999 120,000 30,600 2,578 6,000 4,000 4,380
_______________________________
<FN>
(1)Includes the President and CEO and all other executive officers whose total annual salary and bonus exceeded $100,000 in 2001.
(2)Represents payments as shown below:
</FN>
Year Abbate Labozzetta Giancola Arnold
----------- ----------- ----------- ----------- -----------
Amounts contributed to 401(k) plan 2001 $ 6,533 $6,070 $5,473 $4,183
2000 6,295 4,217 5,417 4,221
1999 6,400 4,103 5,136 4,008
Value of life insurance premium paid in 2001 3,564 470 643 444
respect to coverage in excess of 2000 3,564 438 643 408
$50,000 1999 3,564 374 617 372
Premium on disability policy 2001 7,860 - - -
2000 7,860 - - -
1999 7,860 - - -
Contribution to Supplemental 2001 28,162 - - -
Executives' Retirement Plan (4) 2000 47,442 - - -
1999 60,175 - - -
_______________________________
<FN>
(3) The unvested restricted stock awards granted, to date, totaled 2,643,
19,286, 5,086 and 2,853 for Mrs. Arnold and Messrs. Abbate, Labozzetta and
Giancola, respectively. The value of such awards at December 31, 2001, were
$50,217, $366,434, $96,634 and $54,207, respectively. The value of these
shares at the date of grant is reflected in the table above. The awards for
Mrs. Arnold and Messrs. Abbate, Labozzetta, and Giancola vest in three
years following the date of grant provided they do not terminate their
employment during that period. Dividends will be paid on all restricted
stock awards.
(4) In 1998, the Board of Directors amended the Supplemental Executives'
Retirement Plan to provide Mr. Abbate with the retirement benefits he is
entitled to as a member of the Board of Directors. The 1999 contribution to
the Supplemental Executives' Retirement Plan includes the costs associated
with the life insurance policy.
(5) The 1999 restricted stock award for Mr. Giancola amounting to $10,551 is
attributable to an adjustment to correctly reflect his achievement under
the 1998 incentive plan.
</FN>
10
Stock Option Grants in Last Fiscal Year *
The following table sets forth certain information concerning grants of
stock options awarded to the named executive officers during the year ended
December 31, 2001. All options granted during the year were incentive stock
options:
Number of % of Total Potential Realized Value
Securities Options at Assumed Annual Rates
Underlying Granted to Exercise or of Stock Price Appreciation
Options Employees in Base Price Expiration For Option Term (3)
----------------------------------
Name Granted Fiscal Year ($/Sh) (1) Date (2) 5% 10%
- --------------------------- ------------- -------------- ------------- ----------- ---------------- ---------------
Anthony S. Abbate 30,000 33.6% $22.05 2/28/2012 1,077,514 1,715,761
Anthony Labozzetta 7,000 7.8 22.05 2/28/2012 251,420 400,344
Frank R. Giancola 7,000 7.8 22.05 2/28/2012 251,420 400,344
Patricia Arnold 7,000 7.8 22.05 2/28/2012 251,420 400,344
- ---------------------------
<FN>
* The grant of stock options presented in this table was made in early 2002
based upon 2001 performance criteria.
(1) The exercise price was based on the closing price of a share of the
Company's stock on the date of grant as reported on the NASDAQ National Market.
(2) Options are exercisable starting one year from the date of grant and become
vested 1/3 each year from the grant date. Options expire if not exercised within
10 years of grant date.
(3) Pre-tax gain. The dollar amounts under these columns are the result of
calculations at the 5% and 10% rates set by the Securities and Exchange
Commission in the proxy disclosure rules and, therefore, are not intended to
forecast possible future appreciation, if any, of the Compan's stock price. The
Company's per share stock price would be $35.92 and $57.19 if the increase was
5% and 10%, respectively, compounded annually over the option term.
</FN>
Aggregated Option Exercises in Last Fiscal Year and Year End Option Values
Number of Securities
Underlying Unexercised Value of Unexercised
Options at Year End In-the-Money Options
No. Shares ------------------------------ --------------------
Acquired on Value Shares Shares at Year-end (2)
Name Exercise Realized (1) Exercisable Unexercisable Exercisable Unexercisable
- ---------------------- ----------- ------------ -------------- ---------------- ------------ ------------------
Anthony S. Abbate 4,000 $47,200 45,495 14,166 $170,057 38,540.00
Anthony Labozzetta 787 8,374 14,749 4,001 28,899 10,835.94
Frank R. Giancola - - 22,894 4,001 144,810 10,835.94
Patricia D. Arnold - - 13,799 4,001 35,981 10,835.94
- ----------------------
<FN>
(1) Pre-tax gain. Amounts shown represent the difference between the stock
option grant price and the market value of the stock on the date of exercise.
(2) Pre-tax gain. Value of unexercised in-the-money options based on the
December 31, 2001 closing price of $19.00 as reported on the NASDAQ.
</FN>
Pension Plan and Supplemental Executives' Retirement Plan
The Company, through the Bank, maintains a non-contributory defined benefit
pension plan covering all eligible employees including Mrs. Arnold, Messrs.
Abbate, Giancola and Labozzetta. Retirement income is based on years of service
under the Plan and, subject to certain limits, on final average compensation.
The Company maintains a Supplemental Executives' Retirement Plan (the
"SERP"), a non-qualified plan intended to provide retirement income that would
have been paid but for limitations imposed by the Internal Revenue Code under
the qualified plan. In 1998, the Company amended the Plan to include the
director related retirement benefits relating to Mr. Abbate's membership on the
Board of Directors. Benefits under the SERP are paid from the general assets of
the Company.
11
The following table shows the annual benefits payable based on a range of
average compensation (comprised solely of base salary) and years of future
service at normal retirement date.
5-Year Years of Service at Normal Retirement Date
Average ---------------------------------------------------------------------
Compensation 5 10 20 30 35
---------------- ------------ ------------ ---------- ------------- --------------
$100,000 $ 5,674 $11,347 $22,694 $ 34,042 $ 39,715
150,000 9,424 18,847 37,694 56,542 65,965
200,000 13,174 26,347 52,694 79,042 92,215
250,000 16,924 33,847 67,694 101,542 118,465
300,000 20,674 41,347 82,694 124,042 144,715
400,000 28,174 56,347 112,694 169,042 197,215
- --------------------
<FN>
1. This Plan was effective January 1, 1993.
2. Benefits calculated are based on base salary and total credited service at
normal retirement date from the later of (a) January 1, 1993 or (b) date of
hire. The benefits above are inclusive of both benefits from the qualified
defined benefit plan and from the defined benefit portion of the
supplemental plan. Currently, the supplemental plan only covers Mr. Abbate.
3. Average compensation is the average of base salary over the five (5)
consecutive calendar years producing the highest average.
4. The chart reflects a Social Security integration level based on the average
age of the executive officer group, which was 48 years as of December 31,
2001.
5. Annual benefit shown in the table above is payable as a life annuity which
is the normal form of retirement benefit for non-married participants. For
married participants, the normal form of benefit is an actuarial equivalent
joint and 50% survivor annuity.
6. At December 31, 2001, the estimated credited years of service for purposes
of computing the retirement benefits under the Pension Plan and the SERP
for the named executive officers are as follows: Mr. Abbate - 9 years; Mr.
Labozzetta - 6 years; Mr. Giancola - 9 years; and Mrs. Arnold - 9 years.
</FN>
Capital Investment Plan
The Company also maintains a Capital Investment Plan ("401(k)") covering
all eligible employees including the executive officers named in the Summary
Compensation Table. Retirement income is based on the value of each
participant's account balance and is paid upon retirement, termination of
employment, disability or death. The SERP also supplements the retirement
benefits payable to certain participants under the 401(k). At present, only Mr.
Abbate participates in the SERP. These benefits are intended to provide
participants with an amount (plus earnings) that the Company would have
contributed under the 401(k) as matching employer contributions and for fixed
employer contributions (in excess of the amounts the Company actually
contributed) if it were not for certain limitations imposed by the Internal
Revenue Code under the 401(k). The benefits under the SERP with respect to the
401(k) are to be paid in lump sum in cash at the same time as the distribution
of a participant's account balance is made under the 401(k).
Change-in-Control Arrangements
The Company has a Change-in-Control Agreement with each of Mrs. Arnold and
Messrs. Abbate, Labozzetta and Giancola. The agreements provide, among other
things, that if the executive is terminated during the two years after a "change
in control", or if they voluntarily terminate during the two years following a
"change in control", unless such termination is (i) because of the executive's
death or retirement, (ii) by the Company for cause or disability or (iii) by the
executive for other than for good reason, they shall receive an amount equal to
two times their highest annualized base salary plus an amount equal to the sum
of the bonuses paid for the previous two years [except for Mr. Abbate who shall
receive three times his highest annualized base salary plus an amount equal to
the greater of (i) the sum of the bonuses paid for the previous three years, or
(ii) $300,000] for the prior twelve months immediately proceeding the date of
termination. In addition, the executives will receive their unpaid base salary
up to termination, accrued vacation pay, a portion of the bonus in the year of
termination which has not yet been awarded or paid under the management
incentive plan, benefits and continuation of health and welfare benefits,
"grossed up" to cover any excise tax imposed by Section 4999 of the Internal
Revenue Code.
12
Compensation/Stock Option Committee Report on Executive Compensation
- --------------------------------------------------------------------------------
The Compensation/Stock Option Committee is responsible for reviewing and
recommending executive compensation to the full Board of Directors for action
and administering the Company's executive compensation programs and plans. The
Committee reports regularly to the Board of Directors. During 2001, the
Committee consisted of six Directors who were not employees of the Company and,
therefore, not eligible to participate in such programs and plans.
Compensation Strategy
The objectives of this Committee are to attract and retain top quality
executives and provide compensation programs designed to motivate and reward
executives to achieve business goals that foster both the enhancement of
long-term shareholder value through stock appreciation and dividend yield, and
the long-term best interests of the organization. Compensation programs for
executives are designed to link compensation to the various performance measures
of the Company discussed in this report and generally provide competitive
compensation for executives at the seventy-fifth percentile of peer group banks
(as determined by the Committee with the assistance of an independent
consultant) and other organizations of similar size, performance and geographic
location. The committee utilizes professional surveys prepared by outside
consultants focusing on compensation levels of this peer group in order to
assure competitiveness in its compensation programs. The compensation mix
reflects a balance of cash awards, including incentive awards, and equity-based
incentives. Annual cash compensation (base salary and annual bonus) is
established based on the achievement of corporate financial targets and
individual performance. The Stock Option and Incentive Plan, approved by
shareholders in 1997, is intended to function as the basis for fostering
alignment of executive compensation with the interests of shareholders.
The policies with respect to each of these compensation elements as well as
the basis for determining the compensation level of executive officers,
including the President and CEO, Mr. Abbate, are described below:
Base Salary
Base salaries for executive officers are based on the salary ranges that
are established by the Committee annually for each position. The salary ranges
for each position are determined by evaluating the responsibilities and
accountabilities of the position and comparing it with other executive officer
positions in the market place on an annual basis. The base salary of each
executive officer, including President and CEO, is reviewed annually and
adjusted within the position range based upon a performance evaluation.
Evaluations of other executive officers are submitted to the Committee by the
President and CEO. These evaluations, and an evaluation of the President and CEO
by the Committee, are reviewed and submitted together with the Committee's
recommendations to the full Board of Directors for action. Salary increases are
generally based upon the extent to which the executive is considered to have
contributed to a furtherance of the Company's goals and/or met objectives
specifically assigned to that individual.
Annual Bonus
The Management Incentive Plan is an incentive plan designed to reward key
management employees for achievement of specific financial, individual and
business results for the year. The specific financial targets, which are
weighted equally, are primarily based upon (i) the year-to-year increase in the
Company's net after-tax earnings and (ii) achievement of a targeted return on
equity. The targeted goal is established annually through the budgeting process
which is reviewed and approved by the Board of Directors using input relating to
performance opportunities for the year and the historical performance results of
the Company. Individual and business results are pre-established targets for
specific objectives relating to the executives' area of responsibility. An
objective of the Management Incentive Plan is to relate a portion of the
executive' compensation to the overall financial results of the Company for the
year. The bonus for 2001 (paid in 2002) reflects the attainment of 115 percent
of the financial targets set in 2001. The Board of Directors
13
reserves the right to award discretionary bonus awards in the event the
financial target is either not met or is exceeded. No discretionary bonuses were
paid in 2001. In so doing, the Committee, among other matters, will take into
account whether the Company, while not reaching its threshold target, has
performed better on a comparable basis than its peers. In addition to the
attainment of the earnings target, the level of the President and CEO's annual
bonus award is also based upon performance-related factors including various
predetermined strategic objectives.
A portion of the incentive compensation awarded to executive management is
in the form of restricted stock. The restriction is for three years and the
restricted stock is forfeitable upon termination of employment during that time
period. In addition, executive officers were given the option to utilize their
cash bonus to purchase two-year restricted, forfeitable stock at a twenty-five
percent discount. The excess of market value over the purchase price is included
in the Summary Compensation Table as Other Annual Compensation.
Stock Option and Incentive Plan
The Stock Option and Incentive Plan of 1997 is designed to align
shareholders' and executive officers' interests. The Compensation/Stock Option
Committee administers the Plan, reviews the awards and submits recommendations
to the full Board of Directors for action. Stock options are granted on a
discretionary basis with an exercise price equal to the price of a share of
stock at the close of business on the date of the grant as reported by the
NASDAQ National Market. Stock options may be exercisable between one and ten
years from the date granted. Such stock options provide a retention and
motivational program for executives and an incentive for the creation of
shareholder value over the long-term since their full benefit cannot be realized
unless an appreciation in the price of the common stock occurs over a specified
number of years.
The Plan also provides for the issuance of incentive stock awards as
determined by the Board of Directors of the Company. Certain key executives may
be awarded incentive compensation in the form of 3-year restricted stock, which
is forfeitable upon termination of employment during that time period. Key
employees may also use their cash bonus to purchase two-year restricted stock at
a twenty-five percent discount. All amounts in excess of the purchase price of
this stock are forfeitable should they terminate their employment during that
time period. Incentive stock awards are an important factor in attracting and
motivating key executives who will dedicate their maximum efforts toward the
advancement of the Company.
A total of 637,875 shares of common stock were made available for option
and incentive awards under the Plan of which options to purchase 452,678 shares
have been granted to date. Options granted to the executives in 2001 and those
granted in 2002 as a result of 2001's performance are included in the Summary
Compensation Table.
CEO Compensation
The compensation of the President and CEO, Mr. Anthony S. Abbate, is
reviewed by the Compensation/Stock Option Committee which presents its
recommendations to the Board of Directors for action. Mr. Abbate participates in
the same plans as the other executive officers, including the base salary
program, the Management Incentive Plan, the Stock Option and Incentive Plan, and
the staff benefit programs as outlined elsewhere in this Proxy Statement. Mr.
Abbate also participates in the SERP. Mr. Abbate receives no compensation for
his duties as a director. The committee bases Mr. Abbate's compensation on the
same criteria used for all executive officers with particular emphasis on the
factors which will promote the Company's long-term growth, organization
stability, and financial strength. Mr. Abbate's salary was at the seventy-fifth
percentile of the 2001 salary range for his position and his annual cash bonus
for 2001 performance was based upon achieving 115% of targeted financial goals
for that year. Mr. Abbate continues to provide the Company and the Bank with
exemplary leadership, vision and commitment, and strives to meet the Company's
long-term strategic goals.
Submitted by the Compensation/Stock Option Committee:
James E. Healey, Chairman
Donald L. Correll
David R. Ficca
Nicholas R. Marcalus
Jeremiah F. O'Connor
Robert P. Rittereiser
14
Audit Committee Report
- --------------------------------------------------------------------------------
The Audit Committee consists of five directors, each of whom is independent
as defined in the listing standards of the National Association of Securities
Dealers. A brief description of the responsibilities of the Audit Committee is
set forth above under the caption "Board and Committee Meetings" and "Director
Compensation" and a copy of the Audit Committee Charter as adopted by the Board
of Directors is attached hereto as Appendix B
In accordance with its written Charter adopted by the Board of Directors,
the Audit Committee assists the Board in fulfilling its responsibility for
oversight of the quality and integrity of the accounting, auditing and financial
reporting practices of the Company. The Committee met three times during 2001
and on January 10, 2002. The Committee Chairman, as representative of the
Committee, discussed the interim financial information contained in each
quarterly earnings announcement with the Chief Financial Officer and the
independent auditors prior to the public release of this information. The
Chairman also discussed matters described in Statement on Auditing Standards No.
61, as amended "Communication with Audit Committees" "SAS 61") with the
independent auditors prior to the filing of the Company's quarterly report on
Form 10-Q.
In discharging its oversight responsibility as to the audit process, the
Audit Committee obtained, from the independent auditors, a formal written
statement describing all relationships between the auditors and the Company that
might bear on the auditors' independence consistent with the Independence
Standards Board No. 1, "Independence Discussion with Audit Committees",
discussed with auditors any relationships that may impact their objectivity and
independence and satisfied itself as to the auditors' independence. The
Committee also discussed with management the internal auditors and the
independent auditors the quality and adequacy of the Company's internal controls
and the internal audit function's organization, responsibilities, budget and
staffing and concurred in the appointment of internal audit staff. The Committee
reviewed with the independent and the internal auditors their audit plans, audit
scope and identification of audit risks.
The Committee discussed and reviewed with the independent auditors all
communications required by generally accepted auditing standards, including
those described in SAS 61 and, with and without management present, discussed
and reviewed the results of the independent auditors' examination of the
financial statements. The Committee also discussed the results of the internal
audit examinations.
The Committee reviewed the audited financial statements of the Company as
of, and for, the fiscal year ended December 31, 2001 with management and the
independent auditors. Management has the responsibility for the preparation of
the Company's financial statements and the independent auditors have the
responsibility for the examination of those statements.
Based on the review and discussions with management and the independent
auditors, the Committee recommended to the Board that the Company's audited
financial statements be included in its annual report on Form 10-K for the
fiscal year ended December 31, 2001 and for filing with the Securities and
Exchange Commission. The Committee also recommended the reappointment, subject
to shareholder approval, of the independent auditors, and the Board concurred in
such recommendation.
The Audit Committee:
John J. Eccleston, Chairman
James E. Healey
Donald L. Correll
Anthony R. Coscia
Eleanore S. Nissley
Fees Paid to Our Independent Auditors
Audit Fees: The aggregate fees billed for professional services rendered by
Deloitte & Touche, LLP, our independent auditors, in connection with the audit
and review of our 2001 financial statements was $135,200.
Financial Information Systems Design and Implementation Fees: There were no
fees billed for professional services rendered in connection with financial
information system design and implementation by Deloitte & Touche, LLP.
All Other Fees: The aggregate of all other fees billed for professional
services, including fees for audits of employee benefit plans, tax preparation
and other audit and tax related matters rendered during 2001 by Deloitte &
Touche, LLP was $79,500.
15
2. Increase the Number of Common Shares in the Employee Stock Option and
Incentive Plan of 1997, as Amended
(Item 2 on the Proxy)
The Stock Option and Incentive Plan of 1997 (the "Plan"), approved by
shareholders in 1997, was designed to encourage officers and other key employees
to (i) acquire a proprietary interest in the Company and thereby align their
interest with those of the Company's shareholders, (ii) continue their
employment with the Company and (iii) render superior performance during their
employment. The Plan enables the Company, through the Compensation/Stock Option
Committee of the Board of Directors, to grant incentive stock options and
non-qualified stock options and to make restricted stock awards to officers and
key employees of the Company.
The following shares of common stock were purchased in the amounts and at
the weighted average prices per share under the Plan as follows:
Average
Weighted
Incentive Exercise Purchase
Stock Price Per Restricted Price at Date Purchase Price at Date
Name Options Share Stock of Grant (1) Stock of Grant (2)
- ------------------------- -------- --------- ---------- --------------- --------- --------------
(a)
Anthony S. Abbate . . . . . .30,000 $22.05 6,743 $22.05 - -
Anthony Labozzetta . . . . . .7,000 $22.05 1,561 $22.05 3,184 $16.54
Frank R. Giancola . . . . . . 7,000 $22.05 1,012 $22.05 - -
Patricia D. Arnold . . . . . .7,000 $22.05 1,046 $22.05 500 $16.54
(b)
Executive Officers as
a group (4) . . . . . . . 51,000 - 10,362 $22.05 3,684 $16.54
(c)
All employees who are not
Executive Officers . . . 38,250 $22.05 N/A N/A N/A N/A
- ---------------------------
<FN>
(1) Price equals the closing price of IFCJ common stock on the grant date.
(2) Price equals 75 percent of the closing price of IFCJ common stock on the
grant date.
</FN>
On January 24, 2002, the Company's Board of Directors amended the Plan,
subject to shareholder approval, to increase the number of shares of the
Company's common stock issuable pursuant to the Plan by 285,000 shares.
Currently the Plan provides for a maximum of 637,875 shares to be issued
pursuant to the Plan. As of March 1, 2002, options and restricted stock awards
covering a total of 539,408 shares have been granted under the Plan, 304,078 of
which shares are subject to unexercised options granted to date. As a result,
only 98,467 shares remain available for option or restricted stock grants under
the Plan. As amended, the Plan would provide for a maximum of 922,875 shares to
be issued pursuant to the Plan. To become effective, this amendment requires
shareholder approval.
The Board seeks to increase the number of available shares under the Plan
because it believes that a stock option program is an important factor in
attracting, retaining and motivating key employees who will dedicate their
maximum productive efforts toward the advancement of the Company. The Board
believes that this amendment furthers these objectives by assuring continuing
availability of stock options in the appropriate circumstances. As of the date
of this Proxy Statement, no options have been granted from the proposed increase
in the number of shares under the Plan approved by the Board.
Set forth below is a summary of certain provisions of the Plan,
incorporating the terms of the proposed amendments to the Plan adopted by the
Board of Directors, and a general description of the federal income tax rules
applicable to the grant and exercise of options or restricted stock awards under
the Plan. This summary does not purport to be complete and is subject to an
qualified in its entirety by reference to the complete text of the Plan, a copy
of which is available to any shareholder upon request.
16
Summary of the Plan
Administration. The Plan is administered by the Compensation/Stock Option
Committee (the "Committee"), consisting of not less than two non-employee
directors of the Company. The Committee has full power and authority, subject to
the terms and conditions of the Plan, to determine (i) the key employees to whom
awards may be made under the Plan, (ii) the number of options shares and the
type of option (Incentive Stock Option, Non-Qualified Stock Option, or both) to
be awarded to each key employees, (iii) the applicable terms and conditions of
the awards or other grants of restricted stock, and (iv) all other matters which
may arise in the administration of the Plan.
Stock Available for Awards. As amended, the Plan provides for the issuance, upon
the exercise of options or grant of other stock awards, of a total of 922,875
shares of the Company's common stock, subject to any adjustments to reflect
stock dividends, stock splits or other events as provided in the Plan.
Eligibility. Key employees of the Company, and of any subsidiary corporation of
the Company, as defined in Section 424(f) of the Internal Revenue Code of 1986,
as amended, are eligible to receive awards under the Plan, provided that no
award may be granted to any director who is not also an employee of the Company
or a Subsidiary. Eligibility to receive options is determined by the Committee.
Forty-one employees are currently participating in the Plan.
Option Price. The price at which each share of common stock covered by an option
granted pursuant to the Plan may be purchased is the price of a share of Company
common stock on the date of grant as reported by the NASDAQ National Market
System ("NASDAQ") or, if there is no reported trade on that date, on the last
preceding date on which a trade was reported. The"date of gran" is the date as
of which an option becomes effective as determined by the Committee, provided
that the date of grant cannot precede the date on which the Committee awards the
option. The option price under the Plan is payable in cash when the option is
exercised or, with the consent of the Committee, by surrender of shares of the
Company's common stock. As of March 25, 2002, the price of a share of Company
common stock as reported by NASDAQ was $23.51.
Option Period. The period for exercise of an option may not exceed ten years
from the date the option is granted. Options become exercisable during the
option period at the rate set by the Committee, provided that: (i) no option may
be exercised prior to one year after date of grant and (ii) the aggregate fair
market value (at time of grant) with respect to which Incentive Stock Options
are exercisable for the first time by any optionee during any calendar year
(under the Plan or any other stock option plan of the Company or any subsidiary)
may not exceed $100,000. In the event of a "Change of Control" (as defined
original award. A "Change of Control" under the Plan occurs upon:
(i) The acquisition by any person, other than the Company or any of its
subsidiaries without the prior written approval of the Company's Board
of Directors, of beneficial of 20% or more of the then outstanding
shares of stock in a transaction or series of transactions not
approved by a vote of at least a majority of the "Continuing
Directors"; or
(ii) Individuals who, as of January 1, constitute the Board of Directors of
the Company (generally the "Directors" and as of January 1, the
"Continuing Directors") cease for any reason to constitute at least a
majority thereof, provided that any person becoming a Director
subsequent to January 1, whose nomination for election was approved by
a vote of at least a majority of the Continuing Directors shall be
deemed to be a Continuing Director.
Restrictions on Transfer. During an optionee's lifetime his or her option is
exercisable only by him or her. No option may be transferred other than by will
or the law of descent and distribution.
Duration. Unless sooner terminated by the Board of Directors, the Plan
terminates on, and no option may be granted hereunder after, December 31, 2006.
17
Amendment. The Board of Directors of the Company may amend the Plan at any time.
No amendment shall, unless approved by shareholders of the Company: (i) increase
the maximum number of shares for which options or other awards of Company common
stock may be granted under the Plan; (ii) reduce the minimum option price
provided herein; or (iii) extend the period during which options may be granted
or exercised. The Board of Directors does, however, have the right to accept the
surrender of and cancel options issued under the Plan and reissue those options
and to amend the terms of outstanding options as described below.
Additional Terms and Conditions of Restricted Stock and Purchased Restricted
Stock
Eligibility to Receive Restricted Stock and Purchased Restricted Stock. Certain
key executives of the Company, as determined by the Board of Directors of the
Company, are eligible to receive Company common stock that is subject to the
requirements of the Plan and such other restrictions as the Committee deems
appropriate or desirable ("Restricted Stock"). Some shares of Restricted Stock
may be acquired in lieu of some or all of certain cash bonus payments otherwise
due a key executive ("Purchased Restricted Stock"). Shares of Purchased
Restricted Stock which a key executive elects to acquire in lieu of receiving
additional cash bonus are acquired by the key executive at a price to be
determined by the Committee.
Transfer Restrictions on Termination of Employment. Restricted Stock vests 3
years following the date granted and Purchased Restricted Stock vests 2 years
following the date granted. If a holder of Restricted Stock or Purchased
Restricted Stock terminates employment for any reason other than retirement,
disability, or death within the Restriction Period, some shares of Restricted
Stock or Purchased Restricted Stock may be subject to forfeiture by the holder,
and if forfeited, shall revert to the Plan. In no event shall any cash be
transferred to a holder of Restricted Stock upon the forfeiture of Restricted
Stock. The holder of Purchased Restricted Stock, upon forfeiture, shall be
entitled to receive a cash amount equal to the amount paid for such stock. Such
forfeited shares of Restricted Stock or Purchased Restricted Stock once again
become available for award under the Plan.
Change of Control. Notwithstanding any provision of the Plan to the contrary,
upon a "Change of Control", the Restriction Period for any holder of Restricted
Stock or Purchased Restricted Stock ends and all restrictions on shares of
Restricted Stock or Purchased Restricted Stock lapse.
Certain Federal Income Tax Consequences
Stock Options. The Company believes that under present law, the following are
the federal income tax consequences generally applicable to options. The grant
of an option will create no tax consequences for a participant or the Company. A
participant will have no taxable income upon exercising an incentive stock
option (except that the alternative minimum tax may apply) except in certain
circumstances, and the Company will receive no deduction when an incentive stock
option is exercised except in certain circumstances. Upon exercising an option
other than an incentive stock option, a participant must recognize ordinary
income generally equal to the difference between the fair market value of the
shares on the date of exercise and the exercise price. The Company will be
entitled to a deduction for the same amount. The treatment to a participant of a
disposition of shares acquired through the exercise of an option generally
depends on how long the shares were held and on whether the shares were acquired
by exercising an incentive stock option or by exercising an option other than an
incentive stock option. Generally, there will be no tax consequence to the
Company in connection with a disposition of shares acquired under an option,
except that the Company may be entitled to a deduction in cases in which shares
acquired under an incentive stock option are disposed of before the applicable
incentive stock option holding periods have been satisfied.
Restricted Stock and Purchased Restricted Stock. The award of Restricted Stock
and Purchased Restricted Stock will have no immediate tax consequences to the
Company or to the participant, unless the participant elects, within 30 days of
the award, to be taxed on the difference between the fair market value of such
stock on the date of the award and the amount paid for such stock. Assuming the
award of Restricted Stock and Purchased Restricted Stock is not taxed at the
time of the award, upon the lapse of the restrictions, a participant will be
required to include in gross
18
income as compensation the amount by which the fair market value of such stock
on the restriction lapse date exceeds the amount paid for such stock. However,
if the participant is a director or officer of the Company subject to the
provisions of Section 16(b) of the Exchange Act, no income will be recognized on
the lapse of the restrictions until the time of lapse of the profit recapture
provisions of Section 16(b), and the amount of such income will be equal to the
fair market value of such stock at that time less the amount paid for such
stock.
Upon a subsequent sale or taxable exchange of the Restricted Stock or Purchased
Restricted Stock, a participant will recognize long or short-term capital gain
or loss equal to the difference between the amount realized on the sale and the
tax basis of such stock. The amount included in gross income on the award of the
stock or the lapse of restrictions, as the case may be, is added to the basis of
the stock. The Company will be entitled to a deduction in the same amount as the
compensation income recognized by the participant on the award or lapse of
restrictions, as applicable.
The Board of Directors recommends that you vote FOR this proposal.
3. Ratification of Appointment of Independent Auditors
(Item 3 on the Proxy)
Deloitte & Touche LLP served as the Company's independent auditors for the
year ended December 31, 2001. The Board of Directors, upon recommendation of the
Audit Committee, has again reappointed the firm of Deloitte & Touche LLP as the
independent auditors to examine the Company's financial statements for the year
2002. The Board of Directors recommends that you vote FOR ratification of this
appointment.
Representatives of Deloitte & Touche LLP are expected to attend the Annual
Meeting and will have the opportunity to make a statement if they desire and to
respond to appropriate questions.
Other Information
- --------------------------------------------------------------------------------
Transactions with Management
Officers and directors of the Company and their affiliated companies are
customers of and are engaged in transactions with the Company and its
subsidiaries in the ordinary course of business on substantially the same terms
(including interest rates on loans, collateral and collectibility
considerations) as those prevailing at the time for comparable transactions with
other unaffiliated borrowers and suppliers.
Mr. Andora, a Director of the Company, is a member of Andora & Romano, LLC,
a firm that renders various legal services to the Company and its subsidiaries.
During 2001, Andora & Romano received fees for legal services of $308,732,
including $95,000 paid pursuant to retainer contracts and $115,725 representing
fees for loan related matters, the bulk of which was reimbursed to the Bank by
its customers. The Company expects to transact business with this firm in the
future.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
The members of the Board of Directors, the executive officers of the
Company and persons who hold more than ten percent of the Common Stock are
subject to reporting requirements of Section 16(a) of the Securities Exchange
Act of 1934, which requires them to file reports with respect to their ownership
of and transactions in the Company's securities and furnish the Company with
copies of all such reports they file. Based upon the copies of those reports
furnished to the Company and written representations that no other reports were
required to be filed, the Company believes that all reporting requirements under
Section 16(a) for the fiscal year ended December 31, 2001, were met in a timely
manner by its executive officers, Directors and greater than ten percent
shareholders, except that Mrs. Arnold and Messrs. Abbate, Giancola and
Labozzetta each filed one Form 5 late due to delays with respect to shares
allocated to their respective accounts in the Capital Investment Plan caused by
administrative delays.
19
Other Matters
The Board of Directors is not aware of any other matters to be presented at
the annual meeting. If any other matter proper for action at the annual meeting
should be presented, the persons named in the accompanying proxy will vote the
shares represented by the proxy on such matter in accordance with their best
judgment pursuant to discretionary authority granted in the proxy. If any matter
not proper for action at the annual meeting should be presented, the named
proxies will vote against consideration thereof or action thereon.
Submission of Shareholders Proposals
Proposals intended for inclusion in the proxy statement for next year's
annual meeting of shareholders must be in writing and must be received by the
Secretary of the Company at Park 80 West/Plaza Two, Saddle Brook, NJ 07663, not
later than December 20, 2002. To be considered for inclusion in the Company's
proxy statement and form of proxy for an annual meeting, a shareholder proposal
must be submitted on a timely basis and the proposal and proponent thereof must
meet the requirements established by the Securities and Exchange Commission for
shareholder proposals.
Solicitation Expenses
The Company is paying for distributing and soliciting proxies. As part of
this process, we reimburse brokers, nominees, fiduciaries and other custodians
reasonable fees and expenses in forwarding proxy materials to shareholders.
Employees do not receive additional compensation for soliciting proxies.
Financial Materials
Consolidated financial statements of the Company and its subsidiaries are
included in the Company's Annual Report to Shareholders for the year 2001.
Additional copies of the Annual Report to Shareholders and the Company's Annual
Report on Form 10-K as filed with the Securities and Exchange Commission may be
obtained without charge from the Secretary of the Company, Park 80 West/Plaza
Two, Saddle Brook, NJ 07663
20
FIVE-YEAR PERFORMANCE COMPARISON
The graph below provides an indicator of cumulative total
stockholder returns for the Company as compared with a Peer Group (1),
the AMEX Market Value Index and (2) the Nasdaq Stock Market (U.S.) Index.
Cumulative Total Return
---------------------------------------------------
12/96 12/97 12/98 12/99 12/00 12/01
------ ------ ------ ------ ------ ------
Interchange Financial Corp. 100.00 183.76 155.33 160.93 140.15 199.72
Peer Group 100.00 174.26 190.31 157.82 155.15 207.41
AMEX Market Value 100.00 125.32 134.49 176.81 165.72 150.81
Nasdaq Stock Market (U.S.) 100.00 122.48 172.68 320.89 193.01 153.15
<FN>
Footnote
________
(1) The Peer Group is comprised of 25 banking institutions in Connecticut, New
Jersey and New York with asset size of at least $250 million, but less than
$1 billion, as of June 30, 2001 the most recently available information as
reported in the SNL Quarterly Bank Digest of December 2001. The banking
institutions included are: First International Bancorp and First Litchfield
Financial (CT); Center Bancorp Inc., Greater Community Bancorp, Lakeland
Bancorp, Newfield Bancorp, Inc., NorCrown Bank, Stewardship Financial
Corp., SVB Financial Services, Inc., Unity Bancorp and Vista Bancorp. (NJ);
Alliance Financial Corp., Bershire Bancorp Inc., Bridge Bancorp,
Canandaigua National Corp., CNB Bancorp, CNB Financial Corp., E.N.B.
Holding Company, Inc., First of Long Island Corporation, Great Eastern
Bank, Intervest Bancshares Corp., Jeffersonville Bancorp, Long Island
Financial Corp., Smithtown Bancorp, Inc. and State Bancorp, Inc. (NY).
(2) Beginning January 17, 2001, the Company's common stock was listed for
quotation on the NASDAQ National Market System under the symbol IFCJ. The
Company's common stock was previously traded on the American Stock Exchange
(AMEX); therefore both of the indices are shown for comparison.
</FN>
21
APPENDIX A
Interchange Financial Services Corporation
Audit Committee Charter
This Audit Committee Charter (Charter) has been adopted by the Board of
Directors (the Board) of Interchange Financial Services Corporation (the
Company). The Audit Committee of the Board (the Committee) shall review and
reassess this charter annually and recommend any proposed changes to the Board
for approval.
Role and Independence: Organization
The Committee assists the Board in fulfilling its responsibility for oversight
of the quality and integrity of the accounting, auditing, internal control and
financial reporting practices of the Company. The membership of the Committee
shall consist of at least three directors, who are each free of any relationship
that, in the opinion of the Board, may interfere with such member's individual
exercise of independent judgment. Each Committee member shall also meet the
independence and financial literacy requirements for serving on audit
committees, and at least one member shall have accounting or related financial
management expertise, all as set forth in the applicable rules of the NASDAQ
National Market System. The Committee shall maintain free and open communication
with the independent auditors, the internal auditors and Company management. In
discharging its oversight role, the Committee is empowered to investigate any
matter relating to the Company's accounting, auditing, internal control or
financial reporting practices brought to its attention, with full access to all
Company books, records, facilities and personnel. The Committee may retain
outside counsel, auditors or other advisors.
One member of the Committee shall be appointed as chairman. The chairman shall
be responsible for leadership of the Committee, including scheduling and
presiding over meetings, preparing agendas, and making regular reports to the
Board. The chairman will also maintain regular liaison with the CEO, CFO, the
lead independent audit partner and VP in charge of internal audit.
The Committee shall meet at least four times a year, or more frequently as the
Committee considers necessary. At least once each year the Committee shall have
separate private meetings with the independent auditors, management and the
internal auditors.
Responsibilities
Although the Committee may wish to consider other duties from time to time, the
general recurring activities of the Committee in carrying out its oversight role
are described below. The Committee shall be responsible for:
|X| Recommending to the Board the independent auditors to be retained (or
nominated for shareholder approval) to audit the financial statements of
the Company. Such auditors are ultimately accountable to the Board and the
Committee, as representatives of the shareholders.
|X| Evaluating, together with the Board and management, the performance of the
independent auditors and, where appropriate, replacing such auditors.
|X| Obtaining annually from the independent auditors a formal written statement
describing all relationships between the auditors and the Company,
consistent with Independence Standards Board Standard Number 1. The
Committee shall actively engage in a dialogue with the independent auditors
with respect to any relationships that may impact the objectivity and
independence of the auditors and shall take, or recommend that the Board
take, appropriate actions to oversee and satisfy itself as to the auditors'
independence.
|X| Issuing annually a report to be included in the Company's proxy statement
as required by the rules of the Securities and Exchange Commission.
|X| Overseeing the relationship with the independent auditors, including
discussing with the auditors the nature and rigor of the audit process,
receiving and reviewing audit reports, and providing the auditors
full access to the Committee (and the Board) to report on any and all
appropriate matters.
A-1
|X| Discussing with a representative of management and the independent
auditors: (1) the interim financial information contained in the Company's
Quarterly Report on Form 10-Q [or 10-QSB] prior to its filing, (2) the
earnings announcement prior to its release (if practicable), and (3) the
results of the review of such information by the independent auditors.
(These discussions may be held with the Committee as a whole or with the
Committee Chairman in person or by telephone.)
|X| Overseeing internal audit activities, including discussing with management
and the internal auditors the internal audit function's organization,
objectivity, responsibilities, plans, results, budget and staffing.
|X| Reviewing the audited financial statements and discussing them with
management and the independent auditors. These discussions shall include
the matters required to be discussed under Statement of Auditing Standards
No. 61 and consideration of the quality of the Company's accounting
principles as applied in its financial reporting, including a review of
particularly sensitive accounting estimates, reserves and accruals,
judgmental areas, audit adjustments (whether or not recorded), and other
such inquiries as the Committee or the independent auditors shall deem
appropriate. Based on such review, the Committee shall make its
recommendation to the Board as to the inclusion of the Company's audited
financial statements in the Company's Annual Report on Form 10-K [or 10-KSB
(or the Annual Report to Shareholders, if distributed prior to the filing
of the Form 10-K)].
|X| Review and approve audit fees.
|X| Review codes of ethics and/or codes of conduct and management's system to
monitor compliance with such codes.
|X| Discussing with management, the internal auditors and the independent
auditors the quality and adequacy of and compliance with the Company's
internal controls and financial reporting process.
|X| Discussing with management and/or the Company's general counsel any legal
matters (including the status of pending litigation) that may have a
material impact on the Company's financial statements, and any material
reports or inquiries from regulatory or governmental agencies.
|X| Disclose in the Company's proxy statement that the Board of Directors has
adopted a written charter for the Audit Committee and include a copy of the
Committe's charter as an appendix to the Company's proxy statement at least
once every three years.
|X| Discussing with management the status of internal control recommendations
made by the independent auditor and the internal auditors.
The Committee's job is one of oversight. Management is responsible for the
preparation of the Company's financial statements and the independent auditors
are responsible for auditing those financial statements. The Committee and the
Board recognize that management (including the internal audit staff) and the
independent auditors have more resources and time, and more detailed knowledge
and information regarding the Company's accounting, auditing, internal control
and financial reporting practices than the Committee does; accordingly the
Committee's oversight role does not provide any expert or special assurance as
to the financial statements and other financial information provided by the
Company to its shareholders and others.
. . . . . . . . . .
A-2
APPENDIX B
INTERCHANGE FINANCIAL SERVICES CORPORATION
STOCK OPTION AND INCENTIVE PLAN OF 1997, AS AMENDED
1. Purposes. This Stock Option and Incentive Plan of 1997, as Amended (the
"Plan") of Interchange Financial Services Corporation (the "Compa") is
established so that the Company may make available to Key Employees ("Key
Employees") the opportunity to acquire ownership of Company stock pursuant
to options intended to qualify as incentive stock options ("Incentive Stock
Options") within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), and stock options that do not qualify as
Incentive Stock Options (Non-Qualified Options), as well as other awards of
common stock subject to such restrictions as provided herein. It is
anticipated that such stock options and awards of restricted stock will
materially assist the Company in providing incentives to Key Employees, to
provide long term gain through their outstanding service to the Company and
its shareholders and to assist in retaining people of ability and
initiative in senior management positions.
2. Administration. The Plan shall be administered by the Compensation/Stock
Option Committee (the "Committee"), which shall be appointed, from time to
time, by the Board of Directors, and shall consist of not less than two
non-employee directors of the Company. Any member of the Committee who is
not a non-employee director within the meaning of Rule 16b-3 (or any
successor rule or regulation) under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") shall be excluded from all Committee actions
and votes regarding the Plan. The Committee shall have full power and
authority, subject to the terms and conditions of the Plan, to determine
the Key Employees to whom awards may be made under the Plan, the number of
such shares and the type of option (Incentive Stock Option, Non-Qualified
Stock Option, or both) to be awarded to each of such Key Employees, the
applicable terms and conditions of such awards or other grants of
restricted stock and all other matters which may arise in the
administration of the Plan. The determination of the Committee concerning
any matter arising under or with respect to the Plan or any awards granted
shall be final, binding and conclusive on all interested persons. Awards
shall be made only in accordance with the recommendation of the Committee
and with the approval of the Board of Directors. The Committee may, as to
all questions of accounting, rely conclusively upon any determinations made
by the independent auditors of the Company.
3. Stock Available for Awards. There shall be available for option under the
Plan and for other awards a total of 922,875 shares of the Company's Common
Stock (the "Stoc"), subject to any adjustments which may be made pursuant
to Section 4(i). Shares of Stock used for purposes of the Plan may be
either authorized and unissued shares or treasury shares or both. Stock
covered by options which have terminated or expired prior to exercise or
have been surrendered and canceled as contemplated by Section 4(m) or any
stock forfeited as contemplated by Section 5(c) shall be available for
further option.
4. Terms and Conditions of Options.
(a) General. Each option granted shall be in writing and shall
contain such terms and conditions as the Committee may determine,
which terms and conditions need not be the same in each case.
Each option shall be designated as an Incentive Stock Option or
as a Non-Qualified Option, as the case may be.
(b) Eligibility. Key Employees of the Company, and of any subsidiary
corporation of the Company ("Subsidiary"), as defined in Section
424(f) of the Code, shall be eligible to receive awards under the
Plan, provided that no award may be granted to any director who
B-1
is not also an employee of the Company or a Subsidiary.
Eligibility to receive options shall be determined by the
Committee.
(c) Option Price. The price at which each share of Stock covered by
an option granted hereunder may be purchased shall be the price
of a share of Stock on the date of grant as reported by the
NASDAQ National Market System ("NASDAQ") or, if there is no
reported trade on that date, on the last preceding date on which
a trade was reported. The "date of grant" shall be the date as of
which an option shall become effective as determined by the
Committee provided that the date of grant cannot precede the date
on which the Committee awards such option.
(d) Option Period. The period for exercise of an option shall not
exceed ten years from the date the option is granted. Options
shall become exercisable during the option period at the rate set
by the Committee, provided that: (i) no option may be exercised
prior to one year after date of grant and (ii) the aggregate fair
market value (at time of grant) with respect to which Incentive
Stock Options are exercisable for the first time by any optionee
during any calendar year (under the Plan or any other stock
option plan of the Company or any Subsidiary) shall not exceed
$100,000. Notwithstanding the foregoing, upon a "Change of
Control" (as defined below) options shall become immediately
exercisable to the full extent of the original award. "Change of
Control" shall occur upon:
(i) The acquisition by any person (including a group, within the
meaning of Section 13(d) or 14(d)(2) of the Exchange Act),
other than the Company or any of its Subsidiaries without
the prior written approval of the Company's Board of
Directors, of beneficial ownership (within the meaning of
Exchange Act Rule 13d-3) of 20% or more of the then
outstanding shares of stock in a transaction or series of
transactions not approved by a vote of at least a majority
of the "Continuing Directors" (as defined below); or
(ii) Individuals who, as of January 1, constitute the Board of
Directors of the Company (generally the "Directors" and as
of January 1, the "Continuing Directors") cease for any
reason to constitute at least a majority thereof, provided
that any person becoming a Director subsequent to January 1,
whose nomination for election was approved by a vote of at
least a majority of the Continuing Directors (other than a
nomination of an individual whose initial assumption of
office is in connection with an actual or threatened
election contest relating to the election of the Directors
of the Company, as such terms are used in Rule 14a-11 of
Regulation 14A under the Exchange Act) shall be deemed to be
a Continuing Director.
Subject to the provisions of paragraph (f), options that have become
exercisable shall remain exercisable until expiration or exercise,
whichever occurs first.
(e) Exercise of Options. To exercise an option, the option holder
shall give written notice to the Company specifying the number of
shares to be purchased and accompanied by payment in full of the
purchase price thereof. Such purchase price may be paid in cash,
or, with the consent of the Committee, in whole or in part by the
surrender of shares of Stock held for a period of time as
determined by the Committee and having a fair market value, as
determined by the Committee, equal to such purchase price or the
portion thereof which is not paid in cash. An option holder shall
have none of the rights of a shareholder until the shares are
paid for in full and issued to the option holder.
B-2
(f) Effect of Termination of Employment or Death. No option may be
exercised after the termination of employment of an optionee,
except that if such termination occurs by reason of retirement,
disability, or death (as described below) an extended period is
permitted to exercise those options which are exercisable on the
date of termination. Such extended period may not exceed the
original option period or the last day on which options may be
exercised under the Plan. If termination of employment occurs by
reason of: (i) retirement at normal or late retirement age under
any tax-qualified retirement, profit sharing or employee stock
ownership plan maintained by the Company or any Subsidiary in
which the optionee is employed, the extended period shall be 90
days; (ii) disability, which shall mean the inability due to
injury or illness which prevents the optionee from performing the
material duties of his position, and said inability is expected
to last for at least six months, the extended period shall be 90
days; and (iii) death while employed, the extended period is 180
days. Notwithstanding the foregoing, unexercisable options shall
be forfeited unless the Committee, in its sole discretion,
accelerates the exercisability of some or all of such options. In
no event, however, shall any option be exercisable more than ten
years from the date of grant thereof.
(g) Nothing contained in the Plan or in any option granted shall
confer on any employee any right to continue his employment or
interfere in any way with the right of his employer to terminate
his employment at any time.
(h) Nontransferability of Options. During an optionee's lifetime his
option shall be exercisable only by him. No option shall be
transferable other than by will or the law of descent and
distribution.
(i) Adjustment for Change in Stock Subject to Plan. In the event of a
stock split, stock dividend, combination of shares,
recapitalization, reorganization, merger, consolidation, rights
offering, or any other change in the corporate structure or
shares of the Company, the Board of Directors shall make such
adjustment, if any, as it deems appropriate for purposes hereof
in the number and kind of shares subject to the Plan, in the
number and kind of shares covered by outstanding options, or in
the option prices.
(j) Registration, Listing and Qualification of Shares. Each option
shall be subject to the requirement that if at any time the Board
of Directors of the Company shall determine that registration,
listing or qualification of the shares covered thereby upon any
securities exchange or under federal or state law, or in the
consent or approval of any governmental regulatory body is
necessary or desirable as a condition of, or in connection with,
the granting of such option or the purchase of shares thereunder,
no such option may be exercised unless and until such
registration, listing, qualification, consent or approval shall
have been effected or obtained free of any conditions not
acceptable to the Board of Directors. Any person exercising an
option shall make such representations and agreements and furnish
such information as the Board of Directors may request to assure
compliance with the foregoing or any other applicable legal
requirements.
(k) Duration. Unless sooner terminated by the Board of Directors, the
Plan shall terminate on, and no option shall be granted hereunder
after, December 31, 2006.
(l) Amendment. The Board of Directors of the Company may amend the
Plan at any time. No amendment shall, unless approved by
shareholders of the Company: (i) increase the maximum number of
shares for which options or other awards of Stock may be granted
under the Plan; (ii) reduce the minimum option price provided
herein; or (iii) extend the period during which options may be
granted or exercised. Notwithstanding the foregoing, the Board of
Directors shall have the right to accept the surrender of and
cancel options
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issued under the Plan and reissue those options and to amend the
terms of outstanding options upon the following terms and
conditions.
(m) Surrender, Cancellation and Reissue of Options. The Board of
Directors may, upon invitation by it during the term of this Plan
to any holder(s) of options under this Plan to do so, accept the
surrender of outstanding options, cancel such options and issue
in exchange therefor new options under this Plan provided:
(i) the tender of options for surrender is in accordance with
such conditions as the Board of Directors set forth in its
invitation for that surrender;
(ii) the number of shares covered by an option issued in exchange
for a surrendered and canceled option shall not exceed the
number of shares covered by the option surrendered and
canceled;
(iii)the price and all other terms of each option issued in
exchange shall comply with the requirements of this Plan for
the issuance of options; and
(iv) no such invitation for surrender of options shall be made by
the Board of Directors unless it shall have first received a
recommendation of the Committee that it is in the interest
of the Company to provide an opportunity for the surrender
and cancellation of outstanding options and the issue of new
options in exchange therefor upon more appropriate terms and
conditions, including exercise price.
(n) In the case of any person owning more than 10 percent of the
common stock of the Company, such person may not be granted an
Incentive Stock Option with an exercise price lower than 110
percent of the closing price of a share of stock on the date of
grant as reported by the NASDAQ or, if there is no reported trade
on that date, on the last preceding date on which a trade was
reported. Further, the option received by such person(s) may not
have an exercise period that exceeds five years from the date the
option is granted.
5. Terms and Conditions of Restricted Stock and Purchased Restricted Stock
(a) Eligibility to Receive Restricted Stock and Purchased Restricted
Stock. Certain key executives of the Company, as determined by
the Board of Directors of the Company, shall be eligible to
receive Stock that is subject to the requirements of this Section
and such other restrictions as the Committee deems appropriate or
desirable "Restricted Stock"). Some shares of Restricted Stock
may be acquired in lieu of some or all of certain cash bonus
payments otherwise due a key executive ("Purchased Restricted
Stock"). Shares of Purchased Restricted Stock which a key
executive elects to acquire in lieu of receiving additional cash
bonus shall be acquired by the key executive at a price to be
determined by the Committee.
(b) Transfer Restrictions. Except as otherwise provided in this
Section, no shares of Restricted Stock or Purchased Restricted
Stock shall be sold, exchanged, transferred, pledged, or
hypothecated for such period as the Committee shall determine in
its discretion (the "Restriction Period").
(c) Transfer Restrictions on Termination of Employment. If a holder
of Restricted Stock or Purchased Restricted Stock terminates
employment for any reason other than retirement, disability, or
death within the Restriction Period, some shares of Restricted
Stock or Purchased Restricted Stock may be subject to forfeiture
by the holder, and if
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forfeited, shall revert to the Plan. In no event shall any cash
be transferred to a holder of Restricted Stock upon the
forfeiture of Restricted Stock. The holder of Purchased
Restricted Stock, upon forfeiture, shall be entitled to receive a
cash amount equal to the amount paid for such stock. Such
forfeited shares of Restricted Stock or Purchased Restricted
Stock shall again become available for award under the Plan.
(d) Other Terms and Conditions. The Committee may require under such
terms and conditions as it deems appropriate or desirable that
the certificates for Stock delivered under the Plan may be held
in custody by a bank or other institution, or that the Company
itself may hold such shares in custody until the Restriction
Period expires or until restrictions thereon otherwise lapse and
may require, as a condition of any receipt of Restricted Stock or
Purchased Restricted Stock that the executive shall have
delivered a stock power endorsed in blank relating to the
Restricted Stock or Purchased Restricted Stock.
(e) Change of Control. Notwithstanding any provision of the Plan to
the contrary, upon a "Change of Control" (as defined in Section
4(d)), the Restriction Period for any holder of Restricted Stock
or Purchased Restricted Stock shall be deemed to end and all
restrictions on shares of Restricted Stock or Purchased
Restricted Stock shall lapse.
6. Effectiveness of Plan. This Plan will be effective on the date it is
approved by the holders of not less than a majority of the outstanding
shares of voting stock of the Company represented and entitled to vote
thereon at a meeting thereof duly called and held for such purpose, and no
option granted shall be exercisable prior to such approval.
7. Other Actions. This Plan shall not restrict the authority of the Board of
Directors of the Company, for proper corporate purposes, to grant or issue
stock options, other than under the Plan, to or with respect to any
employee or other person.
8. Withholding. The Company shall have the right to require an optionee or
other person entitled to receive Stock, under a Non-Qualified Option or
under an Incentive Stock Option if the optionee makes a disqualifying
distribution as described in Section 422 of the Code or under any other
award of Stock, to pay to the Company the amount which the Company is or
will be required to withhold with respect to such Stock in order for the
Company to pay taxes or to claim an income tax deduction with respect to
such stock. In lieu of such payment, the Company will be entitled to
retain, or sell upon not less than 10 days' prior written notice to the
optionee, a sufficient amount of such Stock to cover the amount required to
be withheld, such notice to be deemed given when sent first class, postage
prepaid, to the address of the optionee as it appears on the records of the
Company.
9. Tax Consequences of the Plan. Set forth below is a brief summary, as of the
date of this Document, of the principal Federal income tax consequences to
participants and to the Company of options and restricted stock provided
for by the Plan. Participants should consult their own tax advisors with
respect to these provisions and changes to them since the date of this
Document and with respect to the tax treatment under the laws of any state
applicable to them prior to the exercise of an option or the disposition of
shares acquired on exercise, as well as the award of restricted stock or
the disposition of such shares.
(a) Incentive Stock Option. The grant of an incentive stock option
will have no immediate tax consequences to the Company or to the
participant. A participant will recognize no income for regular
tax purposes at the time of exercise of an incentive stock
option. However, the amount by which the fair market value of the
shares acquired at the time of exercise exceeds the option price
will be an adjustment to
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income for purposes of the alternative minimum tax (provided the
participant does not dispose of his shares within the same year
of exercise).
If the entire exercise price is paid in cash, the basis of the
shares received will be equal to the option price. If the
participant pays all or part of the option price of an incentive
stock option using previously-owned shares of Common Stock (other
than shares which were acquired by a previous exercise of an
incentive stock option) and satisfies the statutory holding
periods, as defined below with respect to the purchased stock,
the transaction will not be considered to be a taxable
disposition of the previously-owned shares, and the participant's
tax basis of the previously-owned shares will be carried over to
an equal number of the shares received upon exercise. The
participant's tax basis of the remaining shares not paid for by
using previously-owned shares will be the amount of cash
tendered. (The "statutory holding periods" shall be two years
from the date of grant of the option and one year from the date
of exercise.)
A participant who makes no disposition of the shares acquired
upon the exercise of an incentive stock option within the
statutory holding periods will realize no compensation income,
and any gain or loss realized on a subsequent disposition of such
shares will be treated as long-term capital gain or loss. Due to
changes made by the Taxpayer Relief Act of 1997, the maximum tax
rate on long-term capital gains will depend on the actual holding
period of the shares.
If a participant disposes of the shares acquired upon the
exercise of an incentive stock option before the expiration of
the statutory holding periods, the excess of the fair market
value of the acquired shares on the date of exercise (or the
amount realized on disposition if less than fair market value on
the date of exercise) over the amount paid for such shares will
be includable in the participan's gross income as compensation
in the year of disposition and the compensation income amount
will be added to the option stock's basis for determining gain or
loss on the disposition of such stock. In addition, depending on
the amount received as a result of such disposition, the
participant may realize a long or short-term capital gain or
loss. In the case of a participant who is a director or officer
of the Company subject to the provisions of Section 16(b) of the
Exchange Act, provisions of the Code may provide treatment for
the realization of income on a disqualifying disposition
different from the treatment described above.
If the statutory holding periods are not met, the Company will be
entitled to a deduction in the same amount as the compensation
income recognized by the participant as a result of a
disqualifying disposition of shares acquired upon exercise of an
incentive stock option. As a general rule, the deduction is
allowed for the taxable year of the Company in which or within
which the participant actually includes the compensation in
income. However, if the Company timely complies with certain
notification requirements to the participant and the Internal
Revenue Service (generally, timely filing Forms W-2 or 1099, as
applicable), the participant is "deemed" to have included the
compensation in income for the year of the disqualifying
disposition of the shares acquired upon exercise of an incentive
stock option. The deduction may be limited, however, by Code
Section 162(m), which in certain cases can limit the deduction
for employee remuneration in excess of $1,000,000.
(b) Non-Qualified Stock Options. The grant of a non-qualified stock
option will have no immediate tax consequences to the Company or
to the participant, unless the option is actively traded on an
established market. If the non-qualified stock option is actively
traded on an established market, the participant is required to
include in gross income an amount equal to the difference between
the fair market value of the option on the option
B-6
grant date and the option price. The amount included in gross
income is added to the basis of the option.
Assuming the non-qualified stock options are not actively traded
on an established market, subject to the exception described in
the following sentence, a participant who exercises a
non-qualified stock option will be required to include in gross
income the amount by which the fair market value on the exercise
date of the shares acquired exceeds the option price. If the
participant is a director or officer of the Company subject to
the provisions of Section 16(b) of the Exchange Act, then, unless
such participant elects within 30 days of exercise to be taxed
under the rule described in the preceding sentence, no income
will be recognized with respect to the participant's receipt of
the shares until the time of lapse of the profit recapture
provisions of Section 16(b), and the amount of such income will
be the fair market value of the shares at that time reduced by
the option price.
If the participant uses previously-owned shares of Common Stock
to pay all or part of the option price of a non-qualified stock
option, the transaction will not be considered to be a taxable
disposition of the previously-owned shares, and the participant's
tax basis and holding period of the previously-owned shares will
be carried over to an equivalent number of shares received upon
exercise. The tax basis of all other shares acquired upon the
exercise of a non-qualified stock option will be equal to the
amount of any cash paid for such shares plus the amount included
in the participan's income at the time of exercise of the option
(or, if applicable, at the time of lapse of the profit recapture
provisions of Section 16(b)), and the holding period of such
shares will begin at the time the tax basis of the shares is so
determined.
Upon a subsequent sale or taxable exchange of the shares acquired
upon exercise of a non-qualified stock option, a participant will
recognize a long or short-term capital gain or loss equal to the
difference between the amount realized on the sale and the tax
basis of such shares. The amount included in gross income on the
exercise of the option or the grant, as applicable, is added to
the basis of shares.
The Company will be entitled to a deduction in the same amount as
the compensation income recognized by the participant on the
grant or exercise of a non-qualified stock option, as applicable.
The same deduction provisions discussed above in the case of
disqualifying of an incentive stock option also apply in this
case.
(c) Restricted Stock and Purchased Restricted Stock. The award of
Restricted Stock and Purchased Restricted Stock will have no
immediate tax consequences to the Company or to the participant,
unless the participant elects, within 30 days of the award, to be
taxed on the difference between the fair market value of such
stock on the date of the award and the amount paid for such
stock.
Assuming the award of Restricted Stock and Purchased Restricted
Stock is not taxed at the time of the award, upon the lapse of
the restrictions, a participant will be required to include in
gross income as compensation the amount by which the fair market
value of such stock on the restriction lapse date exceeds the
amount paid for such stock. However, if the participant is a
director or officer of the Company subject to the provisions of
Section 16(b) of the Exchange Act, no income will be recognized
on the lapse of the restrictions until the time of lapse of the
profit recapture provisions of Section 16(b), and the amount of
such income will be equal to the fair market value of such stock
at that time less the amount paid for such stock.
B-7
Upon a subsequent sale or taxable exchange of the Restricted
Stock or Purchased Restricted Stock, a participant will recognize
long or short-term capital gain or loss equal to the difference
between the amount realized on the sale and the tax basis of such
stock. The amount included in gross income on the award of the
stock or the lapse of restrictions, as the case may be, is added
to the basis of the stock.
The Company will be entitled to a deduction in the same amount as
the compensation income recognized by the participant on the
award or lapse of restrictions, as applicable. The same deduction
provisions discussed above in the case of a disqualifying
disposition of an incentive stock option also apply in this case.
(d) Employment Taxes. Where compensation is recognized with respect
to a distribution from the Plan, income taxes (and Social
Security or other employment taxes) will be withheld, where
applicable, by the Company as though cash compensation had been
paid. For this purpose, a participant may be required to advance
such taxes to the Company or in lieu thereof the Company will be
entitled to retain or sell sufficient shares, upon not less than
ten days notice, to cover the amount required to be withheld.
10. Miscellaneous. The masculine pronoun wherever used included the feminine
pronoun.
Any notices provided or under this Plan shall be in writing and sent by
certified mail. Notices to the Company shall be addressed to the address of
the Company's principal office in Saddle Brook, New Jersey, Attention:
Compensation/Stock Option Committee. Notices sent by the Company shall be
sufficiently made if sent by certified mail addressed to such person at the
address as it appears in the regular records of the Company.
The Board of Directors and Officers of the Company shall be indemnified by
the Company against reasonable expenses, including attorney's fees,
actually and necessarily incurred in connection with the defense of any
action, suit or proceeding or in connection with any appeal thereof, to
which they or any of them may be a party by reason of any action taken or
failure to act under or in connection with the Plan or any award
thereunder, and against all amounts paid by them in settlement thereof
(provided such settlement is approved by independent legal counsel selected
by the Company) or paid by them in satisfaction of a judgment in any such
action, suit or proceeding, except in relation to matters as to which it
shall be adjudged in such action, suit or proceeding that such member of
the Board has breached his duty of loyalty to the Company, committed an act
not of good faith or in knowing violation of law, or has received an
improper personal benefit; provided that within 60 days after institution
of any such action, suit or proceeding a member of the Board of Directors
shall in writing offer the Company the opportunity, at its own expense, to
handle and defend the same.
The Plan shall be construed, administered and enforced according to the
laws of the United States and the laws of the State of New Jersey to the
extent the latter is not preempted by the former. Further, grantees of any
options under this plan shall be requested to consent to the exclusive
jurisdiction of the superior court of the State of New Jersey located in
Bergen County, New Jersey, to the extent such consent is lawful and except
that this consent shall not affect the jurisdiction of any Federal court.
11. This Plan shall be known as the Stock Option and Incentive Plan of 1997, as
Amended.
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PROXY INTERCHANGE FINANCIAL SERVICES CORPORATION
Park 80 West, Plaza Two, Saddle Brook, New Jersey 07663
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Jeremiah F. O'Connor, Robert P.
Rittereiser, and Benjamin Rosenzweig as proxies, each with the power to appoint
his substitute, and hereby authorizes them to represent and to vote, as
designated below, all the shares of common stock of Interchange Financial
Services Corporation held of record by the undersigned on March 25, 2002, at the
annual meeting of shareholders to be held April 25, 2002, or any adjournment
thereof.
1. ELECTION OF DIRECTORS
FOR all nominees listed below ---- WITHHOLD AUTHORITY ----
(except as marked to the contrary below) to vote for all nominees listed
below
Anthony S. Abbate, Anthony R. Coscia, John J. Eccleston and Eleanore S. Nissley
(INSTRUCTION: To withhold authority to vote for an individual nominee write
that nominee's name in the space provided below.)
- --------------------------------------------------------------------------------
2. THE AMENDMENT OF THE COMPANY'S STOCK OPTION AND INCENTIVE PLAN OF 1997
TO INCREASE SHARES OF COMMON STOCK RESERVED FOR ISSUANCE
---- FOR ---- AGAINST ---- ABSTAIN
(Continued from other side)
3. RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
---- FOR ---- AGAINST ---- ABSTAIN
In their discretion, the proxies are authorized to vote upon such other business
as may properly come before the meeting.
This proxy when properly executed will be voted in the manner directed herein by
the undersigned shareholder. If no direction is made, this proxy will be voted
FOR Proposals 1, 2 and 3.
Please sign exactly as name appears below. When shares are
held by joint tenants, both should sign. When signing as an
attorney, as executor, administrator, trustee or guardian,
please give full title as such. If a corporation, please
sign in full corporate name by president or other authorized
officer. If a partnership, please sign in partnership name
by authorized person.
DATED:--------------------------------- ,2002
Signature------------------------------------
Signature if held jointly--------------------
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.