As filed with the Securities and Exchange Commission on October 1, 2004
Registration No. ____________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------------------
MONMOUTH COMMUNITY BANCORP
(Exact name of registrant as specified in its charter)
New Jersey 6711 22-3757709
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
627 Second Avenue
Long Branch, New Jersey 07740
(732) 571-1300
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
James S. Vaccaro
Chairman of the Board and Chief Executive Officer
Monmouth Community Bancorp
627 Second Avenue
Long Branch, New Jersey 07740
(732) 571-1300
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies of all communications to:
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Paul T. Colella, Esq. Donna M. Conroy, Esq.
Giordano, Halleran & Ciesla, P.C. Frieri, Conroy & Lombardo, LLC
125 Half Mile Road 777 Walnut Avenue
P.O. Box 190 Cranford, New Jersey 07016
Middletown, New Jersey 07748 (908) 653-1441
(732) 741-3900
- --------------------------------------------------------------------------------
Approximate date of commencement of proposed sale of the securities to the
public:
As soon as practicable after the effective date of this registration statement
and satisfaction or waiver of all other conditions to the transactions described
in the enclosed joint proxy statement/prospectus.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. |_|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
Calculation of Registration Fee
==============================================================================================================================
Title of each class of Proposed maximum
securities to be Amount to be offering price per Proposed maximum aggregate Amount of
registered(1) registered (2) share(3) offering price(3) registration fee
---------------------- -------------- ------------------ -------------------------- ----------------
- ------------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $0.01 1,973,361 $23.63 $46,630,520 $5,908.09
- ------------------------------------------------------------------------------------------------------------------------------
Total 1,973,361 $23.63 $46,630,520 $5,908.09
==============================================================================================================================
(1) This registration statement relates to securities of the registrant
issuable to holders of Allaire Community Bank common stock in
connection with the agreement and plan of acquisition, dated as of
June 30, 2004, between the registrant and Allaire Community Bank.
(2) Represents the maximum number of shares of the registrant's common
stock, par value $.01 per share, to be issued in connection with the
agreement and plan of acquisition.
(3) Estimated solely for the purpose of calculation of the registration
fee, the proposed maximum offering price per share and the proposed
maximum aggregate offering price with respect to the common stock of
the registrant being registered hereunder are based upon, pursuant
to Rule 457(f)(1) of the Securities Act of 1933, as amended, the
average of the bid and asked price of the Allaire Community Bank
common stock as of September 27, 2004, which is to be exchanged for
the registrant's common stock pursuant to the agreement and plan of
acquisition.
-------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS JOINT PROXY STATEMENT/PROSPECTUS SHALL NOT CONSTITUTE AN OFFER
TO SELL OR THE SOLICITATION OF ANY OFFER TO BUY NOR SHALL THERE BE ANY SALE OF
THESE SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE
WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES
LAWS OF ANY SUCH JURISDICTION.
- --------------------------------------------------------------------------------
[LOGO] Monmouth [LOGO]
Community Bancorp Allaire Community Bank
COMBINATION PROPOSED -- YOUR VOTE IS VERY IMPORTANT
Monmouth Community Bancorp and Allaire Community Bank have entered into an
agreement and plan of acquisition, dated as of June 30, 2004, pursuant to which
the two organizations will combine, as equals, in a strategic business
combination transaction. The agreement provides for Bancorp to acquire all of
the outstanding shares of Allaire common stock, increase the size of its board
of directors to twelve directors and include on such board six members of
Bancorp's current board of directors and six members of Allaire's current board
of directors, and change its name to "Central Jersey Bancorp." In addition,
following the consummation of the combination, it is contemplated that Monmouth
Community Bank, National Association, the wholly-owned banking subsidiary of
Bancorp, and Allaire will merge to form one banking entity under the name
"Central Jersey Bank, National Association."
At the effective time of the combination, each share of Allaire common
stock will be exchanged for one share of Bancorp common stock. Upon consummation
of the combination, it is anticipated that there will be approximately 3,834,086
shares of Bancorp common stock outstanding. Bancorp common stock is quoted on
the NASDAQ SmallCap Market under the symbol "MCBK." Allaire common stock is
quoted on the NASDAQ OTC Bulletin Board under the symbol "ALCY." On September
27, 2004, the reported last sale price for Bancorp common stock on the NASDAQ
SmallCap market was $23.69 per share. See "Bancorp Stock Trading and Dividend
Information," beginning on page 99.
We cannot complete the combination unless the shareholders of Bancorp and
the stockholders of Allaire approve the combination proposal. Each of us will
hold a special meeting of our security holders to vote on the proposal to
approve and adopt the agreement and plan of acquisition and the transactions
contemplated therein. Your vote is very important. Whether or not you plan to
attend your company's special meeting, please take the time to vote by
completing and mailing the enclosed proxy card to us. If you sign, date and mail
your proxy card without indicating how you want to vote, your proxy will be
counted as a vote "FOR" the combination proposal. The members of each board of
directors unanimously recommend that you vote "FOR" the combination proposal.
The dates, times and places of the special meetings are as follows:
-----------------------------------------------------------------------
BANCORP SHAREHOLDERS: ALLAIRE STOCKHOLDERS:
-----------------------------------------------------------------------
This document describes the special meetings, the agreement and plan of
acquisition and the transactions contemplated therein, documents related to the
combination and other related matters. Please read this entire document
carefully, including the section discussing risk factors beginning on page 37.
You can also obtain
additional information regarding Bancorp from documents that have been
previously filed with the Securities and Exchange Commission and regarding
Allaire from documents that have been previously filed with the Federal Deposit
Insurance Corporation.
No person has been authorized to give any information or make any
representations other than those contained in this joint proxy
statement/prospectus, and, if given or made, such information or representations
must not be relied upon as having been authorized by Bancorp or Allaire.
------------------------------------------------------------------------------------------------------------------
/s/ James S. Vaccaro /s/ Richard O. Lindsey /s/ George S. Callas /s/ Carl F. Chirico
------------------------------------------------------------------------------------------------------------------
James S. Vaccaro Richard O. Lindsey George S. Callas Carl F. Chirico
Chairman & CEO President Chairman President & CEO
Monmouth Community Bancorp Monmouth Community Bancorp Allaire Community Bank Allaire Community Bank
------------------------------------------------------------------------------------------------------------------
THE SECURITIES BANCORP IS OFFERING THROUGH THIS JOINT PROXY STATEMENT/PROSPECTUS
ARE NOT SAVINGS OR DEPOSIT ACCOUNTS OR OTHER OBLIGATIONS OF ANY BANK OR SAVINGS
ASSOCIATION, AND THEY ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION, ANY BANK REGULATORY AGENCY, OR
ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES
OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS JOINT PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This joint proxy statement/prospectus is dated __________, 2004 and is first
being mailed to shareholders of Bancorp and stockholders of Allaire on or about
__________, 2004.
MONMOUTH COMMUNITY BANCORP
627 Second Avenue
Long Branch, New Jersey 07740
(732) 571-1300
----------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held On ______, 2004
----------------------------
To the Shareholders of Monmouth Community Bancorp:
NOTICE IS HEREBY GIVEN, that a special meeting of shareholders of Monmouth
Community Bancorp will be held at ____________________, located at
_______________, New Jersey, on __________, __________, 2004 at _____ _.m.,
local time, for the following purposes:
1. To consider and vote on a proposal to approve and adopt the
agreement and plan of acquisition, dated as of June 30, 2004, by and
between Monmouth Community Bancorp and Allaire Community Bank, a
commercial bank organized under the laws of the State of New Jersey,
and the transactions contemplated therein, pursuant to which, among
other things:
o Monmouth Community Bancorp and Allaire Community Bank will
combine, as equals, in a strategic business combination;
o each outstanding share of Allaire Community Bank common stock
will be exchanged for one share of Monmouth Community Bancorp
common stock;
o the size of the board of directors of Monmouth Community
Bancorp will be increased from ten to twelve directors and
comprised of six members of Monmouth Community Bancorp's
current board and six members of Allaire Community Bank's
current board; and
o contemporaneous with the closing of the business combination,
the certificate of incorporation of Monmouth Community Bancorp
will be amended to change the name of Monmouth Community
Bancorp to "Central Jersey Bancorp."
2. To transact such other business as may properly come before the
special meeting, or any adjournment or postponement thereof.
Shareholders of record at the close of business on _______, 2004 (i.e.,
the "record date"), are entitled to notice of and to vote at the special meeting
and at any adjournment or postponement thereof.
Whether or not you expect to attend the special meeting, please complete,
sign and date the enclosed proxy card and return it in the accompanying postage
prepaid envelope. You may revoke your proxy either by written notice to Bancorp,
attention Secretary, by submitting a new proxy dated as of a later date or in
person at the special meeting. The members of the board of directors of Monmouth
Community Bancorp unanimously recommend that you vote "FOR" the proposal to
approve and adopt the agreement and plan of acquisition and the transactions
contemplated therein.
The accompanying joint proxy statement/prospectus contains a description
of the terms and conditions of the proposed combination, a description of the
business of each of Monmouth Community Bancorp and Allaire Community Bank, and
certain other information, including information about your right to dissent
from the combination. We urge you to read the entire document carefully,
including the considerations discussed under the section captioned "Risks
Related to the Combination," beginning on page 37.
By: Order of the Board of Directors
Anthony Giordano, III
Secretary
Long Branch, New Jersey
_____________, 2004
- --------------------------------------------------------------------------------
YOU ARE CORDIALLY INVITED TO ATTEND THE SPECIAL MEETING OF SHAREHOLDERS.
HOWEVER, TO ENSURE YOUR REPRESENTATION AT THE SPECIAL MEETING, YOU ARE URGED TO
SIGN AND DATE THE ACCOMPANYING PROXY AND MAIL IT AT ONCE IN THE ENCLOSED
ENVELOPE. PROMPT RESPONSE IS HELPFUL AND YOUR COOPERATION WILL BE APPRECIATED.
- --------------------------------------------------------------------------------
ALLAIRE COMMUNITY BANK
2200 Highway 35
Sea Girt, New Jersey 08750
(732) 292-1600
----------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Be Held On ______, 2004
----------------------------
To the Stockholders of Allaire Community Bank:
NOTICE IS HEREBY GIVEN, that a special meeting of stockholders of Allaire
Community Bank will be held at ______ _.m., local time, at the principal offices
of Allaire Community Bank, located at 2200 Highway 35, Sea Girt, New Jersey, on
__________, __________, 2004, which meeting will be immediately adjourned and,
in order to better accommodate the stockholders, reconvened at ______ _.m.,
local time, at the Breakers Hotel, located at 1507 Ocean Avenue, Spring Lake,
New Jersey, for the following purposes:
1. To consider and vote on a proposal to approve and adopt the
agreement and plan of acquisition, dated as of June 30, 2004, by and
between Monmouth Community Bancorp and Allaire Community Bank, and
the transactions contemplated therein, pursuant to which, among
other things:
o Monmouth Community Bancorp and Allaire Community Bank will
combine, as equals, in a strategic business combination;
o each outstanding share of Allaire Community Bank common stock
will be exchanged for one share of Monmouth Community Bancorp
common stock;
o the size of the board of directors of Monmouth Community
Bancorp will be increased from ten to twelve directors and
comprised of six members of Monmouth Community Bancorp's
current board and six members of Allaire Community Bank's
current board; and
o contemporaneous with the closing of the business combination,
the certificate of incorporation of Monmouth Community Bancorp
will be amended to change the name of Monmouth Community
Bancorp to "Central Jersey Bancorp."
2. To transact such other business as may properly come before the
special meeting, or any adjournment or postponement thereof.
Please be advised that the special meeting will be immediately adjourned
and reconvened at ______ _.m., local time, at the Breakers Hotel, located at
1507 Ocean Avenue, Spring Lake, New Jersey. Therefore, any stockholder who is
planning to attend the special meeting in person should be present at the
adjourned meeting to be held ______ _.m., local time, at the Breakers Hotel on
_________ __, 2004.
Stockholders of record at the close of business on _______, 2004 (i.e.,
the "record date"), are entitled to notice of and to vote at the special meeting
and at any adjournment or postponement thereof.
Whether or not you expect to attend the special meeting, please complete,
sign and date the enclosed proxy card and return it in the accompanying postage
prepaid envelope. You may revoke your proxy either by written notice to Allaire
Community Bank, Attention: Secretary, by submitting a new proxy dated as of a
later date or in person at the special meeting. The members of the board of
directors of Allaire Community Bank unanimously recommend that you vote "FOR"
the proposal to approve and adopt the agreement and plan of acquisition and the
transactions contemplated therein.
The accompanying joint proxy statement/prospectus contains a description
of the terms and conditions of the proposed combination, a description of the
business of each of Allaire Community Bank and Monmouth Community Bancorp, and
certain other information, including information about your right to dissent
from the combination. We urge you to read the entire document carefully,
including the considerations discussed under the section captioned "Risks
Related to the Combination," beginning on page 37.
By: Order of the Board of Directors
Robert S. Vuono
Secretary
Sea Girt, New Jersey
_____________, 2004
- --------------------------------------------------------------------------------
YOU ARE CORDIALLY INVITED TO ATTEND THE SPECIAL MEETING OF STOCKHOLDERS.
HOWEVER, TO ENSURE YOUR REPRESENTATION AT THE SPECIAL MEETING, YOU ARE URGED TO
SIGN AND DATE THE ACCOMPANYING PROXY AND MAIL IT AT ONCE IN THE ENCLOSED
ENVELOPE. PROMPT RESPONSE IS HELPFUL AND YOUR COOPERATION WILL BE APPRECIATED.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
QUESTIONS AND ANSWERS ABOUT THE VOTING PROCEDURES FOR
THE SPECIAL MEETINGS ...........................................................................1
SUMMARY .............................................................................................4
SELECTED CONSOLIDATED FINANCIAL DATA OF MONMOUTH
COMMUNITY BANCORP .............................................................................20
SELECTED CONSOLIDATED FINANCIAL DATA OF ALLAIRE
COMMUNITY BANK.................................................................................22
UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS ..........................................................................24
COMPARATIVE PER SHARE DATA..........................................................................35
RISKS RELATED TO THE COMBINATION....................................................................37
Because the Market Price of Bancorp Common Stock May Fluctuate,
You Cannot Be Sure of the Value of the Consideration That
You Will Receive............................................................................37
Bancorp May Fail to Realize the Anticipated Benefits of the Combination or
Continue to Grow Through the Opening of New Branches........................................37
Bancorp's and Allaire's Directors and Officers Have Interests in the Combination
Besides Those of a Shareholder or Stockholder...............................................38
Bancorp May be Subject to Adverse Regulatory Conditions........................................38
The Percentage Ownership in the Combined Organization of a Bancorp
Shareholder and Allaire Stockholder Will Be Less Than the Percentage
Ownership Interest of the Bancorp Shareholder in Bancorp and the Allaire
Stockholder in Allaire......................................................................38
Future Results of the Combined Organization May Differ Significantly From the
Pro Forma Financial Statements Included Elsewhere Herein....................................39
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS...................................................40
THE MONMOUTH COMMUNITY BANCORP SPECIAL MEETING......................................................41
THE ALLAIRE COMMUNITY BANK SPECIAL MEETING..........................................................43
INFORMATION ABOUT THE COMPANIES.....................................................................45
THE PROPOSED COMBINATION FOR CONSIDERATION AND VOTE BY
BANCORP SHAREHOLDERS AND ALLAIRE STOCKHOLDERS..................................................48
General .....................................................................................48
Background of the Combination................................................................48
Recommendation of Allaire's Board of Directors and
Reasons for the Combination................................................................54
i
Opinion of Allaire's Financial Advisor.......................................................54
Recommendation of Bancorp's Board of Directors and
Reasons for the Combination................................................................61
Opinion of Bancorp's Financial Advisor.......................................................61
Consideration for the Combination............................................................70
Procedure for the Exchange of Shares and the Certificates Representing the Shares............70
Treatment of Allaire Stock Options...........................................................72
Employee Matters.............................................................................72
Interests of Directors and Officers in the Combination.......................................72
Governance of Combined Organization..........................................................75
Conduct of Business Pending the Combination..................................................83
Bancorp Stock Split..........................................................................84
Representations and Warranties...............................................................84
Conditions to the Combination................................................................85
Regulatory Approvals Required for the Combination............................................86
No Solicitation..............................................................................88
Termination; Amendment; Waiver...............................................................88
Name of Organization After the Combination...................................................90
Effects of the Combination...................................................................90
Effective Date of the Combination............................................................90
Public Trading Markets.......................................................................90
Fees and Expenses............................................................................91
Material Federal Income Tax Consequences of the Combination..................................91
Resale of Bancorp Common Stock...............................................................93
Accounting Treatment.........................................................................93
Dissenters' Rights of Bancorp Shareholders and Allaire Stockholders..........................94
Allaire Stock Trading and Dividend Information...............................................98
Bancorp Stock Trading and Dividend Information...............................................99
Comparison of Bancorp Shareholders' and Allaire Stockholders' Rights........................100
Description of Capital Stock of Bancorp.....................................................103
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION OF BANCORP.............................................................105
Critical Accounting Policies................................................................105
Overview....................................................................................106
Results of Operations.......................................................................107
Financial Condition.........................................................................117
Liquidity and Capital Resources.............................................................129
Guaranteed Preferred Beneficial Interest in Bancorp's
Subordinated Debt.........................................................................132
Impact of Inflation.........................................................................133
Recent Accounting Pronouncements............................................................133
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION OF ALLAIRE...............................................134
Critical Accounting Policies and Estimates..................................................134
Overview....................................................................................135
ii
Results of Operations.......................................................................136
Financial Condition.........................................................................147
Asset Quality ..............................................................................152
Liquidity and Capital Resources.............................................................155
Interest Rate Sensitivity 157
Commitments and Contingencies...............................................................159
ALLAIRE QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK.................................................................................160
BUSINESS OF BANCORP................................................................................161
Business Strategy...........................................................................161
Market Area.................................................................................162
Services Offered............................................................................162
Competition.................................................................................164
Employees...................................................................................164
Bancorp Operations..........................................................................165
Impact of Monetary Policies.................................................................165
Description of Property.....................................................................165
Legal Proceedings ..........................................................................167
BUSINESS OF ALLAIRE................................................................................168
Lending.....................................................................................169
Commercial and Construction Loans...........................................................169
Installment and Consumer Loans..............................................................170
Investment Portfolio........................................................................170
Deposits and Other Sources of Funds.........................................................171
Competition.................................................................................171
Employees...................................................................................172
Properties..................................................................................172
Legal Proceedings ..........................................................................173
EXECUTIVE COMPENSATION OF MANAGEMENT OF CENTRAL JERSEY
BANCORP.....................................................................................174
Executive Compensation of Current Bancorp Executive Officers who will be
Executive Officers of Central Jersey Bancorp..............................................174
Option Grants by Bancorp in the Last Fiscal Year............................................175
Year End Bancorp Option Values..............................................................175
Bancorp Directors' Compensation.............................................................176
Certain Relationships and Related Party Transactions with Respect to Bancorp................176
Executive Compensation of Current Allaire Executive Officers who will be
Executive Officers of Central Jersey Bancorp..............................................178
Compensation of Allaire Directors...........................................................179
Certain Relationships and Related Party Transactions of Allaire.............................179
GOVERNMENT REGULATION..............................................................................180
PRINCIPAL SHAREHOLDERS OF BANCORP..................................................................189
iii
Security Ownership of Management of Bancorp.................................................189
5% Shareholders of Bancorp..................................................................192
PRINCIPAL STOCKHOLDERS OF ALLAIRE..................................................................194
LEGAL MATTERS......................................................................................196
EXPERTS............................................................................................196
WHERE YOU CAN FIND ADDITIONAL INFORMATION..........................................................196
INDEX TO FINANCIAL STATEMENTS......................................................................F-1
iv
APPENDICES
A - AGREEMENT AND PLAN OF ACQUISITION DATED AS OF JUNE 30, 2004...........A-1
B - FAIRNESS OPINION OF JANNEY MONTGOMERY SCOTT LLC.......................B-1
C - FAIRNESS OPINION OF SANDLER O'NEILL & PARTNERS, L.P...................C-1
D - SECTIONS 14A:11-1 THROUGH 14A:11-11 OF THE NEW JERSEY BUSINESS
CORPORATION ACT, "RIGHTS OF DISSENTING BANCORP SHAREHOLDERS"..........D-1
E - SECTIONS 17:9A-360 THROUGH 17:9A-369 OF THE NEW JERSEY
BANKING ACT OF 1948, AS AMENDED, "RIGHTS OF DISSENTING
ALLAIRE STOCKHOLDERS".................................................E-1
F - FORM OF AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF CENTRAL JERSEY BANCORP.............................................F-1
G - FORM OF AMENDED AND RESTATED BY-LAWS OF CENTRAL JERSEY
BANCORP...............................................................G-1
v
QUESTIONS AND ANSWERS
ABOUT THE VOTING PROCEDURES FOR THE SPECIAL MEETINGS
Q: WHAT DO I NEED TO DO NOW?
A: After you have carefully read this joint proxy statement/prospectus,
indicate on your proxy card how you want your shares to be voted, then
sign and mail it in the enclosed, postage-paid envelope as soon as
possible so that your shares may be represented and voted at the Bancorp
special meeting or the Allaire special meeting, as the case may be. If you
sign and send in your proxy card and do not indicate how you want to vote,
we will count your proxy card as a vote in favor of the proposal to
approve and adopt the agreement and plan of acquisition and the
transactions contemplated therein.
Q: WHY IS MY VOTE IMPORTANT?
A: If you do not return your proxy card at or prior to the special meeting at
which you are entitled to vote, it will be more difficult for Bancorp or
Allaire, as the case may be, to obtain sufficient shareholder or
stockholder representation to hold its special meeting. The combination
must be approved by the holders of a majority of the outstanding shares of
Bancorp common stock voted at the Bancorp special meeting, provided that a
majority of the outstanding shares of Bancorp common stock entitled to
vote at the Bancorp special meeting is present, in person or by proxy, and
by the holders of two-thirds of the outstanding shares of Allaire common
stock entitled to vote at the Allaire special meeting.
Q: HOW DO I VOTE?
A: You can vote by mail. For this method you will need to complete, sign,
date and return your proxy card in the postage prepaid envelope provided.
You can also vote in person at your company's special meeting.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE
MY SHARES FOR ME?
A: Your broker cannot vote on the combination proposal on your behalf without
specific instructions from you. Your broker will vote your shares on the
combination proposal only if you provide instructions on how to vote. You
should follow the directions provided by your broker.
Q: WHAT IF I FAIL TO INSTRUCT MY BROKER?
A: If you fail to instruct your broker how to vote your shares on the
combination proposal and the broker submits an unvoted proxy, the
resulting broker "non-vote" will be counted toward a quorum at your
company's special meeting, but it will not be counted as a vote for or
against the combination proposal.
1
Q: I OWN SHARES OF BOTH ALLAIRE AND BANCORP. SHOULD I ONLY VOTE ONCE?
A: No. If you own shares of both companies, you will receive separate proxy
cards: the [Insert Color] proxy card is for the Allaire special meeting;
the [Insert Color] proxy card is for the Bancorp special meeting. It is
important that you vote at both meetings, so please complete, sign, date
and return both cards as instructed.
Q: CAN I ATTEND THE SPECIAL MEETING AND VOTE MY SHARES IN PERSON?
A: Yes. All shareholders and stockholders are invited to attend their
company's special meeting. Shareholders and stockholders of record can
vote in person at the special meeting at which they are entitled to vote.
If a broker holds your shares in street name, then you are not the
shareholder or stockholder of record and you must ask your broker how you
can vote at the special meeting in person.
Q: IF I WANT TO ATTEND THE ALLAIRE SPECIAL MEETING, SHOULD I GO TO ALLAIRE'S
PRINCIPAL OFFICES, LOCATED AT 2200 HIGHWAY 35, SEA GIRT, NEW JERSEY, AT
_____ _.M. ON _____________, 2004?
A: No. In order for Allaire to comply with applicable state banking
regulations, it must initially hold the special meeting at a branch office
or in a municipality where it conducts business. However, if you wish to
attend the special meeting, you should be present at the adjourned special
meeting to be held ______ ___.m., local time, at the Breakers Hotel,
located at 1507 Ocean Avenue, Spring Lake, New Jersey, on ________ __,
2004.
Q: CAN I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD?
A: Yes. If you have not voted through your broker, there are three ways for
you to revoke your proxy and change your vote.
o First, you may send written notice to the secretary of your
company stating that you would like to revoke your proxy.
o Second, you may complete and submit a new proxy card.
o Third, you may vote in person at your company's special
meeting.
If you have instructed a broker to vote your shares, you must follow the
directions you receive from your broker to change your vote. Your last
vote will be the vote that is counted.
2
Q: I AM AN ALLAIRE STOCKHOLDER. SHOULD I SEND IN MY ALLAIRE STOCK
CERTIFICATES NOW?
A: No. You should not send in your stock certificates at this time. We will
separately send you materials with instructions for exchanging your
Allaire stock certificates for Central Jersey Bancorp stock certificates
after the combination is consummated.
Q: I AM A BANCORP SHAREHOLDER. DO I NEED TO DO ANYTHING WITH MY BANCORP STOCK
CERTIFICATES?
A: No. Bancorp shareholders will not exchange their certificates in the
combination. The certificates currently representing shares of Bancorp
common stock will represent an equal number of shares of Central Jersey
Bancorp common stock after the combination.
Q: WHEN DO YOU EXPECT TO COMBINE?
A: We are working toward completing the combination as quickly as possible.
We expect to complete the combination by year end 2004. However, we cannot
assure you when or if the combination will occur. We must first obtain the
approvals of the shareholders of Bancorp and the stockholders of Allaire,
as well as all necessary regulatory approvals.
Q: WHOM SHOULD I CALL WITH QUESTIONS OR TO OBTAIN ADDITIONAL COPIES OF THIS
JOINT PROXY STATEMENT/PROSPECTUS?
A: Bancorp shareholders should call James S. Vaccaro at (732) 571-1300 with
questions or to obtain additional copies of this document. Allaire
stockholders should call Carl F. Chirico at (732) 292-1600 with questions
or to obtain additional copies of this document.
3
SUMMARY
This is a summary of certain information contained in this document
regarding the proposed combination of Monmouth Community Bancorp and Allaire
Community Bank and the special meetings to vote on the proposal to approve and
adopt the agreement and plan of acquisition and the transactions contemplated
therein. This summary does not contain all of the information that may be
important to you. We urge you to carefully read the entire document, including
the Appendices, before deciding how to vote.
THE BANCORP SPECIAL MEETING
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Date, Time and Place Bancorp will hold its special meeting of
shareholders on __________ ___, 2004, at
___.m., local time, at ____, New Jersey.
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Record Date _______ __, 2004
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Shares Entitled to Vote _______ shares of Bancorp common stock
were outstanding on the record date and
entitled to vote at the Bancorp special
meeting.
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Purpose of the Special Meeting To consider and vote on the proposal to
approve and adopt the agreement and plan
of acquisition, dated as of June 30,
2004, by and between Bancorp and Allaire
and the transactions contemplated
therein, pursuant to which, among other
things: (i) Bancorp and Allaire will
combine, as equals, in a strategic
business combination; (ii) each
outstanding share of Allaire common
stock will be exchanged for one share of
Bancorp common stock; (iii) the size of
the board of directors of Bancorp will
be increased from ten to twelve
directors and comprised of six members
of Bancorp's current board and six
members of Allaire's current board; and
(iv) contemporaneous with the closing of
the business combination, the
certificate of incorporation of Bancorp
will be amended to change Bancorp's name
to "Central Jersey Bancorp."
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Vote Required A majority of the shares of Bancorp
common stock present, in person or by
proxy, at the Bancorp special meeting
must be voted in favor of the
combination proposal for it to be
approved. A majority of the outstanding
shares of Bancorp common stock as of the
record date is required to be present in
person or by proxy at the Bancorp
special meeting in order for such
special meeting to be legally held.
As of the record date, the directors and
executive officers
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of Bancorp and their affiliates
beneficially owned _______ shares, or
approximately _____% of the outstanding
shares, of Bancorp common stock, and all
such persons have indicated their
intention to vote their shares in favor
of the combination proposal.
As an inducement and condition for
Allaire to enter into the agreement and
plan of acquisition, Bancorp caused each
of its directors and certain executive
officers to enter into a voting
agreement pursuant to which such
directors and executive officers have
agreed to vote their Bancorp common
stock in favor of the combination
proposal.
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The Bancorp Board Recommends Bancorp's directors have unanimously
You Vote in Favor of the approved the agreement and plan of
Combination Proposal acquisition and the transactions
contemplated therein and unanimously
recommend that Bancorp shareholders vote
"FOR" the combination proposal.
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THE ALLAIRE SPECIAL MEETING
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Date, Time and Place In order to comply with applicable state
banking regulations, Allaire will
initially hold its special meeting of
stockholders on _______ __, 2004, at
____ _.m., local time, at the principal
offices of Allaire, located at 2200
Highway 35, Sea Girt, New Jersey. To
better accommodate Allaire's
stockholders, the special meeting will
be immediately adjourned and reconvened
at ________ ___.m., local time, at the
Breakers Hotel, located at 1507 Ocean
Avenue, Spring Lake, New Jersey. If you
plan on attending the special meeting in
person, please go directly to the
adjourned meeting at the Breakers Hotel.
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Record Date _______ __, 2004
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Shares Entitled to Vote _______ shares of Allaire common stock
were outstanding on the record date and
entitled to vote at the Allaire special
meeting.
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Purpose of the Special Meeting To consider and vote on the proposal to
approve and adopt the agreement and plan
of acquisition, dated as of June 30,
2004, by and between Bancorp and Allaire
and the transactions contemplated
therein, pursuant to which, among other
things: (i) Bancorp and Allaire will
combine, as equals, in a strategic
business combination; (ii) each
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outstanding share of Allaire common
stock will be exchanged for one share of
Bancorp common stock; (iii) the size of
the board of directors of Bancorp will
be increased from ten to twelve
directors and comprised of six members
of Bancorp's current board and six
members of Allaire's current board; and
(iv) contemporaneous with the closing of
the business combination, the
certificate of incorporation of Bancorp
will be amended to change Bancorp's name
to "Central Jersey Bancorp."
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Vote Required Two-thirds of the outstanding shares of
Allaire common stock entitled to vote on
the combination proposal must be voted
in favor of the combination proposal for
it to be approved.
As of the record date, the directors and
executive officers of Allaire and their
affiliates beneficially owned _______
shares, or approximately _____% of the
outstanding shares, of Allaire common
stock, and all such persons have
indicated their intention to vote their
shares in favor of the combination
proposal.
As an inducement and condition for
Bancorp to enter into the agreement and
plan of acquisition, Allaire caused each
of its directors and certain executive
officers to enter into a voting
agreement pursuant to which such
directors and executive officers have
agreed to vote their Allaire common
stock in favor of the combination
proposal.
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The Allaire Board Recommends Allaire's directors have unanimously
You Vote in Favor of the approved the agreement and plan of
Combination Proposal acquisition and the transactions
contemplated therein and unanimously
recommend that Allaire stockholders vote
"FOR" the combination proposal.
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6
THE COMPANIES
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Bancorp Monmouth Community Bancorp, a New Jersey
corporation, is the bank holding company
for Monmouth Community Bank, National
Association. Monmouth Community Bank
provides a full range of banking
services to individual and business
customers located primarily in coastal
Monmouth County, New Jersey. Monmouth
Community Bank has six (6) full-service
branch facilities located in Long
Branch, Spring Lake Heights, Little
Silver, Neptune, Neptune City and Ocean
Grove, New Jersey. In addition, Monmouth
Community Bank anticipates opening a
seventh branch in Long Branch, New
Jersey, in the fall of 2004. Monmouth
Community Bank's deposits are insured by
the Federal Deposit Insurance
Corporation. At June 30, 2004, Bancorp
had $255.4 million in consolidated total
assets.
Bancorp's principal executive offices
are located at 627 Second Avenue, Long
Branch, New Jersey 07740. Bancorp's
telephone number is (732) 571-1300.
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Allaire Allaire Community Bank, a commercial
bank organized under the laws of the
State of New Jersey, is engaged in the
business of commercial and retail
banking. Allaire offers a wide range of
services, including demand, savings and
time deposits and commercial and
consumer/installment loans to
individuals, small businesses and
not-for-profit organizations principally
in Monmouth County and Ocean County, New
Jersey. Allaire has seven (7)
full-service branch facilities located
in Wall Township, Sea Girt, Manasquan,
Neptune City, Point Pleasant, Bradley
Beach and Belmar, New Jersey. Allaire's
deposits are insured up to applicable
legal limits by the Federal Deposit
Insurance Corporation. At June 30, 2004,
Allaire had $206.0 million in
consolidated total assets.
Allaire's principal executive offices
are located at 2200 Highway 35, Sea
Girt, New Jersey 08750. Allaire's
telephone number is (732) 292-1600.
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7
THE COMBINATION
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General Description Bancorp and Allaire will combine, as
equals, in a strategic business
combination. Each share of the common
stock of Allaire issued and outstanding
immediately prior to the effective time
of the combination shall be exchanged
for the right to receive one share of
Bancorp common stock. Contemporaneous
with the closing of the business
combination, the size of the board of
directors of Bancorp will be increased
to twelve directors and comprised of six
members of Bancorp's current board and
six members of Allaire's current board,
and Bancorp will amend its certificate
of incorporation to change its name to
"Central Jersey Bancorp." Following the
consummation of the combination, it is
the intention of Bancorp and Allaire
that Monmouth Community Bank and Allaire
will merge to form one banking entity
under the name "Central Jersey Bank,
National Association."
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Reasons for the Combination Bancorp and Allaire recognized in each
other an opportunity to enter into a
strategic business combination with a
local banking organization with
complimentary values as well as a
similar culture and business model.
Separately, the boards of directors of
Bancorp and Allaire believe that such a
strategic combination is fair to their
respective equity holders and that the
combined entity will be better
positioned to serve their depositors and
borrowers and to achieve future success
than if each organization remained
independent.
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Consideration Payable to Allaire Each outstanding share of Allaire common
Stockholders stock (other than dissenting shares and
shares held in treasury, if any, by
Allaire) shall be exchanged for the
right to receive one share of Bancorp
common stock. Because of the one-for-one
exchange ratio, no fractional shares of
Bancorp common stock will result from
the exchange.
ALLAIRE STOCKHOLDERS SHOULD NOT SEND IN
THEIR STOCK CERTIFICATES UNTIL THEY
RECEIVE INSTRUCTIONS FROM BANCORP'S
TRANSFER AGENT.
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Opinion of Allaire's Janney Montgomery Scott, LLC, Allaire's
Financial Advisor financial advisor, issued its opinion
orally and in writing on June 30, 2004,
to Allaire's board of directors that, as
of June 30, 2004, and based upon and
subject to the matters stated in its
opinion, from a financial point of view,
the
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consideration to be paid by Bancorp in
the combination with Allaire was fair to
Allaire.
A copy of the full text of Janney's
opinion, dated June 30, 2004, which
discusses the assumptions made, factors
considered and limitations upon the
review undertaken by Janney in rendering
its opinion, is included as Appendix B
to this joint proxy
statement/prospectus. For information on
how Janney arrived at its opinion, see
page 54. Holders of Allaire common stock
are encouraged to carefully read
Janney's opinion in its entirety. Janney
provided its opinion for the information
and assistance of Allaire's board of
directors in connection with its
consideration of the combination.
Janney's opinion is not intended to be
and does not constitute a recommendation
to any holder of Allaire common stock as
to how such holder should vote in
connection with the combination.
Pursuant to an engagement letter between
Allaire and Janney, Allaire agreed to
pay Janney an advisory fee in the amount
of $100,000, of which $75,000 was paid
to Janney at the time of the signing of
the agreement and plan of acquisition.
$25,000 of the advisory fee is payable
upon completion of the combination.
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Opinion of Bancorp's Financial Sandler O' Neill & Partners, L.P.,
Advisor Bancorp's financial advisor, rendered
its opinion orally on June 30, 2004,
subsequently confirmed in writing, to
Bancorp's board of directors that, as of
June 30, 2004, and based upon and
subject to the matters stated in its
opinion, from a financial point of view
the exchange ratio was fair to Bancorp.
A copy of the full text of Sandler O'
Neill's opinion, dated June 30, 2004,
which discusses the assumptions made,
factors considered and limitations upon
the review undertaken by Sandler O'Neill
in rendering its opinion, is included as
Appendix C to this joint proxy
statement/prospectus. For information on
how Sandler O' Neill arrived at its
opinion, see page 61. Holders of Bancorp
common stock are encouraged to carefully
read Sandler O' Neill's opinion in its
entirety. Sandler O' Neill provided its
opinion for the information and
assistance of Bancorp's board of
directors in connection with its
consideration of the combination.
Sandler O' Neill's opinion is not
intended to be and does not constitute a
recommendation to any holder of Bancorp
common stock as to how such holder
should vote in connection with the
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9
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combination.
Pursuant to an engagement letter between
Bancorp and Sandler O' Neill, Bancorp
agreed to pay Sandler O' Neill a
transaction fee in the amount of
$100,000, of which $75,000 was paid to
Sandler O'Neill in connection with the
issuance of its opinion. $25,000 of the
transaction fee is payable upon
completion of the combination.
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Dissenters' Rights for Bancorp Under the New Jersey Business
Shareholders Corporation Act, holders of Bancorp
common stock have the right to dissent
from the combination and be paid the
fair value of their shares of Bancorp
common stock in accordance with the
applicable provisions of Sections
14A:11-1 through 14A:11-11 of the New
Jersey Business Corporation Act. To
exercise the right to dissent from the
combination, a Bancorp shareholder must
not vote for the approval and adoption
of the combination proposal and must
strictly comply with all of the
applicable provisions of Sections
14A:11-1 through 14A:11-11 of the New
Jersey Business Corporation Act.
We have included a copy of Sections
14A:11-1 through 14A:11-11 of the New
Jersey Business Corporation Act as
Appendix D to this document.
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Dissenters' Rights for Allaire Under The New Jersey Banking Act of
Stockholders 1948, as amended, holders of Allaire
common stock have the right to dissent
from the combination and be paid the
fair value of their shares of Allaire
common stock in accordance with the
applicable provisions of Sections
17:9A-360 through 17:9A-369 of The New
Jersey Banking Act of 1948, as amended.
To exercise the right to dissent, an
Allaire stockholder must not vote for
the approval and adoption of the
combination proposal and must strictly
comply with all of the applicable
provisions of Sections 17:9A-360 through
17:9A-369 of The New Jersey Banking Act
of 1948, as amended.
We have included a copy of Sections
17:9A-360 through 17:9A-369 of The New
Jersey Banking Act of 1948, as amended,
as Appendix E to this document.
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Material Federal Income Tax Bancorp and Allaire have received an
Consequences of the Combination opinion of corporate counsel to Bancorp,
rendered on the basis of facts,
representations of facts, covenants and
assumptions set forth or referred to in
such opinion, which such counsel
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10
has assumed to be consistent with those
existing at the effective time of the
combination, that the combination will
be treated for United States federal
income tax purposes as a
"reorganization" within the meaning of
Section 368(a) of the Internal Revenue
Code of 1986, as amended. If the
combination is treated in this manner:
o no gain or loss will be recognized
by Bancorp or Allaire as a result
of the combination;
o no gain or loss will be recognized
by a stockholder of Allaire who
exchanges all of his, her or its
shares of Allaire common stock
solely for shares of Bancorp
common stock;
o the aggregate tax basis of the
shares of the Bancorp common stock
received by holders of Allaire
common stock who exchange all of
their Allaire common stock for
shares of Bancorp common stock in
the combination will be the same
as the aggregate tax basis of the
shares of Allaire common stock
surrendered in exchange therefor;
o the holding period of the shares
of Bancorp common stock received
by an Allaire stockholder
generally will include the holding
period of the shares of Allaire
common stock surrendered in
exchange therefor;
o each dissenting Allaire
stockholder receiving cash in
exchange for his, her or its
Allaire common stock will be
treated as if he, she or it
received such cash in redemption
of his, her or its Allaire common
stock, subject to the provisions
of Section 302(b) of the Internal
Revenue Code of 1986, as amended;
the amount of such Allaire
stockholder's recognized gain or
loss will be the difference, if
any, between (i) the amount of
cash so received and (ii) such
stockholder's tax basis in the
Allaire common stock exchanged;
and such gain or loss would be
capital gain or loss if the
Allaire common stock was held as a
capital asset, and would be long
term if the holding period was
more than one year; and
o each dissenting Bancorp
shareholder receiving cash in
exchange for his, her or its
Bancorp
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common stock will be treated as if
he, she or it received such cash
in redemption of his, her or its
Bancorp common stock, subject to
the provisions of Section 302(b)
of the Internal Revenue Code of
1986, as amended; the amount of
such Bancorp shareholder's
recognized gain or loss will be
the difference, if any, between
(i) the amount of cash so received
and (ii) such shareholder's tax
basis in the Bancorp common stock
exchanged; and such gain or loss
would be capital gain or loss if
the Bancorp common stock was held
as a capital asset, and would be
long term if the holding period
was more than one year.
ALLAIRE STOCKHOLDERS ARE URGED TO READ
THE MORE COMPLETE DESCRIPTION OF THE
COMBINATION'S UNITED STATES FEDERAL
INCOME TAX CONSEQUENCES ON PAGE 91, AND
TO CONSULT THEIR OWN TAX ADVISORS AS TO
THE SPECIFIC TAX CONSEQUENCES OF THE
COMBINATION TO THEM UNDER APPLICABLE
LAWS.
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Treatment of Allaire Stock Options The outstanding and unexercised options
to acquire Allaire common stock will be
converted into options to purchase the
same number of shares of Bancorp common
stock. Following conversion, the Allaire
stock options will be subject to the
same terms and conditions (including
expiration date, vesting, exercise price
and exercise provisions) that applied to
the options prior to the effective time
of the combination.
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Treatment of Bancorp Stock All unvested options to acquire Bancorp
Options common stock outstanding at the
effective time of the combination shall
vest, and the holders thereof may
exercise their options at any time
during the original term provided for
exercise as set forth in the respective
stock option agreements.
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Reselling the Stock You Receive in The shares of Bancorp common stock to be
the Combination issued in the combination will be
registered under the Securities Act of
1933, as amended. Except as noted below,
Allaire stockholders may freely transfer
those shares after they receive them.
Allaire has identified certain of its
directors, executive officers and others
who may be deemed "affiliates" of
Allaire, and those persons have entered
into agreements with Bancorp restricting
their ability to transfer the shares of
Bancorp common stock
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12
they will receive in the combination.
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Differences in Shareholders' Rights The rights of Bancorp's shareholders are
governed by the New Jersey Business
Corporation Act and Bancorp's
certificate of incorporation and
by-laws. The rights of Allaire's
stockholders are governed by The New
Jersey Banking Act of 1948, as amended,
and Allaire's certificate of
incorporation and bylaws. There are
differences between the respective
charters and governing laws of Bancorp
and Allaire that will affect the
relative rights of Bancorp shareholders
and Allaire stockholders. For example,
under The New Jersey Banking Act of
1948, as amended, Allaire must obtain
the affirmative vote of two-thirds of
its outstanding shares for approval of a
merger and certain other transactions.
Bancorp is subject to the New Jersey
Business Corporation Act, which requires
only a majority vote of a quorum of its
shareholders to approve a merger and
most other transactions. In addition,
Allaire's bylaws do not contain any
indemnification provisions whereas the
by-laws of Bancorp provides for
indemnification of its officers,
directors and other agents in certain
situations. Further, Allaire's bylaws
provide that the holders of 10% or more
of the outstanding shares of Allaire's
common stock may call a special meeting
of stockholders whereas Bancorp's
by-laws provide that only certain
officers, or a majority of the members
of its board of directors, may call a
special meeting of the shareholders.
Upon completion of the combination,
Allaire stockholders will become Bancorp
shareholders, and their rights will be
governed by the New Jersey Business
Corporation Act and Bancorp's
certificate of incorporation and
by-laws, as amended and restated to give
effect to the terms and conditions of
the combination. We have included a copy
of the form of the amended and restated
certificate of incorporation of Central
Jersey Bancorp as Appendix F to this
document and a copy of the form of the
amended and restated by-laws of Central
Jersey Bancorp as Appendix G to this
document.
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Interests of Allaire's and Bancorp's Bancorp's and Allaire's directors and
Directors and Officers executive officers have interests in the
in the Combination combination that are in addition to
their interests as shareholders and
stockholders of the respective entities.
The Bancorp and Allaire boards of
directors considered these interests in
deciding to approve the agreement and
plan of acquisition.
Allaire is party to an employment
agreement with Mr. Carl F. Chirico, the
President and Chief Executive Officer of
Allaire, which agreement became
effective on June 2, 2003, and a change
of control agreement with each of
Messrs. Robert S. Vuono, Senior
Executive Vice President, Chief
Operating Officer, Chief Financial
Officer and Secretary of Allaire, and
Robert K. Wallace, Executive Vice
President and Senior Loan Officer of
Allaire, each of which agreements became
effective on March 26, 2003.
Mr. Chirico's employment agreement
provides that he will be employed by
Allaire as President and Chief Executive
Officer for a term of three years. If
his employment is terminated by reason
of a change in control or he is not
employed by any successor entity to
Allaire as such successor's entity's
President and Chief Executive Officer,
with the same responsibilities, salary
and proximity to his current residence,
then Mr. Chirico is entitled to receive,
among other things, 18 months' current
salary and benefits, including life
insurance, family health insurance, and
the value of Allaire's contributions to
his 401(k) plan for such 18-month
period. The right to receive this
severance payment and benefits is
conditioned upon Mr. Chirico's continued
employment and assistance during the
transition period until the change in
control transaction is complete.
Upon completion of the combination, Mr.
Chirico will be the Vice Chairman of
Bancorp, Allaire and Monmouth Community
Bank, but will not serve as the
President and Chief Executive Officer of
any of these organizations.
Consequently, Mr. Chirico will be
eligible to receive a cash payment of
$319,185 and the additional benefits
provided under his existing employment
agreement upon consummation of the
combination. The total amount to be paid
Mr. Chirico under his existing
employment agreement will be payable by
Bancorp upon the termination of Mr.
Chirico's employment with Bancorp or
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14
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Mr. Chirico's election to become a
part-time employee of Bancorp. Such
amount will be paid in annual
installments not to exceed $100,000.
Further, upon the termination of Mr.
Chirico's full-time status as an
employee of Bancorp, Bancorp will pay
the cost of health care coverage for Mr.
Chirico and his spouse to the same
extent as it does for its full-time
employees for the remainder of their
lives.
Both of Messrs. Vuono and Wallace
entered into separate agreements with
Allaire which grant each of these
officers certain rights in the event of
a change in control of Allaire. Under
their respective agreements, if they are
not offered comparable employment by
Allaire's successor for at least the
same compensation and benefits and in
close proximity to their current homes,
pursuant to a written employment
contract with a term of 18 months, they
will be entitled to a severance package
consisting of 18 months' current salary
and benefits, including life insurance,
family health insurance, and the value
of Allaire's contributions to their
401(k) plans for such 18-month period.
The right to receive this severance
payment and benefits is conditioned upon
such officer's continued employment and
assistance during the transition period
until the change in control transaction
is complete. If the contract between the
officer and Allaire's successor is
terminated without cause or good reason
by the successor or by the officer for
any reason within 18 months of the
change in control, the officer's
severance package will be reduced by the
amount of months that the officer
actually worked for the successor, but
shall not be reduced to less than 12
months' severance.
Each of Messrs. Vuono and Wallace will
be offered employment agreements by
Bancorp containing terms and conditions
comparable to each officer's current
terms and conditions of employment with
Allaire. These employment agreements
will go into effect on the effective
date of the combination. It is
anticipated that both Messrs. Vuono and
Wallace will enter into these employment
agreements with Bancorp. Consequently,
in the event either Messrs. Vuono or
Wallace elects to leave the employ of
Bancorp within 18 months of the
effective date of the combination or is
terminated without cause or good reason
by Bancorp, he will be entitled to up to
18 months of severance, but not less
than 12 months of severance.
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15
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The officers and directors of Bancorp
who hold stock options to acquire
Bancorp common stock will benefit from
the immediate vesting of such options at
the effective time of the combination.
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Governance of Combined Bancorp and Allaire have agreed that,
Organization when the combination is complete, George
S. Callas, Chairman of the Board of
Allaire, will serve as Chairman, Carl F.
Chirico, President and Chief Executive
Officer of Allaire, will serve as Vice
Chairman, and James S. Vaccaro, Chairman
and Chief Executive Officer of Bancorp
and Monmouth Community Bank, will serve
as Chief Executive Officer and
President, of each of Central Jersey
Bancorp, Allaire and Monmouth Community
Bank. Richard O. Lindsey, President of
Bancorp and Monmouth Community Bank,
will serve as Executive Vice President
and Chief Lending Officer of each of
Central Jersey Bancorp, Allaire and
Monmouth Community Bank. Robert S.
Vuono, Senior Executive Vice President,
Chief Operating Officer, Chief Financial
Officer and Secretary of Allaire, and
Anthony Giordano III, Executive Vice
President and Chief Financial Officer of
Bancorp, will serve in the same
capacities of the combined entities,
except that Mr. Giordano, and not Mr.
Vuono, will serve as Chief Financial
Officer of the combined entities. Each
of the Chairman of Central Jersey
Bancorp, the Vice-Chairman of Central
Jersey Bancorp and the President and
Chief Executive Officer of Central
Jersey Bancorp will serve in such
capacity for at least two (2) years
following the consummation of the
combination, subject to certain
conditions.
The board of directors of Central Jersey
Bancorp will be comprised of twelve (12)
directors, six (6) of whom were named by
Bancorp and chosen from Bancorp's
current board of directors and six (6)
of whom were named by Allaire and chosen
from Allaire's current board of
directors. Each committee of Central
Jersey Bancorp, Allaire and Monmouth
Community Bank will have an equal number
of representatives from Allaire and
Bancorp at least through December 31,
2005.
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Conditions to the Combination Completion of the combination is
contingent on a number of conditions,
including the following:
o the receipt of regulatory approval
or non-objection from the New
Jersey Department of Banking and
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16
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Insurance, Federal Reserve Bank of
New York and the Federal Deposit
Insurance Corporation;
o the receipt of approval of the
agreement and plan of acquisition
from the shareholders of Bancorp
and the stockholders of Allaire;
o the listing of the shares of
Bancorp common stock to be issued
to Allaire stockholders in the
combination with the NASDAQ
SmallCap Market;
o Bancorp's name change to "Central
Jersey Bancorp;"
o no issuance of a stop order by the
Securities and Exchange Commission
suspending the effectiveness of
the registration statement of
which this joint proxy
statement/prospectus forms a part;
o completion of Bancorp's 6 for 5
stock split;
o the absence of any action,
regulation or other matter that
would enjoin, prohibit or
adversely effect the combination;
o the obtainment of any necessary
third party consents;
o the receipt of appropriate legal
opinions from each company's
counsel;
o the receipt of a tax opinion that
the combination qualifies as a tax
free exchange;
o the continuing accuracy of the
representations and warranties
contained in the agreement and
plan of acquisition; and
o compliance, in all material
respects, by both companies with
all applicable covenants contained
in the agreement and plan of
acquisition.
- --------------------------------------------------------------------------------
Regulatory Approval The combination is subject to the
approval of the Federal Deposit
Insurance Corporation and the New Jersey
Department of Banking and Insurance, and
the non-objection of the Federal Reserve
Bank of New York. We have filed the
applications required to obtain the
necessary regulatory approvals. As of
the date of this document, we had not
received the required approvals. We will
file a waiver notice with the Federal
Reserve Bank of New York pending receipt
of the Federal Deposit Insurance
Corporation approval. Approval by any
regulator does not
- --------------------------------------------------------------------------------
17
- --------------------------------------------------------------------------------
constitute an endorsement of the
combination or a determination that the
terms of the combination are fair to
Bancorp shareholders or Allaire
stockholders. Further, as a national
association, Monmouth Community Bank is
regulated and supervised by the Office
of the Comptroller of the Currency. It
is the intent of Bancorp and Allaire
that as soon as is reasonably
practicable following the combination,
Monmouth Community Bank and Allaire will
merge to form a combined national
banking subsidiary under the name
"Central Jersey Bank, National
Association." The combined bank will be
regulated and supervised by the Office
of the Comptroller of the Currency. See
page 86.
- --------------------------------------------------------------------------------
Terminating the Agreement and The agreement and plan of acquisition
Plan of Acquisition provides for several ways in which the
board of directors of either Bancorp or
Allaire may terminate the agreement and
plan of acquisition prior to the
effective time of the combination. Among
other ways, the agreement and plan of
acquisition may be terminated:
o by the mutual written consent of
the boards of directors of Bancorp
and Allaire;
o if the combination shall not have
occurred on or prior to December
31, 2004;
o in the event of an inaccuracy of
any representation or warranty or
a material breach by the other
party of any covenant or agreement
contained in the agreement and
plan of acquisition which cannot
be or has not been cured within a
specified time period;
o in the event any consent of any
regulatory authority required for
consummation of the combination
shall have been denied by final
nonappealable action;
o in the event the stockholders of
Allaire or the shareholders of
Bancorp fail to vote their
approval of the agreement and plan
of acquisition and the
transactions contemplated therein;
or
o if Allaire or Bancorp fails to
hold its special meeting of equity
holders to vote on the agreement
and plan of acquisition within
sixty (60) days of this
registration statement filed in
connection with the combination
being declared effective by the
- --------------------------------------------------------------------------------
18
Securities and Exchange
Commission.
- --------------------------------------------------------------------------------
Termination Fee Either party will be required to pay the
other a termination fee in the amount of
$1,500,000 plus reimbursement for
certain costs and expenses if, among
other things, the board of directors of
such party terminates the agreement and
plan of acquisition and abandons the
combination as a result of receiving a
written legal opinion from counsel
detailing that the acceptance of another
acquisition transaction (as such term is
defined in the agreement and plan of
acquisition) and terminating the
agreement and plan of acquisition is
required in order for the party's board
of directors to comply with its
fiduciary duties under applicable laws
of the State of New Jersey.
- --------------------------------------------------------------------------------
Amending the Agreement and Plan The agreement and plan of acquisition
of Acquisition may be amended by the written consent of
Bancorp and Allaire at any time prior to
the completion of the combination.
However, under applicable law, an
amendment that reduces the amount or
value, or changes the form of, the
consideration payable to Allaire
stockholders cannot be made following
adoption of the agreement and plan of
acquisition by Allaire stockholders
without their approval.
- --------------------------------------------------------------------------------
Purchase Accounting Treatment of Bancorp will account for the combination
the Combination as a purchase for financial reporting
purposes.
- --------------------------------------------------------------------------------
19
SELECTED CONSOLIDATED FINANCIAL DATA OF
MONMOUTH COMMUNITY BANCORP
The following selected consolidated financial data of Bancorp and Monmouth
Community Bank as of and for the years ended December 31, 1999 through 2003 are
derived from the audited financial statements of Bancorp and Monmouth Community
Bank. The Bancorp selected consolidated financial data as of June 30, 2004 and
for the six months ended June 30, 2004 and 2003 are derived from financial
statements that have not been audited by independent accountants. However, in
the opinion of management, the selected consolidated financial data for such
periods includes all adjustments (which include only normal recurring
adjustments) necessary for a fair presentation of the data. Operating results
for the six months ended June 30, 2004 are not necessarily indicative of results
that may be expected for the entire year ending December 31, 2004. The selected
consolidated financial data as of and for the years ended December 31, 2003 and
2002, and as of June 30, 2004 and for the six months ended June 30, 2004 and
2003, should be read in conjunction with the consolidated financial statements
of Bancorp and the related notes thereto and management's discussion and
analysis thereof appearing elsewhere in this joint proxy statement/prospectus.
MONMOUTH COMMUNITY BANCORP - Summarized Statements of Operations
(in thousands, except per share amounts)
Six Months Ended Year Ended
June 30, December 31,
------------------ ----------------------------------------------------
2004 2003 2003 2002 2001 2000 1999
------- ------- ------- ------- ------- ------- -------
Interest and dividend income $ 5,448 $ 4,477 $ 9,111 $ 8,275 $ 6,543 $ 4,645 $ 2,137
Interest expense 1,310 1,391 2,612 2,789 2,703 1,809 890
------- ------- ------- ------- ------- ------- -------
Net interest income 4,138 3,086 6,499 5,486 3,840 2,836 1,247
Provision for loan losses 128 23 150 373 211 291 334
------- ------- ------- ------- ------- ------- -------
Net interest income after provision for loan losses 4,010 3,063 6,349 5,113 3,629 2,545 913
------- ------- ------- ------- ------- ------- -------
Other income 412 390 780 661 440 361 199
Other non-interest expenses, including
salaries and employee benefits,
professional and application fees,
occupancy expenses, etc. 3,431 3,093 6,325 4,920 3,531 2,653 1,800
------- ------- ------- ------- ------- ------- -------
Income/(Loss) before income taxes 991 360 804 854 538 253 (688)
Income taxes 381 144 322 70 1 -- --
------- ------- ------- ------- ------- ------- -------
Net income/(loss) 610 216 482 784 $ 537 $ 253 $ (688)
======= ======= ======= ======= ======= ======= =======
Net income/(loss) per share*
Basic $ 0.33 $ 0.12 $ 0.26 $ 0.54 $ 0.40 $ 0.19 $ (0.77)
Diluted $ 0.31 $ 0.11 $ 0.25 $ 0.53 $ 0.40 $ 0.19 $ (0.77)
* All per share amounts have been restated to reflect the 5% stock
distributions paid on December 31, 2003, 2002, 2001 and 2000 and the 6 for
5 stock split for shareholders of record on July 15, 2004.
20
MONMOUTH COMMUNITY BANCORP - Summarized Balance Sheets
(in thousands)
At At
June 30, December 31,
--------- ----------------------------------------------------------------
2004 2003 2002 2001 2000 1999
--------- --------- --------- --------- --------- ---------
Assets:
Cash and due from banks $ 10,264 $ 9,689 $ 8,880 $ 3,798 $ 4,750 $ 2,968
Federal funds sold 11,080 4,675 7,500 9,900 9,300 8,300
Investment securities held to maturity 17,928 15,079 25,539 27,289 15,339 10,097
Investment securities available for
sale, at market value 77,875 68,196 44,791 12,679 3,007 --
Loans held for sale -- -- 302 269 -- --
Loans, net 133,004 115,805 89,026 61,612 46,944 28,524
Premises and equipment 2,021 2,171 1,638 1,300 804 851
Other assets 3,362 2,037 1,559 1,177 661 354
Due from broker -- 4,961 -- -- -- --
--------- --------- --------- --------- --------- ---------
Total assets $ 255,444 $ 222,613 $ 179,537 $ 118,024 $ 80,805 $ 51,094
========= ========= ========= ========= ========= =========
Liabilities and Shareholders' Equity:
Deposits $ 221,549 $ 207,234 $ 164,007 $ 108,892 $ 72,352 $ 43,651
Accrued expenses and other liabilities 294 480 599 240 167 124
Borrowings 14,000 -- -- -- -- --
Subordinated debentures 5,155 -- -- -- -- --
--------- --------- --------- --------- --------- ---------
Total liabilities 240,998 207,714 164,606 109,132 72,519 43,775
--------- --------- --------- --------- --------- ---------
Shareholders' equity:
Common stock 19 19 18 13 13 12
Additional paid-in capital 15,239 15,238 14,764 9,516 9,517 8,804
Accumulated other comprehensive
(loss)/income (1,422) (358) 149 70 -- --
Retained earnings (accumulated deficit) 610 -- -- (707) (1,244) (1,497)
--------- --------- --------- --------- --------- ---------
Total shareholders' equity 14,446 14,899 14,931 8,892 8,286 7,319
--------- --------- --------- --------- --------- ---------
Total liabilities and shareholders' equity $ 255,444 $ 222,613 $ 179,537 $ 118,024 $ 80,805 $ 51,094
========= ========= ========= ========= ========= =========
21
SELECTED CONSOLIDATED FINANCIAL DATA OF
ALLAIRE COMMUNITY BANK
The following selected consolidated financial data of Allaire as of and
for the years ended December 31, 1999 through 2003 are derived from the audited
financial statements of Allaire. The Allaire selected consolidated financial
data as of June 30, 2004 and for the six months ended June 30, 2004 and 2003 are
derived from financial statements that have not been audited by independent
accountants. However, in the opinion of management, the selected consolidated
financial data for such periods includes all adjustments (which include only
normal recurring adjustments) necessary for a fair presentation of the data.
Operating results for the six months ended June 30, 2004 are not necessarily
indicative of results that may be expected for the entire year ending December
31, 2004. The selected consolidated financial data as of December 31, 2003 and
2002 and for the years ended December 31, 2003, 2002 and 2001, and as of June
30, 2004 and for the six months ended June 30, 2004 and 2003, should be read in
conjunction with the consolidated financial statements of Allaire and the
related notes thereto and management's discussion and analysis thereof appearing
elsewhere in this joint proxy statement/prospectus.
ALLAIRE COMMUNITY BANK - Summarized Statements of Income
(in thousands, except per share amounts)
Six Months Ended Year Ended
June 30, December 31,
-------------------- --------------------------------------------------------
2004 2003 2003 2002 2001 2000 1999
-------- -------- -------- -------- -------- -------- --------
Interest and dividend income $ 5,001 $ 4,367 $ 9,113 $ 7,379 $ 5,263 $ 4,192 $ 3,071
Interest expense 901 934 1,807 1,653 1,571 1,248 1,005
-------- -------- -------- -------- -------- -------- --------
Net interest income 4,100 3,433 7,306 5,726 3,692 2,944 2,066
Provision for loan losses 65 115 185 275 203 81 106
-------- -------- -------- -------- -------- -------- --------
Net interest income after provision for
loan losses 4,035 3,318 7,121 5,451 3,489 2,863 1,960
-------- -------- -------- -------- -------- -------- --------
Other income 307 366 683 420 303 199 141
Other non-interest expenses, including
salaries and employee benefits,
professional and application fees,
occupancy expenses, etc 2,982 2,558 5,323 4,375 3,541 2,400 1,885
-------- -------- -------- -------- -------- -------- --------
Income before income taxes 1,360 1,126 2,481 1,496 251 662 216
Income taxes 505 405 879 562 97 32 0
-------- -------- -------- -------- -------- -------- --------
Net income $ 855 $ 721 $ 1,602 $ 934 $ 154 $ 630 $ 216
======== ======== ======== ======== ======== ======== ========
Net income per share - Basic* $ 0.43 $ 0.37 $ 0.81 $ 0.47 $ .08 $ 0.32 $ 0.16
Net income per share - Diluted* $ 0.39 $ 0.33 $ 0.73 $ 0.45 $ .08 $ 0.32 $ 0.16
* All per share amounts have been restated to reflect the stock
distributions effected on June 7, 2004, April 24, 2002, May 21, 2001,
September 29, 2000 and February 28, 1999, and the 3 for 2 stock split
effected on February 11, 2003.
22
ALLAIRE COMMUNITY BANK - Summarized Balance Sheets
(in thousands)
At At
June 30, December 31,
--------- ---------------------------------------------------------------
2004 2003 2002 2001 2000 1999
--------- --------- --------- --------- --------- ---------
Assets:
Cash and due from banks $ 9,605 $ 7,149 $ 5,547 $ 4,576 $ 3,715 $ 1,854
Federal funds sold 6,925 100 8,920 5,145 10,020 9,711
Investment securities held to maturity 12,100 12,550 8,056 -- -- --
Investment securities available for sale,
at market value 52,940 46,609 36,930 23,778 10,163 9,288
Loans held for sale -- -- -- -- -- --
Loans, net 116,530 108,235 90,270 63,659 42,536 34,512
Premises and equipment 2,436 2,529 2,703 2,755 1,750 1,025
Other assets 5,425 4,848 1,307 668 495 352
--------- --------- --------- --------- --------- ---------
Total assets $ 205,961 $ 182,020 $ 153,733 $ 100,581 $ 68,679 $ 56,742
========= ========= ========= ========= ========= =========
Liabilities and Stockholders' Equity:
Deposits $ 190,178 $ 157,458 $ 140,029 $ 88,935 $ 57,219 $ 46,177
Borrowings 1,500 10,250 -- -- -- --
Accrued expenses and other liabilities 349 384 991 248 249 373
--------- --------- --------- --------- --------- ---------
Total liabilities 192,027 168,092 141,020 89,183 57,468 46,550
--------- --------- --------- --------- --------- ---------
Stockholders' equity:
Common stock 6,571 6,258 6,246 5,948 5,665 5,395
Additional paid-in capital/ 6,511 5,157 5,142 5,315 5,542 5,812
Accumulated other comprehensive
(loss)/income (872) (22) 392 11 (22) (411)
Retained earnings (accumulated deficit) 1,724 2,535 933 124 26 (604)
--------- --------- --------- --------- --------- ---------
Total stockholders' equity 13,934 13,928 12,713 11,398 11,211 10,192
--------- --------- --------- --------- --------- ---------
Total liabilities and stockholders' equity $ 205,961 $ 182,020 $ 153,733 $ 100,581 $ 68,679 $ 56,742
========= ========= ========= ========= ========= =========
23
UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed consolidated balance
sheet combines the historical balance sheets of Bancorp and Allaire, giving
effect to the consummation of the combination as of June 30, 2004. The following
unaudited pro forma combined condensed consolidated statements of income for the
year ended December 31, 2003, and the six months ended June 30, 2004, give
effect to the combination as if such transaction had become effective on January
1, 2003 and January 1, 2004, respectively. The combination will be accounted for
using the purchase method of accounting and giving effect to the related pro
forma adjustments described in the accompanying notes to the unaudited pro forma
combined condensed consolidated financial statements.
The pro forma financial statements included herein are presented for
information purposes only. They include various estimates and may not
necessarily be indicative of the financial position or results of operations
that would have occurred if the combination had been consummated on the date or
at the beginning of the period indicated or which may be obtained in the future.
The fair value adjustments contained in the pro forma financial statements are
preliminary estimates based on data as of June 30, 2004. Final fair value
adjustments will be determined as of the closing date of the combination and
could differ significantly. These statements and accompanying notes should be
read together with the historical financial statements, including the notes
thereto, appearing elsewhere herein.
We anticipate that the combination will provide the combined company with
financial benefits including cost savings and enhanced revenue opportunities.
The pro forma information, while helpful in illustrating the financial
characteristics of the combined company under one set of assumptions, does not
reflect benefits of expected cost savings or revenue opportunities and,
accordingly, does not attempt to predict or suggest future results. It also does
not necessarily reflect what the historical results of the combined company
would have been had our companies been combined during these periods.
24
BANCORP COMBINED WITH ALLAIRE
UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED
BALANCE SHEET
June 30, 2004
(In thousands, except ratios)
Pro Forma Adjustments Bancorp/Allaire
Bancorp Allaire ---------------------------- Pro Forma
Historical Historical Debits Credits Combined
---------- ---------- --------- --------- ---------------
Assets:
Cash and due from banks $ 10,264 $ 9,605 $ -- $ 400(3) $ 19,469
Federal funds sold 11,080 6,925 -- -- 18,005
Securities:
Available-for-sale 77,785 52,940 -- -- 130,725
Held-to-maturity 17,928 12,100 -- 465(2C) 29,563
--------- --------- --------- --------- ---------
Total securities 95,713 65,040 -- 465 160,288
--------- --------- --------- --------- ---------
Loans:
Held-for-sale -- 296 -- -- 296
Held-for-investment 134,510 117,389 602(2C) -- 252,501
Less: Allowance for loan losses 1,506 1,155 -- -- 2,661
--------- --------- --------- --------- ---------
Net loans 133,004 116,530 602 -- 250,136
--------- --------- --------- --------- ---------
Goodwill -- -- 27,845(2) -- 27,845
Identifiable intangibles -- -- 3,612(2D) -- 3,612
Premises & equipment 2,021 2,436 350(2C) -- 4,807
Bank owned life insurance -- 3,174 -- -- 3,174
Other assets 3,362 2,251 963(3) 1,228(2C) 5,348
--------- --------- --------- --------- ---------
Total assets $ 255,444 $ 205,961 $ 33,372 $ 2,093 $ 492,684
========= ========= ========= ========= =========
Liabilities:
Deposits:
Demand $ 31,191 $ 44,091 $ -- $ -- $ 75,282
Savings 19,632 56,425 -- -- 76,057
NOW & money market 96,357 34,403 -- -- 130,760
Time 74,369 55,259 -- 15(2C) 129,643
--------- --------- --------- --------- ---------
Total deposits 221,549 190,178 -- 15 411,742
--------- --------- --------- --------- ---------
Federal funds purchased & collateralized
borrowings 14,000 1,500 3(2C) -- 15,497
Subordinated debentures 5,155 -- -- -- 5,155
Accrued expenses & other liabilities 294 349 -- 852(3) 1,495
--------- --------- --------- --------- ---------
Total liabilities $ 240,998 $ 192,027 $ 3 $ 867 $ 433,889
--------- --------- --------- --------- ---------
25
Shareholders' Equity:
Common stock 19 6,571 6,571(2B) 20(2A) 39
Additional paid-in-capital 15,239 6,511 6,511(2B) 44,329(2A) 59,568
Retained earnings 610 1,724 1,724(2B) -- 610
Accumulated other comprehensive loss (1,422) (872) -- 872(2B) (1,422)
--------- --------- --------- --------- ---------
Total shareholders' equity 14,446 13,934 14,806 45,221 58,795
--------- --------- --------- --------- ---------
Total liabilities and
shareholders' equity $ 255,444 $ 205,961 $ 14,809 $ 46,088 $ 492,684
========= ========= ========= ========= =========
Bancorp Allaire Bancorp/Allaire
Historical Historical Pro Forma Combined
---------- ---------- ------------------
Tier 1 Leverage Ratio 8.29% 7.61% 7.99%
Tier 1 Risk-Based Capital Ratio 12.44% 10.68% 11.62%
Total Risk-Based Capital Ratio 13.39% 11.51% 12.51%
See "Notes to the Unaudited Pro Forma Combined Condensed
Consolidated Financial Statements"
26
BANCORP COMBINED WITH ALLAIRE
UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENT OF INCOME
For the Year Ended December 31, 2003
(In thousands, except for per share amounts)
Pro Forma Adjustments Bancorp/Allaire
Bancorp Allaire ----------------------------- Pro Forma
Historical Historical Debits Credits Combined
---------- ---------- ---------- ---------- ---------------
Interest Income:
Loans $ 6,438 $ 6,542 $ 201(4) $ -- $ 12,779
Securities 2,533 2,516 -- 155(4) 5,204
Federal funds sold and other 140 55 -- -- 195
---------- ---------- ---------- ---------- ----------
Total interest income 9,111 9,113 201 155 18,178
---------- ---------- ---------- ---------- ----------
Interest Expense:
Savings, NOW & money market
deposits 1,330 723 -- -- 2,053
Time deposits 1,282 1,057 -- 8(4) 2,331
Federal funds purchased &
collateralized borrowings -- 27 3(4) -- 30
---------- ---------- ---------- ---------- ----------
Total interest expense 2,612 1,807 3 8 4,414
---------- ---------- ---------- ---------- ----------
Net interest income 6,499 7,306 204 163 13,764
Provision for loan losses 150 185 -- -- 335
---------- ---------- ---------- ---------- ----------
Net interest income after
provision for loan losses 6,349 7,121 204 163 13,429
---------- ---------- ---------- ---------- ----------
Non-Interest Income:
Service charges on deposit accounts 656 354 -- -- 1,010
Gain on the sale of available
for sale securities 76 120 -- -- 196
Gain on the sale of loans held
for sale 13 -- -- -- 13
Other 35 209 -- -- 244
---------- ---------- ---------- ---------- ----------
Total non-interest income 780 683 -- -- 1,463
---------- ---------- ---------- ---------- ----------
Non-Interest Expense:
Salaries and employee benefits 3,185 2,652 -- -- 5,837
Occupancy expenses 792 932 6(4) -- 1,730
Other operating expenses 2,348 1,739 -- -- 4,087
Amortization of identifiable
intangibles -- -- 527(4) -- 527
---------- ---------- ---------- ---------- ----------
Total non-interest expense 6,325 5,323 533 -- 12,181
---------- ---------- ---------- ---------- ----------
27
Income before income taxes 804 2,481 737 163 2,711
Provision for income taxes 322 879 251 55 1,005
---------- ---------- ---------- ---------- ----------
Net income $ 482 $ 1,602 $ 486 $ 108 $ 1,706
========== ========== ========== ========== ==========
Earnings Per Share on:
Basic $ .26 $ .81 -- -- $ .45
Diluted $ .25 $ .73 -- -- $ .42
Weighted Average Shares Outstanding:
Basic 1,860,588 1,968,731 Note 6 Note 6 3,829,319
Diluted 1,916,981 2,187,555 Note 6 Note 6 4,104,536
See "Notes to the Unaudited Pro Forma Combined Condensed
Consolidated Financial Statements"
28
BANCORP COMBINED WITH ALLAIRE
UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENT OF INCOME
For the Six Months Ended June 30, 2004
(In thousands, except for per share amounts)
Pro Forma Adjustments Bancorp/Allaire
Bancorp Allaire ----------------------------- Pro Forma
Historical Historical Debits Credits Combined
---------- ---------- ---------- ---------- ---------------
Interest Income:
Loans $ 3,836 $ 3,448 $ 101(4) $ -- 7,183
Securities 1,581 1,543 -- 78(4) 3,202
Federal funds sold and other 31 10 -- -- 41
---------- ---------- ---------- ---------- ----------
Total interest income 5,448 5,001 101 78 10,426
---------- ---------- ---------- ---------- ----------
Interest Expense:
Savings, NOW & money market deposits 606 345 -- -- 951
Time deposits 632 522 -- 4(4) 1,150
Federal funds purchased &
collateralized borrowings 72 34 2(4) -- 108
---------- ---------- ---------- ---------- ----------
Total interest expense 1,310 901 2 4 2,209
---------- ---------- ---------- ---------- ----------
Net interest income 4,138 4,100 103 82 8,217
Provision for loan losses 128 65 -- -- 193
---------- ---------- ---------- ---------- ----------
Net interest income after
provision for loan losses 4,010 4,035 103 82 8,024
---------- ---------- ---------- ---------- ----------
Non-Interest Income:
Service charges on deposit accounts 394 167 -- -- 561
Gain on the sale of available
for sale securities -- 11 -- -- 11
Other 18 129 -- -- 147
---------- ---------- ---------- ---------- ----------
Total non-interest income 412 307 -- -- 719
---------- ---------- ---------- ---------- ----------
Non-Interest Expense:
Salaries and employee benefits 1,746 1,464 -- -- 3,210
Occupancy expenses 400 527 3(4) -- 930
Other operating expenses 1,285 916 -- -- 2,201
Amortization of identifiable
intangibles -- -- 264(4) -- 264
Combination related costs -- 75 -- -- 75
---------- ---------- ---------- ---------- ----------
Total non-interest expense 3,431 2,982 267 -- 6,680
---------- ---------- ---------- ---------- ----------
Income before income taxes 991 1,360 370 82 2,063
Provision for income taxes 381 505 126 28 788
---------- ---------- ---------- ---------- ----------
Net income $ 610 $ 855 $ 244 $ 54 $ 1,275
========== ========== ========== ========== ==========
29
Earnings Per Share on:
Basic $ .33 $ .43 -- -- $ .33
Diluted $ .31 $ .39 -- -- $ .31
Weighted Average Shares Outstanding:
Basic 1,860,685 1,971,361 Note 6 Note 6 3,832,046
Diluted 1,952,666 2,187,041 Note 6 Note 6 4,139,707
See "Notes to the Unaudited Pro Forma Combined Condensed
Consolidated Financial Statements"
30
NOTES TO THE UNAUDITED PRO FORMA
COMBINED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1.
- -------
The combination will be accomplished through the exchange of one share of
Bancorp's common stock for each outstanding share of common stock of Allaire. It
is anticipated that the combination will be completed by the year-end 2004.
Allaire's estimated fair value adjustments for securities, loans,
premises, deposits, borrowings and stock options were determined by the
management of Bancorp with the assistance of certain investment banking and
consulting firms. Bancorp's actual fair value adjustments, where appropriate,
will be determined as of the combination date and will be amortized or accreted
into income to produce a level yield over the expected life or term of the
underlying asset or liability. The resulting premiums and discounts for purposes
of the Pro Forma Financial Statements, where appropriate, are being amortized
and accreted into income as more fully described in Notes 4 and 5.
Deferred tax assets and liabilities were recorded to reflect the tax
consequences associated with differences between the tax basis and book basis of
the assets acquired and liabilities assumed, using an effective tax rate of 34%
with the exception of $2.6 million related to the fair value of qualified stock
options. Bancorp's and Allaire's actual effective tax rates for the twelve
months ended December 31, 2003 and for the six months ended June 30, 2004 were
40.05% and 35.43%, respectively, and 38.45% and 37.13%, respectively. Bancorp
calculated an expected pro forma combined effective tax rate of 37.07% and
38.20% based on the basis of federal, state and local statutory tax rates in
effect at December 31, 2003 and June 30, 2004, respectively.
Certain reclassifications have been made to Allaire's historical financial
information in order to conform to Bancorp's financial information.
Note 2.
- -------
A reconciliation of the excess consideration paid by Bancorp over
Allaire's net assets acquired ("Goodwill") is as follows (in thousands):
Cost to Acquire Allaire: Note
Bancorp common stock issued (2A) $39,309
Cash paid for transaction costs, net of taxes (*) (3) 962
-------
consideration paid for Allaire 40,271
Allaire Net Assets at Fair Value:
Allaire stockholders' equity at June 30, 2004 (2B) $13,934
-------
Subtotal $13,934
Fair value adjustments:
Securities held to maturity (2C) (465)
Loans (2E) 602
Premises (**) (2C) 350
Time deposits (2F) (15)
Collateralized borrowings (2C) 3
Allaire stock options (2C) (5,040)
-------
Fair value adjustments (4,565)
Tax effect of fair value adjustments (*) (673)
-------
31
Total adjustment to net assets acquired 3,892
-------
Adjusted net assets acquired 10,042
-------
Subtotal 30,229
Core deposit intangible (2D) 3,612
Tax effect of core deposit intangible (*) (1,228)
-------
Net core deposit intangible 2,384
-------
Estimated goodwill recognized 27,845
=======
- ----------
(*) Assumed effective tax rate of 34%, except for $2.6 million in qualified
stock option fair value adjustments for which no tax impact was
recognized.
(**) Includes fair value adjustment to land of $190,000.
Purchase accounting adjustments were estimated as follows:
A. Issuance of 1,971,361 shares of Bancorp's common stock at $19.94
(average of closing price of Bancorp's common stock from June 28, through July
2, 2004) for Allaire's 1,971,361 outstanding shares of common stock. These pro
forma adjustments include $20,000 to common stock and $39.3 million to
additional paid in capital.
B. Elimination of Allaire's stockholders' equity at June 30, 2004,
including accumulated other comprehensive loss which represents the reversal of
the unrealized loss on available-for-sale securities (net of a $449,000 deferred
tax asset).
C. Actual fair value adjustments reflect the allocation of the acquisition
cost to assets acquired and liabilities assumed based on their fair values.
D. Core deposit intangible is an identifiable asset representing the
economic value of the acquired deposit base, calculated as the present value
benefit of funding operations with the acquired deposit base as compared to
using an alternative wholesale funding source. Bancorp retained an independent
valuation firm to assist in the core deposit intangible valuation. The related
premium is being amortized over its estimated useful life of 10 years on an
accelerated basis.
E. Yield adjustments to reflect the difference between portfolio yields
and market rates as of June 30, 2004 for loans acquired in the combination. The
adjustments were calculated using present value analysis applied to the loan
portfolio. Loans were segregated into pools of similar loans. Cash flow was
projected using the loan data plus estimates of prepayment speeds. The resulting
cash flow was discounted to present value using risk adjusted discount rates
applied to each pool of loans. The difference between carrying value and the
present value of future cash flows was the yield adjustment. The yield
adjustments are amortized into expense on an accelerated basis over the
estimated lives or repricing periods of the loans.
F. Yield adjustments to reflect the difference between portfolio yields
and market rates as of June 30, 2004 for time deposits acquired in the
combination. Yield adjustments were calculated using present value analysis.
Cash flow each month was the difference between projected interest costs of the
remaining deposit base and hypothetical costs calculated using market rates
based on a survey of competitors' rates. Cash flow was discounted to present
value using market rates for similar deposits. The yield adjustments are the
aggregate present
32
value of the difference. The yield adjustments are accreted into income on an
accelerated basis over the estimated lives of the acquired time deposits.
Note 3.
- -------
Transaction and direct acquisition costs associated with the combination
are estimated to be approximately $1.3 million and are included in the unaudited
pro forma combined condensed consolidated balance sheet as a component of
Goodwill (See Note 2 above). A summary of these costs, based on Bancorp's and
Allaire's preliminary estimates, are as follows:
Merger related compensation and severance $ 852
Professional fees 400
---------
Total pre-tax transaction costs 1,252
Less: related tax benefit (290)
---------
Estimated transaction costs, net of taxes $ 962
=========
Professional fees include investment banking, legal and other professional
fees and expenses associated with the combination and are not tax deductible.
Combination related compensation and severance costs include employees'
severance, compensation arrangements and related employee benefit expenses.
Combination-related costs incurred by Allaire are expensed as incurred and
totaled $75,000 for the six months ended June 30, 2004. These costs have not
been included in the above pro forma adjustments as they are reflected as a
reduction to Allaire's stockholders' equity at June 30, 2004. All other expenses
incurred by Bancorp were capitalized or expensed as incurred, based on the
nature of the costs and Bancorp's accounting policies for these costs.
Note 4.
- -------
The following table summarizes the actual fair value adjustments included
on the unaudited pro forma combined condensed consolidated balance sheet and the
impact of amortizing and/or accreting the respective adjustments into expense or
income over their estimated useful lives:
Twelve
Months Ended Six Months
December 31, Ended June 30,
2003 2004
Premiums/ Estimated Amortization/ Amortization/
Category (Discounts) Life In Years (Accretion) (Accretion)
-------- ----------- ------------- ------------- -------------
Securities held to maturity $ (465) 5 $ (155) $ (78)
Loans 602 5 201 101
Buildings 160 25 6 3
Time deposits (15) 3 (8) (4)
Collateralized borrowings 3 1 3 2
Core deposit intangible 3,612 10 527 264
---------- -------- --------
Total $ 3,897 $ 574 $ 288
========== ======== ========
The sum of the years digits method has been utilized for the adjustments
above with the exception of the premium recorded on buildings, which will be
recognized using the straight-line method and the core deposit intangible which
is being amortized on an accelerated basis. Bancorp has determined that the sum
of the years digits method approximates the level yield method, which will be
utilized for securities held to maturity, loans, time deposits and borrowings
when the fair value adjustments are recorded.
33
Note 5.
- -------
The following table summarizes the impact of the amortization/ (accretion)
of the fair value adjustments made in connection with the combination on
Bancorp's results of operations for the following years, assuming such
transaction had been effected on January 1, 2003:
Projected Future Amounts Core Deposit Net Decrease in
For the Years Ended December 31, Intangible Net Amortization Income Before Taxes
- ------------------------------------ ------------ ---------------- -------------------
2003 $ 527 $ 47 $ 574
2004 481 38 519
2005 439 31 470
2006 400 24 424
2007 365 15 380
2008 and Thereafter 1,400 130 1,530
The estimated average useful life of the core deposit intangible was 10 years
and is being amortized utilizing the accelerated basis determined in preparing
the valuation analysis.
Note 6.
- -------
For the twelve months ended December 31, 2003, basic and fully diluted
weighted average common stock and common stock equivalents outstanding were
determined by adding Bancorp's historical weighted average number of shares of
common stock and common stock equivalents and the 2,187,555 shares assumed to be
issued to Allaire's stockholders under the terms of the agreement and plan of
acquisition (1,968,731 weighted average shares of common stock outstanding plus
218,824 weighted average common stock equivalents utilizing the treasury stock
method for the twelve months ended December 31, 2003).
For the six months ended June 30, 2004, basic and fully diluted weighted
average common stock and common stock equivalents outstanding were determined by
adding Bancorp's historical weighted average number of shares of common stock
and common stock equivalents and the 2,187,041 shares assumed to be issued to
Allaire's stockholders under the terms of the agreement and plan of acquisition
(1,971,361 weighted average shares of common stock outstanding plus 215,680
weighted average common stock equivalents utilizing the treasury stock method
for the six months ended June 30, 2004).
34
COMPARATIVE PER SHARE DATA
(Unaudited)
The following table shows certain historical and pro forma per share
financial information for Bancorp and Allaire. The pro forma combined net income
and dividend per share information gives effect to the combination as if it had
become effective at the beginning of the periods presented. Book value per share
data is as of the date presented. The pro forma data assumes that the
combination is accounted for using the purchase method of accounting. This
information is based on, and should be read together with, the historical
financial information that has been presented in prior filings with the
Securities and Exchange Commission and the pro forma financial information that
appears elsewhere in this document. See "Where You Can Find Additional
Information" on page 196 and "Unaudited Pro Forma Combined Condensed
Consolidated Financial Statements" on page 24.
The pro forma financial information is not necessarily indicative of
results that would have occurred had the combination been completed on the dates
indicated or that may be obtained in the future.
- ------------------------------------------------------------------------------------------------
At or For the At or For the
Six Months Ended Year Ended
June 30, 2004 December 31, 2003
------------- -----------------
- ------------------------------------------------------------------------------------------------
Bancorp Common Stock:
- ------------------------------------------------------------------------------------------------
Net Income per Share:
- ------------------------------------------------------------------------------------------------
Basic:
- ------------------------------------------------------------------------------------------------
Historical $ 0.33 $ 0.26
- ------------------------------------------------------------------------------------------------
Bancorp/Allaire Pro Forma(1) 0.33 0.45
- ------------------------------------------------------------------------------------------------
Diluted
- ------------------------------------------------------------------------------------------------
Historical 0.31 0.25
- ------------------------------------------------------------------------------------------------
Bancorp/Allaire Pro Forma(1) 0.31 0.42
- ------------------------------------------------------------------------------------------------
Cash Dividends Declared per Common Share(2)
- ------------------------------------------------------------------------------------------------
Historical 0.00 0.00
- ------------------------------------------------------------------------------------------------
Bancorp/Allaire Pro Forma 0.00 0.00
- ------------------------------------------------------------------------------------------------
Book Value Per Share at Period End:
- ------------------------------------------------------------------------------------------------
Stated:
- ------------------------------------------------------------------------------------------------
Historical 7.76 8.01
- ------------------------------------------------------------------------------------------------
Bancorp/Allaire Pro Forma(3) 15.34 n/a
- ------------------------------------------------------------------------------------------------
Tangible:
- ------------------------------------------------------------------------------------------------
Historical 7.76 8.01
- ------------------------------------------------------------------------------------------------
Bancorp/Allaire Pro Forma(3) 7.13 n/a
- ------------------------------------------------------------------------------------------------
Allaire Common Stock:
- ------------------------------------------------------------------------------------------------
Net Income per Share:
- ------------------------------------------------------------------------------------------------
Basic:
- ------------------------------------------------------------------------------------------------
Historical 0.43 0.81
- ------------------------------------------------------------------------------------------------
Bancorp/Allaire Equivalent Pro Forma(4) 0.33 0.45
- ------------------------------------------------------------------------------------------------
Diluted:
- ------------------------------------------------------------------------------------------------
Historical 0.39 0.73
- ------------------------------------------------------------------------------------------------
Bancorp/Allaire Equivalent Pro Forma(4) 0.31 0.42
- -------------------------------------------------------------------------------------------------
35
- --------------------------------------------------------------------------------------------------------
At or For the At or For the
Six Months Twelve Months
Ended Ended
June 30, 2004 December 31, 2003
------------- -----------------
- --------------------------------------------------------------------------------------------------------
Cash Dividends Declared per Common Share:
- --------------------------------------------------------------------------------------------------------
Historical 0.00 0.00
- --------------------------------------------------------------------------------------------------------
Bancorp/Allaire Equivalent Pro Forma 0.00 0.00
- --------------------------------------------------------------------------------------------------------
Book Value Per Share at Period End:
- --------------------------------------------------------------------------------------------------------
Stated:
- --------------------------------------------------------------------------------------------------------
Historical 7.07 7.07
- --------------------------------------------------------------------------------------------------------
Bancorp/Allaire Equivalent Pro Forma 15.34 n/a
- --------------------------------------------------------------------------------------------------------
Tangible:
- --------------------------------------------------------------------------------------------------------
Historical 7.07 7.07
- --------------------------------------------------------------------------------------------------------
Bancorp/Allaire Equivalent Pro Forma 7.13 n/a
- --------------------------------------------------------------------------------------------------------
- ----------
(1) The Bancorp/Allaire pro forma combined net income per share amounts are
calculated by (a) totaling the historical net income of Bancorp plus
Allaire's net income with pro forma adjustments and (b) dividing the
resulting amounts by the average pro forma combined shares of Bancorp and
Allaire, giving effect to the combination. The average pro forma combined
shares of Bancorp and Allaire equals the historical basic and diluted
average shares of Bancorp plus the historical basic and diluted average
shares of Allaire. The pro forma net income per share amounts do not take
into consideration any cost savings or revenue enhancement opportunities
that may be realized as a result of the combination.
(2) The Bancorp/Allaire pro forma combined stated and tangible book values per
share amounts are calculated by totaling the historical stated and
tangible shareholders' equity of Bancorp and giving effect to the
combination and dividing the resulting amounts by the pro forma combined
shares of Bancorp, giving effect to the combination.
(3) The Bancorp/Allaire equivalent pro forma amounts are calculated by
multiplying the corresponding Bancorp/Allaire pro forma amounts by an
exchange ratio of one for one.
36
RISKS RELATED TO THE COMBINATION
IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS, INCLUDING THE MATTERS ADDRESSED UNDER THE CAPTION "SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS," YOU SHOULD CAREFULLY CONSIDER THE
FOLLOWING RISK FACTORS IN DECIDING WHETHER TO VOTE FOR THE COMBINATION PROPOSAL.
Because the Market Price of Bancorp Common Stock May Fluctuate, You Cannot Be
Sure of the Value of the Consideration That You Will Receive.
Upon completion of the combination, each share of Allaire common stock
will be exchanged for one share of Bancorp common stock. The value of the
Bancorp common stock to be received by Allaire stockholders will be based on the
price of Bancorp common stock at the completion of the combination. Any change
in the price of Bancorp common stock prior to completion of the combination will
affect the value of the consideration that an Allaire stockholder will receive
upon completion of the combination. Stock price changes may result from a
variety of factors, including general market and economic conditions, changes in
Bancorp's business, operations and prospects, and regulatory considerations.
Many of these factors are beyond Bancorp's control. Accordingly, at the time of
the special meetings, Allaire stockholders will not necessarily know or be able
to calculate the value of the Bancorp common stock they will receive upon
completion of the combination. Please note, however, that at the time this joint
proxy statement/prospectus is mailed to the stockholders of Allaire, Janney will
confirm its opinion that the combination is fair to the stockholders of Allaire
based on its analyses on June 30, 2004, as updated to the date of mailing.
Bancorp May Fail to Realize the Anticipated Benefits of the Combination or
Continue to Grow Through the Opening of New Branches.
The success of the combination will depend on, among other things, the
combined entity's ability to realize anticipated cost savings and to combine the
operations of Monmouth Community Bank and Allaire in a manner that does not
materially disrupt the existing customer relationships of Monmouth Community
Bank or Allaire or result in decreased revenues from any loss of customers. If
Bancorp is not able to successfully achieve these objectives, the anticipated
benefits of the combination may not be realized fully or at all or may take
longer to realize than expected.
Monmouth Community Bank and Allaire have operated and, for a period after
the completion of the combination, will continue to operate, independently. It
is possible that the integration process could result in the loss of key
employees, the disruption of the ongoing business of Monmouth Community Bank and
Allaire or inconsistencies in standards, controls, procedures and policies that
would adversely affect the combined bank's ability to maintain relationships
with customers and employees or to achieve the anticipated benefits of the
combination. In addition, the larger combined organization will have to compete
with larger banks and financial institutions for accounts and loans now
accessible to the larger combined organization through increased lending limits,
as well as with smaller community banks for
37
accounts and loan traditionally attracted to small community banks such as the
pre-combination Bancorp and Allaire, which could adversely affect the combined
organization's ability to realize the anticipated benefits of the combination.
Although both Allaire and Bancorp have grown in the past through the
opening of new branches, no assurance can be given that the combined
organization will be able to continue to grow through the opening of new
branches or that such growth, if any, will be at the same level achieved by
Bancorp and Allaire prior to the combination.
Bancorp's and Allaire's Directors and Officers Have Interests in the Combination
Besides Those of a Shareholder or Stockholder.
Bancorp's and Allaire's executive officers negotiated the agreement and
plan of acquisition, and the respective board of directors of Bancorp and
Allaire approved the agreement and plan of acquisition and are recommending that
Bancorp's shareholders and Allaire's stockholders vote for the proposal to
approve and adopt the agreement and plan of acquisition and the transactions
contemplated therein. In considering these facts and the other information
contained in this joint proxy statement/prospectus, you should be aware that
Bancorp's and Allaire's executive officers and directors have various interests
in the combination besides being Allaire stockholders or Bancorp shareholders,
as the case may be. See "Interests of Directors and Officers in the Combination"
on page 72.
Bancorp May be Subject to Adverse Regulatory Conditions.
Before the combination may be completed, various approvals must be
obtained from, or notifications submitted to, the Federal Deposit Insurance
Corporation and the New Jersey Department of Banking and Insurance. The
combination is also subject to the non-objection of the Federal Reserve Bank of
New York. No assurance can be given that Bancorp and Allaire will be able to
obtain all necessary governmental approvals and, if obtained, some of the
governmental authorities from which approvals were obtained may impose
conditions on the completion of the combination or require changes in the terms
of the combination. These conditions or changes could have the effect of
delaying the combination or imposing additional costs or limiting the possible
revenues of the combined entity. Further, as a national association, Monmouth
Community Bank is regulated and supervised by the Office of the Comptroller of
the Currency. After the combination, the merger of Monmouth Community Bank and
Allaire will be subject to the approval of the Office of the Comptroller of the
Currency as well as the New Jersey Department of Banking.
The Percentage Ownership in the Combined Organization of a Bancorp Shareholder
and Allaire Stockholder Will Be Less Than the Percentage Ownership Interest of
the Bancorp Shareholder in Bancorp and the Allaire Stockholder in Allaire.
The percentage ownership interest of each Bancorp shareholder in Bancorp
will be diluted by the issuance of the 1,973,361 shares of Bancorp common stock
to the Allaire stockholders for their shares of Allaire common stock. Similarly,
the percentage ownership interest in the combined organization by an Allaire
stockholder will be approximately fifty percent (50%) less than the percentage
ownership interest the Allaire stockholder had in Allaire
38
prior to the combination. This means that a shareholder of Bancorp and a
stockholder of Allaire will have less voting interest in the combined
organization then they had in their respective organizations prior to the
combination.
Future Results of the Combined Organization May Differ Significantly From the
Pro Forma Financial Statements Included Elsewhere Herein.
We anticipate that the combination will provide the combined organization
with financial benefits including cost savings and enhanced revenue
opportunities. The pro forma information included elsewhere herein, while
helpful in illustrating the financial characteristics of the combined
organization under one set of assumptions, does not reflect benefits of expected
cost savings or revenue opportunities and, accordingly, does not attempt to
predict or suggest future results. It also does not necessarily reflect what the
historical results of the combined organization would have been had Bancorp and
Allaire been combined during the periods presented.
39
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This document contains or incorporates by reference a number of
forward-looking statements regarding the financial condition, results of
operations and business of Bancorp and Allaire, and may include statements for
the period following the completion of the combination. In some cases, you can
identify forward-looking statements by terminology such as "may," "will,"
"should," "could," "expects," "plans," "anticipates," "believes," "estimates,"
"predicts," "potential" or "continue" or the negative of such terms or other
comparable terminology. Those statements could be affected by known and unknown
risks, uncertainties and other factors that may cause Bancorp's actual results,
levels of activity, performance or achievements to be materially different from
any future results, levels of activity, performance or achievements expressed or
implied by such forward-looking statements.
The ability of Bancorp and Allaire to predict results or the actual
effects of their plans and strategies is inherently uncertain. Accordingly,
actual results may differ materially from anticipated results. Some of the
factors that may cause actual results to differ materially from those
contemplated by the forward-looking statements include, but are not limited to,
the following:
o Difficulties in obtaining required shareholder, stockholder and
regulatory approvals for the combination;
o Increases in competitive pressure among financial institutions or
from non-financial institutions;
o Changes in the interest rate environment;
o Changes in deposit flows, loan demand or real estate values;
o Changes in accounting principles, policies or guidelines;
o Legislative or regulatory changes;
o Changes in general economic conditions, either nationally or in some
or all of the operating areas in which the combined company will be
doing business, or conditions in securities markets or the banking
industry;
o A materially adverse change in the financial condition of Bancorp or
Allaire;
o The level and timeliness of realization, if any, of expected cost
savings from the combination;
o Difficulties related to the consummation of the combination and the
integration of the operations of Bancorp and Allaire;
o Lower than expected revenues following the combination; and
o Other economic, competitive, governmental, regulatory, geopolitical
and technological factors affecting operations, pricing and
services.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we, nor any other
persons assume responsibility for the accuracy and completeness of such
statements. Except to the extent required by applicable law or regulation, we
are under no duty to update any of the forward-looking statements after the date
of this joint proxy statement/prospectus.
40
THE MONMOUTH COMMUNITY BANCORP SPECIAL MEETING
This section contains information for the holders of Bancorp common stock,
par value $0.01 per share, regarding the special meeting of shareholders which
Bancorp has called in order for its shareholders to consider and vote on the
proposal to approve and adopt the agreement and plan of acquisition and the
transactions contemplated therein.
Together with this document, Bancorp is also sending you notice of the
Bancorp special meeting of shareholders and a form of proxy that is being
solicited by Bancorp's board of directors. The Bancorp special meeting will be
held at _____ __.m., local time, on _____, _____ __, 2004 at
______________________, located at __________, __________, New Jersey.
Record Date
The board of directors of Bancorp has fixed the close of business on
__________, 2004 as the record date for the determination of its shareholders
entitled to notice of and to vote at the Bancorp special meeting.
Solicitation of Proxies
It is important that the shares of Bancorp common stock held by each
holder thereof are represented at the Bancorp special meeting, whether or not
the holder of the shares of Bancorp common stock plans to attend the Bancorp
special meeting in person and regardless of the number of shares held by him,
her or it. To ensure that the shares of Bancorp common stock held by the Bancorp
shareholders are represented at the Bancorp special meeting, we urge each
Bancorp shareholder to complete, sign, date and return the proxy card received
by him, her or it in the postage prepaid envelope provided to the Bancorp
shareholder. By giving a proxy, a Bancorp shareholder will be ensuring that his,
her or its shares of Bancorp common stock will be represented and voted at the
Bancorp special meeting in accordance with the instructions of the Bancorp
shareholder. If a Bancorp shareholder attends the Bancorp special meeting, he,
she or it may vote in person even if the Bancorp shareholder has previously
submitted a proxy by following the procedure for revocation provided below.
Shareholders of Bancorp may revoke the authority granted by their
execution of proxies at any time before the effective exercise of such proxies
by filing written notice of such revocation with the secretary of Bancorp.
Presence at the Bancorp special meeting does not, in and of itself, revoke the
proxy. Also, any grant of a proxy subsequent to an earlier grant of a proxy,
revokes the earlier proxy. All shares of Bancorp common stock represented by
executed and unrevoked proxies will be voted in accordance with the
specifications therein. Proxies submitted without specification will be voted
"FOR" the proposal to approve and adopt the agreement and plan of acquisition
and the transactions contemplated therein. Neither the board of directors nor
management of Bancorp is aware, to date, of any matter being presented at the
Bancorp special meeting other than the consideration and adoption of the
combination proposal.
Proxies for use at the Bancorp special meeting are being solicited by the
board of directors of Bancorp. The cost for preparing, assembling and mailing
the proxy materials is to be borne by Bancorp. It is not anticipated that any
compensation will be paid for soliciting proxies, and Bancorp does not intend to
employ specially engaged personnel in the solicitation of proxies.
41
It is contemplated that proxies will be solicited principally through the mail,
but directors, officers and employees of Bancorp, without additional
compensation, may solicit proxies personally or by telephone, telegraph,
facsimile transmission or special letter.
Voting Rights and Vote Required
Shareholders of record at the close of business on __________, 2004 are
entitled to one vote for each share of Bancorp common stock then held by them.
As of that date, Bancorp had ___________ shares of its common stock issued and
outstanding. The presence, in person or by proxy, of at least a majority of the
total number of outstanding shares of Bancorp common stock entitled to be voted
at the Bancorp special meeting is necessary to constitute a quorum at such
meeting. Abstentions and broker non-votes will be counted as shares present and
entitled to be voted at the Bancorp special meeting for the purpose of
determining the existence of a quorum.
A majority of the outstanding shares of Bancorp common stock voted at the
Bancorp special meeting at which a quorum is present must be voted in favor of
the combination proposal for it to be approved.
All votes will be tabulated by the inspector of election appointed at the
Bancorp special meeting who will separately tabulate affirmative votes, negative
votes, abstentions and broker non-votes. Under New Jersey law, any proxy
submitted and containing an abstention or broker non-vote will not be counted as
a vote cast on any matter to which it relates.
Recommendation of the Board of Directors
The members of the board of directors of Bancorp have unanimously approved
the agreement and plan of acquisition and the transactions contemplated therein.
The board has determined that the agreement and plan of acquisition and the
transactions contemplated therein are advisable and in the best interests of
Bancorp and its shareholders and recommends that you vote "FOR" the proposal to
approve and adopt the agreement and plan of acquisition and the transactions
contemplated therein. See "The Proposed Combination For Consideration and Vote
by Bancorp Shareholders and Allaire Stockholders - Recommendation of Bancorp's
Board of Directors and Reasons for the Combination" on page 61 for a more
detailed discussion of the recommendation of Bancorp's board of directors.
42
THE ALLAIRE COMMUNITY BANK SPECIAL MEETING
This section contains information for the holders of Allaire common stock,
par value $3.33333 per share, regarding the special meeting of stockholders
which Allaire has called in order for its stockholders to consider and vote on
the proposal to approve and adopt the agreement and plan of acquisition and the
transactions contemplated therein.
Together with this document, Allaire is also sending you notice of the
Allaire special meeting of stockholders and a form of proxy that is being
solicited by Allaire's board of directors. In order to comply with applicable
state banking regulations, the Allaire special meeting will be held at _____
__.m., local time, on _____, _____ __, 2004, at the principal offices of
Allaire, located at 2200 Highway 35, Sea Girt, New Jersey. To better accommodate
Allaire's stockholders, the special meeting will be immediately adjourned and
reconvened at ______ __.m., local time, at the Breakers Hotel, located at 1507
Ocean Avenue, Spring Lake, New Jersey. If you plan on attending the Allaire
special meeting in person, please go directly to the adjourned meeting at the
Breakers Hotel.
Record Date
The board of directors of Allaire has fixed the close of business on
__________, 2004 as the record date for the determination of its stockholders
entitled to notice of and to vote at the Allaire special meeting.
Solicitation of Proxies
It is important that the shares of Allaire common stock held by each
holder thereof are represented at the Allaire special meeting, whether or not
the holder of the shares of Allaire common stock plans to attend the Allaire
special meeting in person and regardless of the number of shares held by him,
her or it. To ensure that the shares of Allaire common stock held by the Allaire
stockholders are represented at the Allaire special meeting, we urge each
Allaire stockholder to complete, sign, date and return the proxy card received
by him, her or it in the postage prepaid envelope provided to the Allaire
stockholder. By giving a proxy, an Allaire stockholder will be ensuring that
his, her or its shares of Allaire common stock will be represented and voted at
the Allaire special meeting in accordance with the instructions of the Allaire
stockholder. If an Allaire stockholder attends the Allaire special meeting, he,
she or it may vote in person even if the Allaire stockholder has previously
submitted a proxy by following the procedure for revocation provided below.
Stockholders of Allaire may revoke the authority granted by their
execution of proxies at any time before the effective exercise of such proxies
by filing written notice of such revocation with the secretary of Allaire.
Presence at the Allaire special meeting does not, in and of itself, revoke the
proxy. Also, any grant of a proxy subsequent to an earlier grant of a proxy,
revokes the earlier proxy. All shares of Allaire common stock represented by
executed and unrevoked proxies will be voted in accordance with the
specifications therein. Proxies submitted without specification will be voted
"FOR" the proposal to approve and adopt the agreement and plan of acquisition
and the transactions contemplated therein. Neither the board of directors nor
43
management of Allaire is aware, to date, of any matter being presented at the
Allaire special meeting other than the consideration and adoption of the
combination proposal.
Proxies for use at the Allaire special meeting are being solicited by the
board of directors of Allaire. The cost for preparing, assembling and mailing
the proxy materials is to be borne by Allaire. It is not anticipated that any
compensation will be paid for soliciting proxies, and Allaire does not intend to
employ specially engaged personnel in the solicitation of proxies. It is
contemplated that proxies will be solicited principally through the mail, but
directors, officers and employees of Allaire, without additional compensation,
may solicit proxies personally or by telephone, telegraph, facsimile
transmission or special letter.
Voting Rights and Vote Required
Stockholders of record at the close of business on __________, 2004 are
entitled to one vote for each share of Allaire common stock then held by them.
As of that date, Allaire had ___________ shares of its common stock issued and
outstanding. The presence, in person or by proxy, of at least a majority of the
total number of outstanding shares of common stock entitled to be voted at the
Allaire special meeting is necessary to constitute a quorum at the Allaire
special meeting. However, regardless of how many shares of Allaire common stock
are present, in person or by proxy, at the special meeting, if less than
two-thirds of the outstanding shares of Allaire common stock are voted in favor
of the combination proposal, the combination proposal will not be approved.
Abstentions and broker non-votes will be counted as shares present and entitled
to be voted at the Allaire special meeting for the purpose of determining the
existence of a quorum.
As set forth above, two-thirds of the outstanding shares of Allaire common
stock entitled to vote on the combination proposal must be voted in favor of the
combination proposal for it to be approved, regardless of how many shares of
Allaire common stock are present, in person or by proxy, at the special meeting.
All votes will be tabulated by not less than one nor more than three
judges of election appointed by the Allaire board of directors who will
separately tabulate affirmative votes, negative votes, abstentions and broker
non-votes. Under New Jersey law, any proxy submitted and containing an
abstention or broker non-vote will not be counted as a vote cast on any matter
to which it relates.
Recommendation of the Board of Directors
The members of the board of directors of Allaire have unanimously approved
the agreement and plan of acquisition and the transactions contemplated therein.
The board has determined that the agreement and plan of acquisition and the
transactions contemplated therein are advisable and in the best interests of
Allaire and its stockholders and recommends that you vote "FOR" the proposal to
approval and adopt the agreement and plan of acquisition and the transactions
contemplated therein. See "The Proposed Combination For Consideration and Vote
by Bancorp Shareholders and Allaire Stockholders - Recommendation of Allaire's
Board of Directors and Reasons for the Combination" on page 54 for a more
detailed discussion of the recommendation of Allaire's board of directors.
44
INFORMATION ABOUT THE COMPANIES
Monmouth Community Bancorp
627 Second Avenue
Long Branch, New Jersey 07740
(732) 571-1300
Monmouth Community Bancorp is a single-bank holding company headquartered
in Long Branch, New Jersey. Bancorp was incorporated in New Jersey on March 7,
2000, and became an active bank holding company on August 31, 2000 through the
acquisition of Monmouth Community Bank, National Association. Monmouth Community
Bank, which commenced operations on July 28, 1998, provides a full range of
banking services to individual and business customers located primarily in
coastal Monmouth County, New Jersey. Monmouth Community Bank has six (6)
full-service branch facilities located in Long Branch, Spring Lake Heights,
Little Silver, Neptune, Neptune City and Ocean Grove, New Jersey. Monmouth
Community Bank has entered into a land lease agreement and received the required
regulatory approvals to open a seventh branch in the Ursula Plaza Shopping
Center, 444 Ocean Boulevard, Long Branch, New Jersey. Monmouth Community Bank
anticipates commencing operations at this branch in the autumn of 2004.
Monmouth Community Bank offers a full range of retail and commercial
banking services to its customers, including checking accounts, savings
accounts, money market accounts, certificates of deposit, installment loans,
real estate mortgage loans, commercial loans, wire transfers, money orders,
traveler's checks, safe deposit boxes, night depository, federal payroll tax
deposits, bond coupon redemption, bank by mail, direct deposit, automated teller
services, and telephone and internet banking. Monmouth Community Bank has debit
card, merchant card and international services available to its customers
through correspondent institutions.
Monmouth Community Bank is a national association chartered by the Office
of the Comptroller of the Currency, and its deposits are insured by the Federal
Deposit Insurance Corporation. As a community bank, Monmouth Community Bank's
emphasis is on providing a broad range of financial products and services to
individual consumers, small businesses and professionals in its market area.
When a customer's loan requirements exceed Monmouth Community Bank's lending
limit, Monmouth Community Bank seeks to arrange such loans on a participation
basis with other financial institutions. In addition, Monmouth Community Bank
may participate in loans originated by other financial institutions.
In 2001, Monmouth Community Bank converted from a state-chartered bank to
a national association chartered by the Office of the Comptroller of the
Currency. The activities permitted by the national association charter and the
Office of the Comptroller of the Currency's regulatory parameters and oversight
are believed by Bancorp's board of directors to be more consistent with the
strategic initiatives of Monmouth Community Bank.
45
Allaire Community Bank
2200 Highway 35
Post Office Box 440
Sea Girt, New Jersey 08750
(732) 292-1600
Allaire Community Bank engages in the business of commercial and retail
banking. As a community bank, Allaire offers a wide range of services including
demand, savings and time deposits and commercial and consumer/installment loans
to individuals, small businesses and not-for-profit organizations principally in
Monmouth County and Ocean County, New Jersey. Allaire also offers its customers
numerous banking products such as safety deposit boxes, a night depository, wire
transfers, money orders, travelers checks, automated teller machines, direct
deposit, federal payroll tax deposits, telephone and internet banking as well as
merchant card and international services through its correspondent institutions.
Allaire conducts its operations through its main office located in Wall Township
(Sea Girt Post Office), New Jersey, a branch office in Manasquan, New Jersey
which opened in April, 1998, a branch office in Neptune City, New Jersey which
opened in November, 2000, a branch office in Point Pleasant, New Jersey which
opened in January, 2001, a branch office in Bradley Beach, New Jersey which
opened in August, 2001, a branch office in Belmar, New Jersey which opened in
November, 2002, and its newest branch office in the Shop Rite in Wall Township
(Manasquan Post Office), New Jersey, which opened in July, 2004. Allaire also is
currently seeking municipal approvals for another branch location at the
intersection of Route 34 and Hurley Pond Road, Wall, New Jersey. Allaire is a
New Jersey-chartered bank and the Federal Deposit Insurance Corporation insures
its deposits up to applicable legal limits.
Allaire commenced operations in May, 1997. The board of directors and
management of Allaire are focused on positioning Allaire to be the dominant bank
in the market surrounding its initial primary location. Staff training and
superior customer service level guidelines have been established by Allaire,
with progress and results continuously monitored by its management. Marketing
efforts are focused on product structure and pricing, with delivery coordinated
with enhanced components of personal service and responsiveness. Attention to
customer service in a growing market is the center point of all activities.
The banking industry trends, present in Allaire's immediate market,
continue to be characterized by the purchase of long standing local banks by
organizations with distant management control. This trend generally includes
branch location closures and staffing cutbacks, which have enhanced the market's
acceptance of the local focus of Allaire in the Sea Girt and surrounding
markets. This led to the opening of its branch locations in Manasquan, New
Jersey in April, 1998, Neptune City, New Jersey in November, 2000, Point
Pleasant, New Jersey in January, 2001, Bradley Beach, New Jersey in August,
2001, Belmar, New Jersey in November, 2002 and its newest location at the Shop
Rite in Wall Township, New Jersey which opened in July, 2004. Allaire also is
currently seeking municipal approvals for a new branch to be located at the
intersection of Route 34 and Hurley Pond Road, Wall, New Jersey. In addition,
Allaire is considering additional new branch locations. However, there can be no
assurances that Allaire will be successful in opening future branches.
46
Allaire is guided by certain important principles--maintaining a community
focus in a growing market, rigorous control of asset quality, capitalizing on
current market dynamics, maximizing the advances of technology to fully utilize
the efficiencies available, emphasizing local transaction account and loan
generation, building a sales and service culture to fit the growing environment
and attracting highly experienced personnel with proven professional
capabilities.
47
THE PROPOSED COMBINATION
FOR CONSIDERATION AND VOTE BY BANCORP SHAREHOLDERS AND ALLAIRE STOCKHOLDERS
THE DESCRIPTION OF THE COMBINATION AND THE AGREEMENT AND PLAN OF ACQUISITION
CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS DESCRIBES THE MATERIAL TERMS
OF THE COMBINATION AND RELATED AGREEMENT; HOWEVER, IT DOES NOT PURPORT TO BE
COMPLETE. IT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE COMBINATION
AGREEMENT. WE HAVE ATTACHED A COPY OF THE COMBINATION AGREEMENT AS APPENDIX A.
WE ENCOURAGE YOU TO READ THE COMBINATION AGREEMENT.
General
This joint proxy statement/prospectus is being furnished to the
shareholders of Monmouth Community Bancorp and the stockholders of Allaire
Community Bank for use at their respective special meetings. The purpose of the
special meetings is to consider and vote on the proposal to approve and adopt
the agreement and plan of acquisition, dated as of June 30, 2004, by and between
Bancorp and Allaire, and the transactions contemplated therein, pursuant to
which, among other things, Bancorp and Allaire will combine, as equals, in a
strategic business combination, each outstanding share of Allaire common stock
will be exchanged for one share of Bancorp common stock, the size of the board
of directors of Bancorp will be increased from ten to twelve directors and
comprised of six members of Bancorp's current board and six members of Allaire's
current board, and, contemporaneous with the closing of the business
combination, the certificate of incorporation of Bancorp will be amended to
change Bancorp's name to "Central Jersey Bancorp."
Background of the Combination
Discussions concerning a strategic business alliance between Bancorp and
Allaire initially commenced in April, 2003. On April 10, 2003, Mr. Carl F.
Chirico, President and Chief Executive Officer of Allaire, and Mr. Robert S.
Vuono, Senior Executive Vice President, Chief Operating Officer, Chief Financial
Officer and Secretary of Allaire, met with Mr. James S. Vaccaro, Chairman and
Chief Executive Officer of Bancorp, to discuss banking philosophies and the
landscape of community banking in the Monmouth County, New Jersey area. At this
meeting, these executive officers and directors of Allaire and Bancorp
recognized that their respective organizations shared many of the same business
and operational philosophies. Messrs. Chirico, Vuono and Vaccaro also discussed
at this meeting possible mutually beneficial business arrangements between the
two banking organizations. It was decided that each organization would consider
possible business arrangements with the other and that Messrs. Chirico, Vuono
and Vaccaro would meet in the future to explore such possible arrangements.
On June 10, 2003, Messrs. Chirico, Vuono and Vaccaro met to discuss
possible business arrangements between Allaire and Bancorp, including whether a
business combination between Allaire and Bancorp would be beneficial to both
organizations. Recognizing that the growth of their franchises through new
branch openings was limited due to the saturation in their markets of banking
establishments, Messrs. Chirico, Vuono and Vaccaro determined that a business
48
combination between Allaire and Bancorp would allow for greater market
penetration and operational capability through increased efficiencies and a
greater lending limit within a relatively short time period. It was also
determined that the similar operating philosophies of Allaire and Bancorp should
facilitate the integration of the operations of the two organizations into a
combined organization.
On July 15, 2003, Messrs. Chirico, Vuono and Vaccaro met to further
explore a potential business combination. At this meeting, it was decided that
representatives from the boards of directors of Allaire and Bancorp should meet
to continue preliminarily discussions with respect to any business combination
involving Allaire and Bancorp.
On July 24, 2003, Mr. Vaccaro informed the board of directors of Bancorp
of the potential interest of Allaire in exploring a business combination with
Bancorp. At this meeting of the Bancorp board of directors, Mr. Vaccaro
recommended that certain board members meet with representatives from Allaire to
further explore potential business combination scenarios. On August 14, 2003,
Messrs. Chirico, Vuono and Vaccaro met to plan the meetings to be held between
representatives of the respective boards of directors of Allaire and Bancorp.
Shortly thereafter, on August 27, 2003 and September 18, 2003, Messrs. Chirico,
Vuono and Vaccaro conducted business meetings with a select number of board
members from each organization to discuss financial and governance issues with
respect to any potential business combination. The members of the Allaire board
of directors participating in such meetings were Mr. George S. Callas, Mr. Carl
F. Chirico, Mr. James P. Dugan and Mr. Robert S. Vuono, and the members of the
Bancorp board of directors participating in such meetings were Mr. John A.
Brockriede, Mr. James S. Vaccaro, Mr. Harold M. Miller, Sr. and Mr. Mark G.
Solow.
On September 24, 2003, the Allaire board of directors was informed of the
status of the recent meetings with Bancorp with respect to a potential business
combination. At this meeting of the Allaire board of directors, the members of
the Allaire board also discussed the outstanding financial and governance issues
that needed to be resolved prior to moving forward with any business
combination.
On September 25, 2003, Mr. Vaccaro provided a full overview to Bancorp's
board of directors regarding business combination discussions with Allaire. At
this meeting of the Bancorp board of directors, Mr. Vaccaro discussed a number
of outstanding issues that required resolution if any business combination
transaction was to move forward. These issues involved the consideration to be
offered by Bancorp to the Allaire stockholders for their shares of Allaire
common stock and governance issues concerning the combined organization.
Based on the inability of Allaire and Bancorp to resolve a number of
governance and financial issues, the initial business combination discussions
between the two organizations terminated in early October, 2003.
On March 26, 2004, Mr. Vaccaro and Messrs. Chirico and Vuono met to
reevaluate the unresolved issues with respect to a potential business
combination. At this meeting, Messrs. Chirico, Vuono and Vaccaro reviewed the
unresolved issues and whether such issues could be addressed satisfactorily to
both parties. On March 30, 2004, Mr. Vaccaro once again met with
49
Messrs. Chirico and Vuono to further discuss various business combination
scenarios and to outline the unresolved issues with respect to the proposed
business combination involving Bancorp and Allaire. The outstanding issues
related to financial aspects of the transaction and the governance of the
combined organization. Specifically, representatives of Allaire were insistent
on a transaction that would result in each share of Allaire common stock being
exchanged for one share of Bancorp common stock. In addition, governance issues
as they relate to the composition of the prospective board of directors of the
combined organization were discussed. Recognizing that the proposed business
combination would result in the governance of the combined organization being
shared equally by Allaire and Bancorp representatives, the representatives of
Bancorp and Allaire also discussed how to address stalemate situations. Shortly
after this meeting, the representatives of Allaire and Bancorp reported to their
respective boards of directors that preliminary business combination discussions
had recommenced between the organizations.
On April 5, 2004, Mr. Vaccaro and Mr. Vuono spoke regarding the above
mentioned financial and governance aspects of the proposed transaction, neither
of which had been successfully negotiated before that date.
On April 12, 2004, Mr. Vaccaro and Bancorp board members, John A.
Brockriede and Mark G. Solow, met with Messrs. Chirico, Vuono and Allaire's
Chairman of the Board, George S. Callas. At this meeting, the entire concept of
merger of equals and the creation of a larger community bank enterprise was
discussed in detail. The financial terms of the proposed business combination
were reviewed as well as the proposed governance and management structure of the
combined organization. In addition, at this meeting, it was tentatively agreed,
pending full board review and approval, that Mr. Callas would serve as Chairman
of the Board, Mr. Chirico would serve as Vice-Chairman of the Board, and Mr.
Vaccaro would serve as President and Chief Executive Officer of the combined
organization. In addition, in terms of consideration, a one for one exchange
(one share of Allaire common stock to be exchanged for one share of Bancorp
common stock after giving effect to a 6 for 5 stock split of Bancorp common
stock) was agreed to by the parties, subject to the board approval of each party
and the receipt of appropriate fairness opinions. Subsequent to this meeting,
both parties agreed that each party should provide a complete update of the
negotiated business combination to its board of directors.
On April 20, 2004, Mr. Vaccaro met with the executive committee of the
board of directors of Bancorp to provide an update of the on-going discussions
with respect to the proposed business combination transaction that was being
negotiated with Allaire. Subsequent to the meeting of the executive committee,
on April 29, 2004, the Bancorp board of directors was provided with an update by
Mr. Vaccaro of the negotiations with respect to the proposed business
combination. At this Bancorp board meeting, the directors of Bancorp unanimously
agreed to continue to pursue and negotiate a business combination transaction
with Allaire. The Bancorp board also authorized entering into a confidentiality
agreement with Allaire, the commencement of due diligence and the retention of
an investment banking firm for purposes of rendering financial advice and a
fairness opinion in connection with any business combination involving Allaire.
50
At the meeting of the Allaire board of directors held on April 28, 2004,
Messrs. Chirico and Vuono informed the Allaire board of directors of the status
of the negotiations with Bancorp with respect to the proposed business
combination. At this Allaire board meeting, the Allaire board voted to continue
to pursue the proposed business combination and, in connection therewith,
authorized the execution and delivery of a confidentiality agreement with
Bancorp and the commencement of a due diligence review of Bancorp.
On May 4, 2004, a confidentiality agreement jointly prepared by counsel
for Bancorp and counsel for Allaire was executed by Mr. Chirico, on behalf of
Allaire, and Mr. Vaccaro, on behalf of Bancorp, as well as Mr. Vuono and Anthony
Giordano III, the Executive Vice President, Chief Financial Officer and
Secretary of Bancorp. On May 7, 2004, Messrs. Chirico, Vuono and Vaccaro met to
continue to negotiate governance and organizational issues with respect to the
combined organization. Between May 11 and June 1, select representatives from
Bancorp and Allaire performed due diligence on their counterparts. The due
diligence reviews focused on operating issues, potential risk components,
philosophy, policy and procedures, regulatory issues, outsourcing contracts,
compliance, audit, balance sheet components (credit, investment, deposits) and
human resource issues. On May 12, 2004, Mr. Chirico met with the executive
committee of the Allaire board to provide an update with respect to the proposed
business combination.
On May 19, 2004, Messrs. Chirico and Vuono and legal counsel for Allaire
met with Messrs. Vaccaro and Giordano and legal counsel for Bancorp. The meeting
took place at the offices of corporate counsel for Bancorp. At this meeting, the
preliminarily terms and conditions of the proposed business combination to be
included in a formal agreement relative thereto were discussed and a draft
timeline for the prospective transaction was finalized.
On May 24, 2004, Messrs. Callas, Chirico and Vuono met with Janney
Montgomery Scott LLP, an investment banking firm, with respect to the possible
engagement of Janney to serve as financial advisor to Allaire in connection with
the proposed business combination being negotiated with Bancorp. At this
meeting, Janney and the representatives of Allaire reviewed Bancorp's historical
financial performance and the possible effects of a business combination between
Bancorp and Allaire.
On May 26, 2004, the board of directors of Allaire reviewed the proposed
terms and conditions of the business combination and the due diligence findings
with respect to Bancorp. The Allaire board also reviewed the terms of engagement
with respect to the possible engagement of Janney to serve as financial advisor
to Allaire with respect to the proposed business combination and render a
fairness opinion in connection therewith. At this Allaire board meeting, the
Allaire board authorized the engagement of Janney and the preparation of
definitive agreements with respect to the proposed business combination. Janney
was formally engaged to act as financial advisor to Allaire on May 28, 2004.
At the meeting of the Bancorp board of directors held on May 27, 2004, Mr.
Vaccaro presented a comprehensive overview of the due diligence process and
findings with respect to Allaire and the terms and conditions of the proposed
business combination with Allaire. He also discussed the engagement letter by
which Sandler O-Neill & Partners, L.P. proposed to be
51
engaged as Bancorp's financial advisor. Mr. Vaccaro stated that the engagement
letter was fully reviewed by the executive committee of the Bancorp board on May
18, 2004 and that the executive committee recommended approval. Following
significant discussions, the Bancorp board of directors unanimously approved
engaging Sandler O'Neill as financial advisor. Sandler O'Neill was formally
engaged to act as financial advisor to Bancorp on May 28, 2004.
The respective board of directors of Bancorp and Allaire met jointly for
an evening of introduction and discussion on June 16, 2004. The purpose of this
meeting was to further build the relationship between the two organizations.
On June 18, 2004, Mr. Chirico met with certain loan review and compliance
management consultants with respect to Bancorp. Inasmuch as these consultants
had also provided advice to Bancorp on various banking matters, Bancorp
consented to the meeting of the consultants with Mr. Chirico. At this meeting,
Mr. Chirico and the consultants reviewed potential issues with respect to the
integration of the operations of the two banking organizations.
On June 23, 2004, the board of directors of Allaire met to discuss the
business combination and any outstanding issues relating thereto. Counsel for
Allaire provided an overview of the pertinent provisions and discussed their
effect on Allaire as combined. In addition, counsel discussed the ramifications
of unequal representation of the members of each board at the bank levels.
Counsel also explained to the board the requirement of voting agreements and
irrevocable proxies and the board's agreement to recommend the transaction to
the Allaire stockholders. Counsel discussed the board's fiduciary responsibility
with respect to the transaction and advised the board members that they would be
getting an updated version of the agreement and plan of acquisition for review
and that they could ask any questions they may have with respect to such
materials and the terms and conditions of the combination to legal counsel or
Janney, Allaire's financial advisor. In addition, the terms and conditions of
the definitive agreement were discussed at length. Representatives of Janney
provided their preliminary report and discussed with the board their findings
regarding the fairness of the combination to the stockholders of Allaire. The
Janney representatives answered questions of the board and discussed the impact
that increasing or decreasing Bancorp stock prices during the time period from
the execution of the agreement and plan of acquisition to the final closing of
the combination would have on the fairness of the consideration being offered by
Bancorp to Allaire stockholders. The Janney representatives discussed the
overall reasoning of the fairness opinion and the factors involved in reaching
the conclusions therein. In addition, Allaire's loan review and compliance
management consultants provided a report with respect to potential operational
integration issues regarding the proposed business combination. The Allaire
board concluded that the proposed combination would give both institutions a
greater market share and a better opportunity for future growth and expansion in
the Monmouth County area.
On June 24, 2004, Bancorp held a meeting of its board of directors, which
was attended by representatives of the investment-banking firm Sandler O'Neill
and counsel to Bancorp. Representatives from Sandler O'Neill provided a
comprehensive presentation to the board of directors. They spoke in detail on
the issues of stock and franchise valuation, company pro forma analysis,
comparable peer group analysis, deposit growth and composition comparisons, net
interest margin, and overall valuation models for both Bancorp and Allaire. The
Sandler
52
O'Neill representatives stated their belief that the proposed transaction should
be significantly accretive to Bancorp's earnings per share. Sandler O'Neill also
noted that, based upon the proposed one for one stock exchange (after giving
effect for the prospective 6 for 5 stock split), it believed that it would be
able to render an opinion that the exchange ratio was fair to Bancorp from a
financial point of view. Mr. Vaccaro advised the members of Bancorp's board of
directors that they would receive an updated version of the agreement and plan
of acquisition, schedules and voting agreement within the next few days. He
explained the board's fiduciary duty with respect to the proposed transaction.
Mr. Vaccaro continued by advising the Bancorp board members that they should
direct any questions that arise from their comprehensive review of the
transaction materials to Bancorp's legal counsel, financial advisor or
management. At this meeting, it was preliminarily agreed that based upon the
terms and conditions of the proposal, Bancorp would enter into the agreement of
plan of acquisition on June 30, 2004.
On June 28, 2004, a meeting was held at the offices of counsel to Bancorp
and attended by Messrs. Chirico and Vuono from Allaire, Messrs. Vaccaro and
Giordano from Bancorp and Allaire's and Bancorp's respective counsel. At this
meeting, final business combination issues were discussed and the initial draft
of the press release concerning the proposed business combination was drafted.
On June 29, 2004, a meeting was held with counsel to Bancorp and counsel
to Allaire to review the final draft of the agreement and plan of acquisition
and related documents. The meeting was attended by Messrs. Chirico and Vuono
from Allaire and Messrs. Vaccaro and Giordano from Bancorp.
On June 30, 2004, at a board of directors meeting of Bancorp, attended by
representatives of counsel to Bancorp and Sandler O'Neill (via voice
communication), Sandler O'Neill orally delivered its opinion as to the fairness
to Bancorp, from a financial point of view, of the exchange ratio in the
proposed business combination and representatives of counsel to Bancorp
discussed with the Bancorp board any remaining legal issues. After the legal
discussion ended, each of the members of the board of directors of Bancorp voted
in favor of entering into the agreement and plan of acquisition with Allaire and
consummating the transactions contemplated therein.
Also on June 30, 2004, the board of directors of Allaire met to discuss
and vote on a proposal to approve the agreement and plan of acquisition. At this
meeting, counsel to Allaire provided a final report on the status and contents
of all transaction documents. Representatives of Janney, Allaire's financial
advisor, reviewed certain terms of the transaction, gave their fairness opinion
presentation and delivered Janney's written opinion that the combination
consideration, as of June 30, 2004, was fair to the Allaire stockholders from a
financial point of view. These representatives discussed peer group analysis,
deposit growth potential, asset quality, evaluation of the both franchises
individually and combined, including the net interest margins of both entities
and their performance over the last two years. After such presentation and
consultation with Allaire's legal counsel, the members of Allaire's board of
directors unanimously approved the combination with Bancorp contemplated by the
agreement and plan of acquisition and authorized its execution by Allaire's
senior officers.
53
Recommendation of Allaire's Board of Directors and Reasons for the Combination
The board of directors of Allaire has exercised tremendous effort in the
development and implementation of Allaire's strategic plan to continually
increase market share in the Monmouth County, New Jersey area and thus increase
stockholder value. Over the course of Allaire's existence, implementation of
this strategic plan has resulted in consistent growth and branch expansion.
However, in light of the current market place conditions, as well as the time
constraints of branch expansion, the Allaire board also has considered the
option of growth through the combination with another institution which would
not only complement Allaire's already existing footprint, but also enhance its
products, services and customer capabilities.
With the assistance of Allaire's financial advisors, the Allaire board
explored the option of a combination with another institution. The Allaire board
considered several factors when identifying combination candidates, including
the geographic areas covered by such candidates and the compatibility of such
candidates with Allaire's existing banking and operational philosophy as well as
the compatibility of such candidates' management and board with Allaire's
management and board. After completing a review of several candidates and other
growth opportunities, the Allaire board determined that a combination with an
institution of equal size and stature in the community served by Allaire was the
most effective and best option for continued growth. Based on this
determination, the Allaire board believed that Bancorp would be a good candidate
for a combination. After reviewing the proforma analysis of the proposed
combination of Allaire and Bancorp, the Allaire board determined that a
combination would be beneficial to both institutions and their respective
shareholders/stockholders.
The members of the board of directors of Allaire have unanimously approved
the agreement and plan of acquisition and the transactions contemplated therein.
The Board has determined that the agreement and plan of acquisition and the
transactions contemplated therein are advisable and in the best interests of
Allaire and its stockholders and recommends that you vote "FOR" the proposal to
approve and adopt the agreement and plan of acquisition and the transactions
contemplated therein.
Opinion of Allaire's Financial Advisor
Pursuant to the terms of its agreement with Allaire, Janney Montgomery
Scott LLC was retained by Allaire to act as its financial advisor in connection
with a possible business combination with Bancorp. Allaire selected Janney
because of Janney's knowledge of, experience with, and reputation in the
financial services industry. Janney agreed to assist Allaire in analyzing,
structuring, negotiating and effecting a possible combination. Janney, as part
of its investment banking business, is engaged in the valuation of financial
institutions and their securities in connection with mergers and acquisitions
and other corporate transactions.
Allaire's board considered and approved the agreement and plan of
acquisition at the June 30, 2004 board meeting. Janney delivered to the board
its preliminary opinion on June 23, 2004, and its written opinion on June 30,
2004, that as of June 30, 2004, the combination consideration was fair to
Allaire's stockholders from a financial point of view.
54
The full text of Janney's opinion is attached as Appendix B to this joint
proxy statement/prospectus. Allaire's stockholders are urged to read the opinion
in its entirety for a description of the procedures followed, assumptions made,
matters considered, and qualifications and limitations on the review undertaken
by Janney in rendering its opinion. The description of the opinion set forth
below is qualified in its entirety by reference to the opinion.
Janney's opinion speaks only as of the date of the opinion. The opinion
was directed to the Allaire board of directors and addresses only the fairness,
from a financial point of view, of the consideration offered in the combination.
It does not address the underlying business decision of Allaire to proceed with
the combination or any other aspect of the combination and does not constitute a
recommendation to any Allaire stockholder as to how such stockholder should vote
at the Allaire special meeting on the combination or any related matter.
In rendering its opinion, Janney has, among other things:
(a) reviewed the historical financial performances, current financial
positions and general prospects of Allaire and Bancorp;
(b) considered the proposed financial terms of the combination and
examined the projected consequences of the combination with respect
to, among other things, market value, earnings and tangible book
value per share of the Bancorp common stock;
(c) to the extent deemed relevant, analyzed selected public information
of certain other banks and bank holding companies and compared
Allaire and Bancorp from a financial point of view, to these other
banks and bank holding companies;
(d) reviewed the historical market price ranges and trading activity
performance of common stock of Allaire and Bancorp;
(e) reviewed publicly available information such as annual reports and
filings with the Securities and Exchange Commission ;
(f) discussed with certain members of senior management of Allaire and
Bancorp the strategic aspects of the combination, including
estimated cost savings from the combination and other matters
relevant to the future performance of the combined entity;
(g) reviewed the agreement and plan of acquisition; and
(h) performed such other analyses and examinations as Janney deemed
necessary.
In performing its review and in rendering its opinion, Janney has relied
upon the accuracy and completeness of all of the financial and other information
that was available to it from public sources, that was provided to it by Allaire
or Bancorp or their respective representatives or that was otherwise reviewed by
Janney, and has assumed such accuracy and completeness for
55
purposes of rendering its opinion. Janney has further relied on the assurances
of management of Allaire and Bancorp that they are not aware of any facts or
circumstances that would make any of such information inaccurate or misleading.
Janney has not been asked to and has not undertaken any independent verification
of any of such information and Janney does not assume any responsibility or
liability for the accuracy or completeness thereof. Janney did not make an
independent evaluation or appraisal of the specific assets, the collateral
securing assets or the liabilities (contingent or otherwise) of Allaire or
Bancorp or any of their subsidiaries, or the collectibility of any such assets,
nor has Janney been furnished with any such evaluations or appraisals. Janney
did not make any independent evaluation of the adequacy of the allowance for
loan losses of Allaire or Bancorp or any of their subsidiaries nor has Janney
reviewed any individual credit files and has assumed that their respective
allowance for loan losses are adequate to cover such losses and will be adequate
on a pro forma basis.
The earnings projections for Allaire and Bancorp used by Janney in certain
of its analyses were based upon discussions with management and internal
financial projections in the case of both Allaire and Bancorp. The financial
projections provided by the management of Allaire and Bancorp were prepared for
internal purposes only and not with a view towards public disclosure. These
projections, as well as other estimates used by Janney in its analyses, were
based on numerous variables and assumptions that are inherently uncertain, and
accordingly, actual results could vary materially from those set forth in such
projections.
In performing its analyses, Janney also made numerous assumptions with
respect to industry performance, business, economic and market conditions and
various other matters, many of which cannot be predicted and are beyond the
control of Allaire, Bancorp and the combined company. The analyses performed by
Janney are not necessarily indicative of actual values or future results, which
may be significantly more or less favorable than suggested by such analyses.
Estimates on the values of companies do not purport to be appraisals or
necessarily reflect the prices at which companies or their securities may
actually be sold. Accordingly, these analyses and estimates are inherently
subject to substantial uncertainty. Janney prepared its analyses solely for
purposes of rendering its opinion and provided such analyses to the Allaire
board on June 30, 2004. In addition, the Janney opinion was among several
factors taken into consideration by the Allaire board of directors in making its
decision to approve the agreement and plan of acquisition and the combination.
The following is a summary of the material analyses performed by Janney
and presented to the Allaire board on June 30, 2004. The summary is not a
complete description of all the analyses underlying Janney's opinion. The
preparation of a fairness opinion is a complex process involving subjective
judgments as to the most appropriate and relevant methods of financial analysis
and the application of those methods to the particular circumstances. Therefore,
a fairness opinion is not readily susceptible to partial analysis or summary
description. Janney believes that its analyses must be considered as a whole and
that selecting portions of the factors and analyses considered without
considering all factors and analyses, or attempting to ascribe relative weights
to some or all such factors and analyses, could create an incomplete view of the
evaluation process underlying its opinion. The financial analyses summarized
below include information presented in a tabular format. In order to fully
56
understand the financial analyses, these tables must be read together with the
accompanying text. The tables alone do not constitute a complete description of
the financial analyses.
Summary of Proposal. Janney reviewed the financial terms of the proposed
transaction. Based upon the closing price of Bancorp's common stock of $21.67 on
June 23, 2004, and since 100% of the consideration will be paid in Bancorp
common stock, Janney calculated an implied transaction value of $21.67 per
share. These figures do not give effect to the 5% stock distribution made by
Allaire in May, 2004 to its stockholders of record. Based upon Allaire's
financial information as of and for the twelve months ended March 31, 2004,
Janney calculated the following ratios:
Transaction Ratios
Transaction price / LTM EPS 27.3x
Transaction price / Est. 2004 EPS 24.7x
Transaction price / Tangible book value per share 292%
Transaction price / Stated book value per share 292%
Tangible Book Premium / Core Deposits (1) 21.3%
(1) Assumes Allaire's total core deposits are $155 million.
For purposes of Janney's analyses, earnings per share were based on fully
diluted earnings per share, and the aggregate transaction value was
approximately $48 million, based upon 2.0 million shares of Allaire common stock
outstanding and including the intrinsic value of options to purchase
approximately 369,881 shares with a weighted average exercise price of $8.28.
Stock Trading History. Janney reviewed the history of the reported trading
prices and volume of Bancorp common stock and the relationship between the
movements in the prices of Bancorp's common stock and Allaire's common stock,
respectively, to movements in certain stock indices, including the Standard &
Poor's 500 Index, and the NASDAQ Bank Index. During the one-year period ended
June 29, 2004, Allaire's common stock underperformed each of the indices to
which it was compared while Bancorp's common stock outperformed each of the
indices.
57
One-Year Stock Performance of Bancorp and Allaire
-------------------------------------------------
Beginning Index Value Ending Index Value
June 27, 2003 June 29, 2004
--------------------- ------------------
Allaire 100.00% 104.14%
Nasdaq Bank Index 100.00% 117.96%
S&P 500 Index 100.00% 116.39%
Beginning Index Value Ending Index Value
June 27, 2003 June 29, 2004
--------------------- ------------------
Bancorp 100.00% 159.18%
Nasdaq Bank Index 100.00% 117.96%
S&P 500 Index 100.00% 116.39%
Selected Peer Group Analyses. Janney compared the financial performance
and market performance of Allaire and Bancorp to those of a group of New Jersey
community banks and bank holding companies with assets between $100 and $400
million. The companies included in the peer group were:
o 1st Colonial Bancorp
o 1st Constitution Bancorp
o Absecon Bancorp
o Advantage Bank
o Allaire Community Bank
o BCB Bancorp Inc
o Boardwalk Bank
o Brunswick Bancorp
o Community Bank of Bergen County
o Cornerstone Bank
o Elmer Bancorp Inc.
o Hilltop Community Bank
o Hopewell Valley Community Bank
o Monmouth Community Bancorp
o Parke Bank
o Penn Bancshares
o Somerset Hills Bancorp
o Sterling Bank
o Sussex Bancorp
o Town Bank of Westfield
o Two River Community Bank
For purposes of such analysis, the financial information used by Janney
was as of and for the twelve months ended March 31, 2004. Stock price
information was as of June 29, 2004. Certain financial data prepared by Janney,
and as referenced in the tables presented below, may not correspond to the data
presented in Allaire's and Bancorp historical financial statements, as a
58
result of the different periods, assumptions and methods used by Janney to
compute the financial data presented.
The results of this analysis are summarized in the following table:
New Jersey
Peer Group
Allaire Bancorp Median
------- ------- ------
Total Assets (in millions) $ 189 $ 237 $ 203
Tangible equity/tangible assets 7.74% 6.57% 8.99%
Loans/assets 60.7% 51.6% 60.7%
Loans/deposits 66.7% 56.6% 72.7%
Borrowings/assets 0.8% 2.2% 1.7%
Non-performing assets for more than 90 days/assets --% 0.02% 0.06%
Loan loss reserve/Non-performing assets for more
than 90 days NM% NM% 220.29%
Return on average total assets 0.96% 0.31% 0.76%
Return on average shareholders' equity 12.24% 4.35% 6.13%
Net interest margin 4.81% 3.49% 3.88%
Efficiency ratio 66.87% 83.55% 72.27%
Noninterest income/average assets 0.35% 0.34% 0.33%
Noninterest expense/average assets 3.16% 3.04% 3.04%
Price/last twelve months earnings per share 22.8 x NM x 22.7 x
Price/tangible book value per share 242.3% 288.2% 162.7%
Dividend yield --% --% --%
Discounted Cash Flow Analysis. Janney estimated the present value of
Allaire's common stock based on a continued independence scenario by estimating
the future stream of earnings of Allaire over the period beginning September
2004 and ending in December 2009. Based on discussions with Allaire's management
an earnings growth rate of 12.5% was used to project earnings. To approximate
the terminal value of Allaire's common stock at December 31, 2009, Janney
applied price/earnings multiples ranging from 14.0x to 22.0x and multiples of
tangible book value ranging from 125% to 225%. The dividend income streams and
terminal values were then discounted to present values using discount rates
ranging from 8.0% to 12.0%. The discount rates were chosen to reflect different
assumptions regarding required rates of return of holders or prospective buyers
of Allaire common stock. This analysis indicated an implied range of values from
$12.31 to $23.42 when applying the price/earnings multiples and $9.88 to $21.53
when applying multiples of tangible book value.
Janney also estimated the present value of the combined company's common
stock by estimating the future stream of earnings of the combined company over
the period beginning September 2004 and ending in December 2009. Based on
discussions with management, an earnings growth rate of 15.0% was used to
project earnings. To approximate the terminal value of combined company's common
stock at December 31, 2009, Janney applied price/earnings multiples ranging from
15.0x to 23.0x and multiples of tangible book value ranging from 185% to 285%.
The dividend income streams and terminal values were then discounted to present
values using discount rates ranging from 8.0% to 12.0%. The discount rates were
chosen to
59
reflect different assumptions regarding required rates of return of holders or
prospective buyers of combined company's common stock. This analysis indicated
an implied range of values from $14.80 to $27.22 when applying the
price/earnings multiples and $15.69 to $28.99 when applying multiples of
tangible book value.
In connection with the discounted cash flow analysis performed, Janney
considered and discussed with Allaire's board how the present value analysis
would be affected by changes in the underlying assumptions, including variations
with respect to the growth rate of assets and net income. Janney noted that the
discounted cash flow analysis is a widely used valuation methodology but noted
that it relies on numerous assumptions that must be made, and the results
thereof are not necessarily indicative of the actual values or expected values
of Allaire or combined company common stock.
Contribution Analysis. Janney reviewed the relative contributions to be
made by Allaire and Bancorp to the pro form combined company, based on financial
information at and for the twelve months ended March 31, 2004. This analysis
indicated that the implied contributions to the combined company were as
follows:
Allaire Bancorp
------- -------
Market Cap 46.8% 53.2%
Assets 44.4% 55.6%
Loans, net of allowance 48.4% 51.6%
Total Deposits 44.3% 55.7%
Total Equity 48.4% 51.6%
Net Income (proj. 2004) 60.9% 39.1%
Financial Impact Analysis. Janney performed a pro forma combination
analysis that combined projected balance sheet and income statement information
of Bancorp and Allaire. Certain assumptions regarding acquisition adjustments
and cost savings were used to calculate the financial impact that Bancorp would
have on certain projected financial results. This analysis indicated that the
pro forma combined company's earnings per share is expected to be slightly lower
as compared to Allaire's stand alone earnings per share projections within the
first twelve months of combined operations. This analysis also indicated that
the pro forma combined company's book value per share and tangible book value
per share is expected to be higher as compared to Allaire's stand alone book
value per share and tangible book value per share within the first twelve months
of combined operations. This analysis was based in part on internal projections
provided by Bancorp's and Allaire's management team. The actual results achieved
by the combined company may vary from the projected results, and the variation
may be material.
Janney has acted as financial advisor to Allaire in connection with the
combination and will receive a fee for its services, a portion of which is
contingent upon the consummation of the combination. Allaire will pay Janney a
$100,000 advisory fee, of which Janney was paid $75,000 at the time of signing
the agreement and plan at acquisition. In addition, Allaire has agreed to
reimburse certain of Janney's reasonable out-of-pocket expenses incurred in
connection with its engagement and has also agreed to indemnify Janney for
certain liabilities
60
arising out of rendering its opinion. In addition, in the ordinary course of
Janney's business as a broker-dealer, Janney may, from time to time, have a long
or short position in, and buy or sell, debt or equity securities of Allaire or
Bancorp for its own account or for the accounts of its customers.
Recommendation of Bancorp's Board of Directors and Reasons for the Combination
The board of directors of Bancorp has always engaged in strategic
deliberations regarding its existing franchise and the appropriate manner to
expand and increase its market share in order to enhance shareholder value. The
Bancorp board thoroughly discussed a number of strategic options to expand and
increase Bancorp's market share, including organic growth and strategic
alliances. While organic growth has always been pursued by Bancorp through
selective branch openings, the Bancorp board of directors recognized that the
market in which Monmouth Community Bank is operating has become somewhat
"overcrowded" with banking institutions. When assessing strategic direction, it
became apparent over a period of time that pursuing a combination with a viable
banking institution in either complementary or contiguous markets should be
pursued. Additionally, certain operating and geographic criteria for a potential
business combination were reviewed.
After a period of time performing independent due diligence, it was
determined that Allaire fit the developed criteria in terms of its franchise and
corporate value system. In addition, market based pricing which would be
required to potentially consummate a transaction would result in a combined
entity whose attributes were consistent with the strategic mandate to add value
to all of its shareholders.
The members of the board of directors of Bancorp have unanimously approved
the agreement and plan of acquisition and the transactions contemplated therein.
The board has determined that the agreement and plan of acquisition and the
transactions contemplated therein are advisable and in the best interests of
Bancorp and its shareholders and recommends that you vote "FOR" the proposal to
approve and adopt the agreement and plan of acquisition and the transactions
contemplated therein.
Opinion of Bancorp's Financial Advisor
By letter dated May 12, 2004, Bancorp retained Sandler O'Neill to act as
its financial advisor in connection with a possible business combination with
Allaire. Sandler O'Neill is a nationally recognized investment banking firm
whose principal business specialty is financial institutions. In the ordinary
course of its investment banking business, Sandler O'Neill is regularly engaged
in the valuation of financial institutions and their securities in connection
with combinations and acquisitions and other corporate transactions.
Sandler O'Neill acted as financial advisor to Bancorp in connection with
the proposed combination and participated in certain aspects of the negotiations
leading to the agreement and plan of acquisition. At the June 30, 2004 meeting
of the board of directors of Bancorp at which Bancorp's board considered and
approved the agreement and plan of acquisition, Sandler O'Neill delivered to the
board its oral opinion, subsequently confirmed in writing that, as of June
61
30, 2004, the exchange ratio was fair to Bancorp from a financial point of view.
The exchange ratio and Sandler O'Neill's analyses as set forth below each give
effect to the 6 for 5 stock split distributed on July 30, 2004 to shareholders
of record of Bancorp as of July 15, 2004.
The full text of Sandler O'Neill's opinion is attached as Appendix C to
this joint proxy statement/prospectus. The opinion outlines the procedures
followed, assumptions made, matters considered and qualifications and
limitations on the review undertaken by Sandler O'Neill in rendering its
opinion. The description of the opinion set forth below is qualified in its
entirety by reference to the opinion. We urge Bancorp shareholders to read the
entire opinion carefully in connection with their consideration of the proposed
business combination.
Sandler O'Neill's opinion speaks only as of the date of the opinion. The
opinion was directed to the Bancorp board and is directed only to the fairness
of the exchange ratio to Bancorp from a financial point of view. It does not
address the underlying business decision of Bancorp to engage in the combination
or any other aspect of the combination and is not a recommendation to any
Bancorp shareholder as to how such shareholder should vote at the Bancorp
special meeting with respect to the combination or any other matter.
In connection with rendering its opinion, Sandler O'Neill reviewed and
considered, among other things:
(1) the agreement and plan of acquisition;
(2) certain publicly available financial statements and other historical
financial information of Bancorp that Sandler O'Neill deemed
relevant;
(3) certain audited financial statements and other historical financial
information of Allaire that Sandler O'Neill deemed relevant;
(4) internal financial projections for Bancorp for the years ending
December 31, 2004 through 2007 prepared by and reviewed with
management of Bancorp;
(5) internal financial projections for Allaire for the years ending
December 31, 2004, through 2008 prepared by and reviewed with
management of Allaire;
(6) the pro forma financial impact of the combination on Bancorp and
Allaire, based upon assumptions relating to transaction expenses,
purchase accounting adjustments and cost savings determined by the
managements of Bancorp and Allaire and the relative pro forma
ownership of the shareholders of Bancorp and Allaire in the combined
company;
(7) the relative contributions of assets, liabilities, equity and
earnings of Bancorp and Allaire to the resulting institution;
(8) the publicly reported historical price and trading activity for
Bancorp's and Allaire's common stock, including a comparison of
certain financial and stock market information for Bancorp and
Allaire with similar publicly available
62
information for certain other companies the securities of which are
publicly traded;
(9) the financial terms of certain recent business combinations in the
commercial banking industry, to the extent publicly available;
(10) the current market environment generally and the banking environment
in particular; and
(11) such other information, financial studies, analyses and
investigations and financial, economic and market criteria as
Sandler O'Neill considered relevant.
Sandler O'Neill also discussed with certain members of senior management
of Bancorp the business, financial condition, results of operations and
prospects of Bancorp and held similar discussions with certain members of senior
management of Allaire regarding the business, financial condition, results of
operations and prospects of Allaire.
In performing its reviews and analyses and in rendering its opinion,
Sandler O'Neill assumed and relied upon the accuracy and completeness of all the
financial information, analyses and other information that was publicly
available or otherwise furnished to, reviewed by or discussed with it and
further relied on the assurances of management of Bancorp and Allaire that they
were not aware of any facts or circumstances that would make such information
inaccurate or misleading. Sandler O'Neill was not asked to and did not
independently verify the accuracy or completeness of any of such information and
it did not assume any responsibility or liability for the accuracy or
completeness of any of such information. Sandler O'Neill did not make an
independent evaluation or appraisal of the assets, the collateral securing
assets or the liabilities, contingent or otherwise, of Bancorp or Allaire or any
of their respective subsidiaries, or the collectibility of any such assets, nor
was it furnished with any such evaluations or appraisals. Sandler O'Neill is not
an expert in the evaluation of allowances for loan losses and it did not make an
independent evaluation of the adequacy of the allowance for loan losses of
Bancorp or Allaire, nor did it review any individual credit files relating to
Bancorp or Allaire. With Bancorp's consent, Sandler O'Neill assumed that the
respective allowances for loan losses for both Bancorp and Allaire were adequate
to cover such losses and will be adequate on a pro forma basis for the combined
entity. In addition, Sandler O'Neill did not conduct any physical inspection of
the properties or facilities of Bancorp or Allaire.
Sandler O'Neill's opinion was necessarily based upon market, economic and
other conditions as they existed on, and could be evaluated as of, the date of
its opinion. Sandler O'Neill assumed, in all respects material to its analysis,
that all of the representations and warranties contained in the agreement and
plan of acquisition and all related agreements are true and correct, that each
party to such agreements will perform all of the covenants required to be
performed by such party under such agreements and that the conditions precedent
in the agreement and plan of acquisition are not waived. Sandler O'Neill also
assumed, with Bancorp's consent, that there has been no material change in
Bancorp's and Allaire's assets, financial condition, results of operations,
business or prospects since the date of the last financial statements made
available to them, that Bancorp and Allaire will remain as going concerns for
all periods relevant to its analyses, and that the combination will qualify as a
tax-free
63
reorganization for federal income tax purposes. With Bancorp's consent, Sandler
O'Neill relied upon the advice Bancorp received from its legal, accounting and
tax advisors as to all legal, accounting and tax matters relating to the
combination and the other transactions contemplated by the agreement and plan of
acquisition.
In rendering its opinion, Sandler O'Neill performed a variety of financial
analyses. The following is a summary of the material analyses performed by
Sandler O'Neill, but is not a complete description of all the analyses
underlying Sandler O'Neill's opinion. The summary includes information presented
in tabular format. In order to fully understand the financial analyses, these
tables must be read together with the accompanying text. The tables alone do not
constitute a complete description of the financial analyses. The preparation of
a fairness opinion is a complex process involving subjective judgments as to the
most appropriate and relevant methods of financial analysis and the application
of those methods to the particular circumstances. The process, therefore, is not
necessarily susceptible to a partial analysis or summary description. Sandler
O'Neill believes that its analyses must be considered as a whole and that
selecting portions of the factors and analyses considered without considering
all factors and analyses, or attempting to ascribe relative weights to some or
all such factors and analyses, could create an incomplete view of the evaluation
process underlying its opinion. Also, no company included in Sandler O'Neill's
comparative analyses described below is identical to Bancorp or Allaire and no
transaction is identical to the combination. Accordingly, an analysis of
comparable companies or transactions involves complex considerations and
judgments concerning differences in financial and operating characteristics of
the companies and other factors that could affect the public trading values or
combination transaction values, as the case may be, of Bancorp or Allaire and
the companies to which they are being compared.
The earnings projections used and relied upon by Sandler O'Neill for
Bancorp and Allaire in its analyses were based upon internal financial
projections furnished by management of Bancorp and Allaire, respectively. With
respect to such financial projections and estimates and all projections of
transaction costs, purchase accounting adjustments and expected cost savings
relating to the combination, Bancorp's and Allaire's management confirmed to
Sandler O'Neill that they reflected the best currently available estimates and
judgments of such management of the future financial performance of Bancorp and
Allaire, respectively, and Sandler O'Neill assumed for purposes of its analyses
that such performances would be achieved. Sandler O'Neill expressed no opinion
as to such financial projections or the assumptions on which they were based.
These projections, as well as the other estimates used by Sandler O'Neill in its
analyses, were based on numerous variables and assumptions which are inherently
uncertain and, accordingly, actual results could vary materially from those set
forth in such projections.
In performing its analyses, Sandler O'Neill also made numerous assumptions
with respect to industry performance, business and economic conditions and
various other matters, many of which cannot be predicted and are beyond the
control of Bancorp, Allaire and Sandler O'Neill. The analyses performed by
Sandler O'Neill are not necessarily indicative of actual values or future
results, which may be significantly more or less favorable than suggested by
such analyses. Sandler O'Neill prepared its analyses solely for purposes of
rendering its opinion and provided such analyses to the Bancorp board at the
board's June 30, 2004 meeting. Estimates on the values of companies do not
purport to be appraisals or necessarily reflect the prices at which
64
companies or their securities may actually be sold. Such estimates are
inherently subject to uncertainty and actual values may be materially different.
Accordingly, Sandler O'Neill's analyses do not necessarily reflect the value of
Bancorp's common stock or Allaire's common stock or the prices at which
Bancorp's common stock or Allaire's common stock may be sold at any time.
Summary of Proposal. Sandler O'Neill reviewed the financial terms of the
proposed transaction based upon an implied transaction value of $24.14 per
share. The aggregate transaction value was approximately $54 million, based upon
approximately 1.97 million of Allaire's fully diluted shares outstanding plus
the value of outstanding options to purchase 388,375 shares of Allaire common
stock calculated using the implied transaction value per share less a weighted
average exercise price of $7.91 per share. Sandler O'Neill noted that the
transaction value represented a 34.11% premium over the June 28, 2004 closing
price of Allaire's common stock. These figures give effect to the 5% stock
distribution made by Allaire in June, 2004.
Stock Trading History. Sandler O'Neill reviewed the history of the
reported trading prices and volume of Bancorp's common stock and Allaire's
common stock and the relationship between the movements in the prices of
Bancorp's common stock and Allaire's common stock, respectively, to movements in
certain stock indices, including the Standard & Poor's 500 Index, the NASDAQ
Bank Index, the Standard & Poor's Bank Index and the weighted average
performance (based upon market capitalization) of a composite peer group of
publicly traded commercial banks for Bancorp and Allaire selected by Sandler
O'Neill. The institutions included in the peer group for Bancorp and Allaire are
identified under "Comparable Company Analysis" below
(except that Elmer Bancorp, Inc. and Stewardship Financial Corporation were
excluded from the peer group for purposes of this analysis). During the period
beginning on June 25, 2003 and ending June 28, 2004, Bancorp's common stock
generally underperformed its peer group and each of the indices to which it was
compared for the last six months of 2003 and generally performed above its peer
group and those indices from the beginning of 2004 through June 28, 2004. During
the period beginning June 25, 2001 and ending June 28, 2004, Bancorp's common
stock generally outperformed its peer group and each of the indices to which it
was compared.
Bancorp's Stock Performance
---------------------------
Beginning Index Value Ending Index Value
June 25, 2003 June 28, 2004
------------- -------------
Bancorp 100.00% 153.24%
Bancorp peer group 100.00 131.82
NASDAQ Bank Index 100.00 118.39
S&P Bank Index 100.00 114.70
S&P 500 Index 100.00 116.20
65
Beginning Index Value Ending Index Value
June 25, 2003 June 28, 2004
------------- -------------
Bancorp 100.00% 222.38%
Bancorp peer group 100.00 189.52
NASDAQ Bank Index 100.00 139.61
S&P Bank Index 100.00 117.61
S&P 500 Index 100.00 93.60
During the period beginning on June 25, 2003 and ending June 28, 2004,
Allaire's common stock generally performed below its peer group and each of the
indices to which it was compared. During the period beginning June 25, 2001 and
ending June 28, 2004, Allaire's common stock generally outperformed its peer
group and each of the indices to which it was compared (after mid-2002).
Allaire's Stock Performance
---------------------------
Beginning Index Value Ending Index Value
June 25, 2003 June 28, 2004
------------- -------------
Allaire 100.00% 108.00%
Allaire peer group 100.00 131.82
NASDAQ Bank Index 100.00 118.39
S&P Bank Index 100.00 114.70
S&P 500 Index 100.00 116.20
Beginning Index Value Ending Index Value
June 25, 2001 June 28, 2004
------------- -------------
Allaire 100.00% 191.56%
Allaire peer group 100.00 189.52
NASDAQ Bank Index 100.00 139.61
S&P Bank Index 100.00 117.61
S&P 500 Index 100.00 93.60
Comparable Company Analysis. Sandler O'Neill used publicly available
information to compare selected financial and market trading information for
Bancorp, Allaire and a group of financial institutions selected by Sandler
O'Neill. The peer group consisted of the following publicly traded commercial
banks located in the State of New Jersey with total assets between $162.5
million and $440.1 million:
SVB Financial Services, Inc. Shrewsbury Bancorp
Stewardship Financial Corp. BCB Bancorp, Inc.
Sterling Bank Sussex Bancorp
Boardwalk Bank Community Bank of Bergen County
Parke Bank Elmer Bancorp, Inc.
Somerset Hills Bancorp Two River Community Bank
Penn Bancshares, Incorporated
66
The analysis compared publicly available financial and market trading
information for Bancorp, Allaire and the median data for the peer group for the
four-year period ended March 31, 2004 and the high, low, mean and median data
for Bancorp, Allaire and the peer group as of and for the twelve months ended
March 31, 2004. The table below compares the data for Bancorp, Allaire and the
median data for the Peer Group as of and for the twelve-month period ended March
31, 2004 (or in cases where March data was not available, the twelve-months
ended December 31, 2003), with pricing data as of June 25, 2004.
Comparable Group Analysis
-------------------------
Bancorp Allaire Peer Group
------- ------- ----------
Total assets (in millions) $ 237.3 $ 189.2 $ 242.3
Tangible equity/tangible assets 6.57% 7.74% 8.99%
Return on average assets 0.31% 0.99% 0.93%
Return on average equity 4.46% 12.71% 10.41%
Price/tangible book value per share 273.53% 235.52% 177.57%
Price/LTM earnings per share 67.07x 22.15x 22.78x
Market Capitalization (in millions) $ 42.6 $ 34.5 $ 37.1
Discounted Dividend Stream and Terminal Value Analysis. Sandler O'Neill
performed an analysis that estimated the future stream of after-tax dividend
flows of Bancorp through December 31, 2007 under various circumstances, assuming
Bancorp's projected dividend stream and that Bancorp performed in accordance
with earnings per share projections reviewed with management. To approximate the
terminal value of Bancorp common stock at December 31, 2007, Sandler O'Neill
applied price/earnings multiples ranging from 12.5x to 25x and multiples of
tangible book value ranging from 150% to 300%. The dividend income streams and
terminal values were then discounted to present values using different discount
rates ranging from 9% to 15% chosen to reflect different assumptions regarding
required rates of return of holders or prospective buyers of Bancorp common
stock. As illustrated in the following tables, this analysis indicated an
imputed range of values per share of Bancorp common stock of $8.23 to $20.39
when applying the price/earnings multiples and $9.95 to $24.67 when applying
multiples of tangible book value. The closing price of Bancorp common stock on
June 28, 2004 was $24.14.
Earnings Per Share Multiples
----------------------------
Discount Rate 12.5x 15.0x 17.5x 20.0x 22.5x 25.0x
------------- ----- ----- ----- ----- ----- -----
9.0% 10.19 12.23 14.27 16.31 18.35 20.39
10.0% 9.83 11.79 13.76 15.73 17.69 19.66
11.0% 9.48 11.38 13.27 15.17 17.06 18.96
12.0% 9.15 10.97 12.80 14.63 16.46 18.29
13.0% 8.83 10.59 12.36 14.12 15.89 17.65
14.0% 8.52 10.22 11.93 13.63 15.34 17.04
15.0% 8.23 9.87 11.52 13.16 14.81 16.46
67
Tangible Book Value Per Share Multiples
---------------------------------------
Discount Rate 150% 180% 210% 240% 270% 300%
------------- ---- ---- ---- ---- ---- ----
9.0% 12.33 14.80 17.27 19.74 22.20 24.67
10.0% 11.89 14.27 16.65 19.03 21.41 23.78
11.0% 11.47 13.76 16.06 18.35 20.64 22.94
12.0% 11.07 13.28 15.49 17.70 19.92 22.13
13.0% 10.68 12.81 14.95 17.09 19.22 21.36
14.0% 10.31 12.37 14.43 16.49 18.56 20.62
15.0% 9.95 11.95 13.94 15.93 17.92 19.91
Sandler O'Neill performed a similar analysis that estimated the future
stream of after-tax dividend flows of Allaire through December 31, 2007 under
various circumstances, assuming Allaire performed in accordance with the
earnings per share projections furnished by Allaire management. To approximate
the terminal value of Allaire common stock at December 31, 2007, Sandler O'Neill
applied price/earnings multiples ranging from 12.5x to 25x and multiples of
tangible book value ranging from 150% to 300%. The dividend income streams and
terminal values were then discounted to present values using different discount
rates ranging from 9% to 15% chosen to reflect different assumptions regarding
required rates of return of holders or prospective buyers of Allaire common
stock. As illustrated in the following tables, this analysis indicated an
imputed range of values per share of Allaire common stock of $9.44 to $22.77
when applying the price/earnings multiples and $11.05 to $26.67 when applying
multiples of tangible book value. The implied transaction value of the
combination as calculated by Sandler O'Neill was $24.14 per share.
Earnings Per Share Multiples
----------------------------
Discount Rate 12.5x 15.0x 17.5x 20.0x 22.5x 25.0x
-------------- ----- ----- ----- ----- ----- -----
9.0% 11.39 13.66 15.94 18.22 20.49 22.77
10.0% 11.03 13.23 15.44 17.64 19.85 22.06
11.0% 10.68 12.82 14.96 17.09 19.23 21.37
12.0% 10.35 12.42 14.50 16.57 18.64 20.71
13.0% 10.04 12.04 14.05 16.06 18.07 20.07
14.0% 9.73 11.68 13.62 15.57 17.52 19.46
15.0% 9.44 11.33 13.21 15.10 16.99 18.88
Tangible Book Value Per Share Multiples
---------------------------------------
Discount Rate 150% 180% 210% 240% 270% 300%
------------- ---- ---- ---- ---- ---- ----
9.0% 13.33 16.00 18.67 21.34 24.00 26.67
10.0% 12.92 15.50 18.08 20.66 23.25 25.83
11.0% 12.51 15.02 17.52 20.02 22.52 25.03
12.0% 12.13 14.55 16.98 19.40 21.83 24.25
13.0% 11.75 14.11 16.46 18.81 21.16 23.51
14.0% 11.40 13.68 15.96 18.24 20.52 22.80
15.0% 11.05 13.27 15.48 17.69 19.90 22.11
68
In connection with its analyses, Sandler O'Neill considered and discussed
with the Bancorp Board how the present value analyses would be affected by
changes in the underlying assumptions, including variations with respect to net
income. Sandler O'Neill noted that the discounted dividend stream and terminal
value analysis is a widely used valuation methodology, but the results of such
methodology are highly dependent upon the numerous assumptions that must be
made, and the results thereof are not necessarily indicative of actual values or
future results.
Contribution Analysis. Sandler O'Neill reviewed the relative contributions
to be made by Bancorp and Allaire to the combined institution based on financial
information of both companies as of or for the twelve months ended March 31,
2004. The percentage of pro forma shares owned was determined using the exchange
ratio of 1.00. This analysis indicated that the implied contributions to the
combined entity were as follows:
Contribution Analysis
---------------------
Allaire Bancorp
------- -------
Net loans 48.4% 51.6%
Total assets 44.4% 55.7%
Deposits 44.3% 55.7%
Borrowings 22.5% 77.5%
Total equity 48.4% 51.6%
Last twelve months' net income 72.2% 27.8%
Market capitalization (1) 46.8% 53.2%
Pro forma ownership 51.9% 48.1%
----------
(1) Based upon closing stock prices as of June 28, 2004.
Pro Forma Combination Analysis. Sandler O'Neill analyzed certain potential
pro forma effects of the combination, assuming the following: (1) the
combination closes in the fourth quarter of 2004, (2) 100% of the Allaire shares
of common stock are exchanged for Bancorp common stock at an exchange ratio of
1.00, after giving effect to Bancorp's 6 for 5 stock split, (3) earnings per
share projections for Bancorp remain consistent with internal financial
projections for 2004 through 2007, (4) earnings per share projections for
Allaire consistent with internal financial projections for 2004 through 2008,
(5) purchase accounting adjustments, charges and transaction costs associated
with the combination and cost savings determined by the senior managements of
Bancorp and Allaire. The analysis indicated that for the year ending December
31, 2005 (the first full year following completion of the combination), the
combination would be significantly accretive to Bancorp's projected earnings per
share and, that at December 31, 2004 (the assumed closing date of the
combination), the combination would be dilutive to tangible book value per
share. The analysis also indicated that, from the point of view of a shareholder
of Allaire, at December 31, 2005, the combination would be dilutive to projected
earnings per share and, at December 31, 2004, would be dilutive to tangible book
value per share. In connection with its pro forma analyses, Sandler O'Neill
considered and discussed
69
with the Bancorp board of directors how the analyses would be affected by
changes in the underlying assumptions, including variations with respect to the
amount of the net balance sheet mark. The actual results achieved by the
combined company may vary from projected results and the variations may be
material.
Bancorp has agreed to pay Sandler O'Neill a transaction fee of $100,000 in
connection with the combination. $75,000 of that fee was paid to Sandler O'Neill
at the time of the issuance of its opinion. The remainder of the transaction
fee is payable and contingent upon consummation of the combination. Bancorp has
also agreed to reimburse certain of Sandler O'Neill's reasonable out-of-pocket
expenses incurred in connection with its engagement and to indemnify Sandler
O'Neill and its affiliates and their respective partners, directors, officers,
employees, agents, and controlling persons against certain expenses and
liabilities, including liabilities under securities laws.
Sandler O'Neill has in the past provided other investment banking services
to Bancorp and received compensation for such services and may provide, and
receive compensation for, such services in the future, including during the
pendency of the combination. In the ordinary course of its business as a
broker-dealer, Sandler O'Neill may purchase securities from and sell securities
to Bancorp and Allaire and their respective affiliates and may actively trade
the debt and/or equity securities of Bancorp and Allaire and their respective
affiliates for its own account and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
Consideration for the Combination
At the effective time of the combination, pursuant to the terms of the
agreement and plan of acquisition, each outstanding share of Allaire common
stock (other than dissenting shares and shares held in treasury by Allaire, if
any) shall be exchanged for the right to receive one share of common stock of
Bancorp. In order to achieve a one-for-one exchange ratio between shares of
Allaire common stock and shares of Bancorp common stock, Bancorp effected a 6
for 5 stock split for holders of record on July 15, 2004. Because of the
one-for-one exchange ratio, no fractional shares of Bancorp common stock will
result from the combination.
Allaire stockholders and Bancorp shareholders have the right to dissent
from the combination and to receive payment in cash for the fair value of their
shares of Allaire common stock or Bancorp common stock, as applicable. See page
94.
Procedure for Exchange of Shares and the Certificates Representing the Shares
At or prior to the effective time of the combination, Bancorp will deposit
with Registrar and Transfer Company, the exchange agent engaged for the
combination, the certificates representing the shares of Central Jersey Bancorp
common stock to be issued in exchange for outstanding shares of Allaire common
stock. As soon as practicable after the effective time of the combination,
Registrar and Transfer Company will mail to each holder of record of one or more
Allaire stock certificates a letter of transmittal and instructions for
surrendering their Allaire certificates in exchange for certificates
representing the shares of Central Jersey Bancorp common stock to be received in
the combination.
70
Upon surrendering his, her or its certificates representing shares of
Allaire common stock, together with the signed letter of transmittal, an Allaire
stockholder shall be entitled to receive, as applicable, (i) a certificate
representing the number of shares of Central Jersey Bancorp common stock to
which such Allaire stockholder shall have become entitled, and (ii) a check
representing the amount of any dividends or distributions, without interest,
which may be payable with respect to such shares of Central Jersey Bancorp
common stock. Until an Allaire stockholder surrenders his, her or its Allaire
stock certificates for exchange after completion of the combination, such
Allaire stockholder will not be paid dividends or other distributions declared
with respect to Central Jersey Bancorp common stock. All surrendered Allaire
stock certificates will be cancelled as of the effective time of the
combination, and there will be no further transfers of Allaire common stock,
other than to settle transfers that occurred prior to the effective time.
If any certificate representing shares of Central Jersey Bancorp common
stock is to be issued in a name other than that in which the Allaire stock
certificate surrendered for exchange is registered, it will be a condition to
the issuance of such shares of Central Jersey Bancorp common stock that the
surrendered certificate be properly endorsed or otherwise in proper form for
transfer, and that the person requesting such exchange shall either (i) pay to
Registrar and Transfer Company in advance any transfer or other taxes required
because of the issuance of a certificate in any name other than that of the
registered holder of the certificate surrendered, or (ii) establish to the
satisfaction of Registrar and Transfer Company that the tax has been paid or is
not payable.
If an Allaire stockholder's stock certificate has been lost, stolen or
destroyed, the stockholder will be required to prove ownership of the
certificate and that it was lost, stolen or destroyed before such Allaire
stockholder will receive any consideration for such shares. Upon request,
Registrar and Transfer Company will send an Allaire stockholder instructions on
how to provide evidence of ownership and the procedure for obtaining replacement
certificates. Such process may require the payment of a fee.
Any portion of the shares of Central Jersey Bancorp common stock made
available to Registrar and Transfer Company that remains unclaimed by Allaire
stockholders for one year from the effective time of the combination shall be
returned to Central Jersey Bancorp. Any Allaire stockholders who have not
exchanged their shares of Allaire common stock in accordance with the agreement
and plan of acquisition before that time may look only to Central Jersey Bancorp
for delivery of the shares of Central Jersey Bancorp common stock, and payment
of any unpaid dividends and distributions on the Central Jersey Bancorp common
stock deliverable in respect of their Allaire common stock, without interest. In
the event an Allaire stockholder does not properly claim the shares of Central
Jersey Bancorp common stock he, she or it is entitled to receive in the
combination within certain state statutory time periods, such shares may become
subject to applicable abandoned property, escheat or similar laws. None of
Bancorp, Allaire, Registrar and Transfer Company or any other person will be
liable to any former Allaire stockholder for any amount properly delivered to a
public official under applicable abandoned property, escheat or similar laws.
71
Treatment of Allaire Stock Options
Each option to purchase shares of Allaire common stock outstanding and
unexercised immediately prior to the effective time of the combination will be
converted into an option to purchase the same number of shares of Central Jersey
Bancorp common stock. The per share exercise price for Central Jersey Bancorp
common stock issuable upon the exercise of the converted Allaire stock options
will be equal to the exercise price per share of Allaire common stock at which
an Allaire stock option was exercisable immediately prior to the effective time
of the combination, except that any necessary adjustments to incentive stock
options shall be made so that such awards comply with applicable provisions of
the Internal Revenue Code of 1986, as amended.
Following conversion, the Allaire stock options will be subject to the
same terms and conditions (including expiration date, vesting and exercise
provisions) that applied to the options prior to the effective time of the
combination, but taking into account any changes to the options, including
acceleration of the options, if any, that may apply to the Allaire stock options
by reason of the combination.
Bancorp will be entitled to deduct and withhold from the consideration
otherwise payable pursuant to the agreement and plan of acquisition to any
holder of Allaire stock options any amount that Bancorp is required to deduct
and withhold under any provision of federal, state, local or foreign tax law.
Any withheld amounts will be treated for all purposes of the agreement and plan
of acquisition as having been paid to the Allaire stock option holder from whom
the amount was withheld by Bancorp.
Employee Matters
After the closing of the combination, Bancorp intends to form a joint
committee with equal representatives of Allaire and Bancorp in order to solicit
recommendations to management concerning the types of benefits that may be
offered to employees of both companies consistent with the types of benefits
offered in the industry or marketplace. Until Allaire and Bancorp implement
their joint employee benefit plans, the existing employee benefit plans of each
of Bancorp and Allaire shall remain in effect. Allaire and Bancorp will
recognize the tenure of Allaire employees, and will honor and assume the
liabilities arising out of Allaire's employees' rights and credit Allaire
employees in respect of accrued paid time off and time accrued for illness, for
purposes of determining benefits available to employees under Allaire's or
Bancorp's employee benefit plans subsequent to the closing date of the
combination.
Interests of Directors and Officers in the Combination
Bancorp's and Allaire's directors and executive officers have interests in
the combination that are in addition to their interests as shareholders and
stockholders of the respective entities. The Bancorp and Allaire boards of
directors considered these interests in deciding to approve the agreement and
plan of acquisition and the transactions contemplated therein.
Employment and Change of Control Agreements. Allaire is party to an
employment agreement with Mr. Carl F. Chirico, the President and Chief Executive
Officer of Allaire, which
72
agreement became effective on June 2, 2003, and a change of control agreement
with each of Messrs. Robert S. Vuono, Senior Executive Vice President, Chief
Operating Officer, Chief Financial Officer and Secretary of Allaire, and Robert
K. Wallace, Executive Vice President and Senior Loan Officer of Allaire, each of
which agreements became effective on March 26, 2003.
Mr. Chirico's employment agreement provides that he will be employed by
Allaire as President and Chief Executive Officer for a term of three years. If
his employment is terminated by reason of a change in control or he is not
employed by any successor entity to Allaire as its President and Chief Executive
Officer, with the same responsibilities, salary and proximity to his current
residence, then Mr. Chirico is entitled to receive, among other things, 18
months' current salary and benefits, including life insurance, family health
insurance, and the value of Allaire's contributions to his 401(k) plan for such
18-month period. The right to receive this severance payment and benefits is
conditioned upon Mr. Chirico's continued employment and assistance during the
transition period until the change in control transaction is complete.
Upon completion of the combination, Mr. Chirico will be the Vice Chairman
of Bancorp, Allaire and Monmouth Community Bank, but will not serve as the
President and Chief Executive Officer of any of these organizations.
Consequently, Mr. Chirico will be eligible to receive a cash payment of $319,185
and the additional benefits provided under his existing employment agreement
upon consummation of the combination. The total amount to be paid Mr. Chirico
under his existing employment agreement will be payable by Bancorp upon the
termination of Mr. Chirico's employment with Bancorp or Mr. Chirico's election
to become a part-time employee of Bancorp. Such amount will be paid in annual
installments not to exceed $100,000. Further, upon the termination of Mr.
Chirico's full-time status as an employee of Bancorp, Bancorp will pay the cost
of health care coverage for Mr. Chirico and his spouse to the same extent as it
does for its full-time employees for the remainder of their lives.
Both of Messrs. Vuono and Wallace entered into separate agreements with
Allaire which grant each of these officers certain rights in the event of a
change in control of Allaire. Under their respective agreements, if they are not
offered comparable employment by Allaire's successor for at least the same
compensation and benefits and in close proximity to their current homes,
pursuant to a written employment contract with a term of 18 months, they will be
entitled to a severance package consisting of 18 months' current salary and
benefits, including life insurance, family health insurance, and the value of
Allaire's contributions to their 401(k) plans for such 18-month period. The
right to receive this severance payment and benefits is conditioned upon such
officer's continued employment and assistance during the transition period until
the change in control transaction is complete. If the contract between the
officer and Allaire's successor is terminated without cause or good reason by
the successor or by the officer for any reason within 18 months of the change in
control, the officer's severance package will be reduced by the amount of months
that the officer actually worked for the successor, but shall not be reduced to
less than 12 months' severance.
Each of Messrs. Vuono and Wallace will be offered employment agreements by
Bancorp containing terms and conditions comparable to each officer's current
terms and conditions of employment with Allaire. These employment agreements
will go into effect on the effective date of the combination. It is anticipated
that both Messrs. Vuono and Wallace will enter into these employment agreements
with Bancorp. Consequently, in the event either Messrs. Vuono
73
or Wallace elects to leave the employ of Bancorp within 18 months of the
effective date of the combination or is terminated without cause or good reason
by Bancorp, he will be entitled to up to 18 months of severance, but not less
than 12 months of severance.
Vesting of Bancorp Stock Options. All unvested options to acquire Bancorp
common stock outstanding at the effective time of the combination shall vest,
and the holders thereof may exercise their options at any time during the
original term provided for exercise as set forth in the respective stock option
agreements.
Summary of Payments and Benefits. The following table summarizes, for the
current executive officers and/or directors of Allaire and Bancorp, the
estimated value of payments and benefits, the payment of which is contingent on,
or accelerated by, the combination:
Employment/
Change in Value of Options
Control Vesting Upon
Agreements Closing Total
----------- ---------------- ---------
Allaire's Current Executive Officers (1)
Carl F. Chirico(2) $ 420,069 $ 0 $ 420,069
Robert S. Vuono 232,131 0 232,131
Robert K. Wallace 199,662 0 199,662
--------- --------- ---------
Total $ 851,862 $ 0 $ 851,862
========= ========= =========
Bancorp's Current Executive Officers and Directors (3)(4)
James G. Aaron $ 0 $ 51,122 $ 51,122
Mark R. Aikins 0 51,122 51,122
Nicholas A. Alexander 0 51,122 51,122
John A. Brockreide 0 51,122 51,122
Anthony Giordano III 0 37,562 37,562
Richard O. Lindsey 0 52,644 52,644
John F. McCann 0 51,122 51,122
Harold M. Miller, Jr 0 51,122 51,122
Carmen M. Penta 0 51,122 51,122
Mark G. Solow 0 51,122 51,122
James S. Vaccaro 0 127,672 127,672
--------- --------- ---------
Total $ 0 $ 626,854 $ 626,854
========= ========= =========
(1) All of Allaire's outstanding stock options vested prior to the
combination.
(2) Includes $100,884 attributable to the present value of the estimated cost
of the estimated cost of health benefits to be provided to Mr. Chirico and
his spouse for the remainder of their lives.
(3) The table does not include Bancorp's outstanding stock options that have
vested or are expected to vest according to their ordinary vesting
schedule prior to the combination. Values calculated on the basis of the
difference between the combination consideration of $19.94 per share and
the exercise price of the options.
(4) All amounts set forth in this table have been adjusted to give effect to
the 6 for 5 stock split effected by Bancorp as of July 15, 2004.
74
Indemnification. Pursuant to the agreement and plan of acquisition,
Bancorp has agreed that, for a period of six years after the effective time of
the combination, it will indemnify, defend and hold harmless each person
entitled to indemnification from Allaire prior to the combination against all
liability arising out of actions or omissions occurring at or prior to the
effective time of the combination, to the same extent and subject to the
conditions set forth in Allaire's certificate of incorporation or bylaws, in
each case as in effect as of the date of the agreement and plan of acquisition.
Directors' and Officers' Insurance. Bancorp has agreed, pursuant to the
agreement and plan of acquisition, to use its best efforts to maintain Allaire's
existing directors' and officers' liability insurance policy in effect for a
period of six years after the effective time of the combination. Bancorp is
permitted to substitute policies with at least the same coverage and amounts and
containing no less favorable terms and conditions, or, with Allaire's consent,
substitute any other policy, with respect to claims arising from facts or events
which occurred prior to the effective time of the combination and covering
persons who are currently covered by such insurance. Bancorp is not required to
spend more than 150% of the annual premium payments that Allaire pays on its
current policy.
Governance of Combined Organization
We have set forth below the individuals who will be the directors and
executive officers of the combined organization and other governance matters.
Increase of Size of Bancorp Board; Composition of Central Jersey Bancorp
Board. At the effective time of the combination between Bancorp and Allaire, the
board of directors of Bancorp will be increased from ten (10) to of twelve (12)
directors and comprised of six (6) nominees chosen from Bancorp's current board
of directors and six (6) nominees chosen from Allaire's current board of
directors. Bancorp's nominees are James G. Aaron, Esq., Nicholas A. Alexander,
C.P.A., John A. Brockriede, John F. McCann, Mark G. Solow and James S. Vaccaro.
Allaire's nominees are George S. Callas, Carl F. Chirico, M. Claire French,
William H. Jewett, Paul A. Larson, Jr. and Robert S. Vuono.
75
The name, age, current principal occupation or employment and biographical
information of each person nominated to serve as a member of the board of
directors of Central Jersey Bancorp following the combination are set forth
below:
Name Age Principal Occupation or Employment
- ---- --- ----------------------------------
James G. Aaron, Esq. 59 Partner of Ansell, Zaro, Grimm & Aaron
Nicholas A. Alexander, C.P.A. 65 Retired Partner of KPMG LLP
John A. Brockriede 69 Vice Chairman of the Board of Bancorp
and Monmouth Community Bank and
President of Monmouth Enterprises
George S. Callas 72 Chairman of the Board of Allaire and
President of Allaire Capital Corp.
Carl F. Chirico 63 President and Chief Executive Officer of
Allaire
M. Claire French 66 County Clerk, Monmouth County, New
Jersey
William H. Jewett 74 Vice Chairman of the Board of Allaire
and an Ordained Minister
Paul A. Larson, Jr. 54 President of Larson Ford
John F. McCann 66 Retired Group President of Salomon
Smith Barney
Mark G. Solow 56 Co-founder of GarMark Advisors,
L.L.C.
James S. Vaccaro 47 Chairman of the Board and Chief
Executive Officer of Bancorp and
Monmouth Community Bank
Robert S. Vuono 54 Senior Executive Vice President, Chief
Operating Officer, Chief Financial
Officer and Secretary of Allaire
There are no family relationships among the nominees for director of
Central Jersey Bancorp. None of the nominees for director of Central Jersey
Bancorp are directors of any company with a class of securities registered
pursuant to Section 12 of the Securities Exchange
76
Act of 1934, as amended, or subject to the requirements of Section 15(d) of the
Securities Exchange Act of 1934, as amended, or any company registered as an
investment company under the Investment Company Act of 1940, as amended.
James G. Aaron is a Partner in the law firm of Ansell, Zaro, Grimm & Aaron
located in Ocean Township, New Jersey. Mr. Aaron Chairs the firm's Commercial
Litigation, Municipal Law and Bankruptcy Practice Department. Mr. Aaron is
licensed to practice law in the State of New Jersey, the United States District
Court for the District of New Jersey and the United States District Court for
the Eastern District of New York. Mr. Aaron also is licensed to practice before
the United States Court of Claims. Mr. Aaron presently serves as the city
attorney for the City of Long Branch, as redevelopment counsel for the City of
Asbury Park and is a member of the Monmouth County and New Jersey State Bar
Associations. Mr. Aaron formerly served on the Advisory Board of the Jersey
Shore Bank and has represented Colonial First National Bank, Midlantic/Merchants
National Bank, Commerce Bank, Fidelity Union Bank and Monmouth County National
Bank. Mr. Aaron also formerly served as a member of the Board of Directors of
Medi-Hut Co., Inc. He is a member of the Hollywood Golf Club and a member of
Temple Beth Miriam, where he previously served on the Board of Trustees. Mr.
Aaron received his B.A. degree from Dickinson College in Carlisle, Pennsylvania
and his law degree from New York University School of Law. Mr. Aaron resides in
West Long Branch, New Jersey. Mr. Aaron has served as a member of the Boards of
Directors of Monmouth Community Bank and Bancorp since their inception.
Nicholas A. Alexander retired as a partner of KPMG LLP in 1995. Mr.
Alexander's career with KPMG spanned a total of 35 years. He is a certified
public accountant in the State of New Jersey, a member of The American Institute
of Certified Public Accountants, and a member of the New Jersey State Society of
Certified Public Accountants. Mr. Alexander received his undergraduate degree in
accounting from King's College. Mr. Alexander resides in Rumson, New Jersey. Mr.
Alexander has served as a member of the Boards of Directors of Monmouth
Community Bank and Bancorp since their inception.
John A. Brockriede is Vice Chairman of the Board of Monmouth Community
Bank and Bancorp and is a local businessman who has owned and participated in
various businesses in the Long Branch area for over 40 years. His business
holdings include ownership and operation of two fast food restaurants; six
apartment buildings encompassing 331 living units; an automobile agency; two
shopping centers; commercial offices; and a self-storage facility. Mr.
Brockriede also has over twenty-five years of banking experience, having been
one of the founders of Jersey Shore Bank. Mr. Brockriede also served as a
director of Jersey Shore Bank and its successor banks, National State Bank and
Constellation Bancorp. He is a past director and president of Deal Golf and
Country Club where he also served as Chairman of the House Committee, and is
Chairman of the Building Committee for St. Michael's Church. Mr. Brockriede is
also a member of the Board of Trustees of Monmouth Medical Center and the Board
of Directors of the Juvenile Diabetes Research Foundation. Mr. Brockriede
resides in Long Branch, New Jersey and serves as a Commissioner of the Long
Branch Sewerage Authority. Mr. Brockriede has served as a member of the Boards
of Directors of Monmouth Community Bank and Bancorp since their inception.
77
George S. Callas is the Chairman of the Board of Allaire and is a retired
businessman, governmental official and educator. Mr. Callas has owned, operated
and participated in various businesses for over 40 years, including businesses
associated with parking lots, restaurants, nursing homes, real estate and
wireless T.V. stations. He assisted in the organization of Allaire State Bank,
located in Wall Township, New Jersey, and served as the Vice Chairman of the
Board of Directors and Vice President of such bank. Mr. Callas served as a
member of the Board of Directors of National Community Bank of New Jersey. Mr.
Callas also served in the Department of Community Affairs of the State of New
Jersey and as the former Business Administrator of the City of New Brunswick and
the Township of Jackson, former Director of the Monmouth County Employment and
Training Agency, former Executive Director of the New Jersey State Senate, and
former head of the Business Advocacy Division of the [New Jersey] Department of
Commerce and Economic Development. Mr. Callas was also an educator of science,
math and high school history at Woodbridge High School and a college instructor
in economics, political science and public administration at Seton Hall
University. Mr. Callas was involved in many civic groups throughout his career.
He resides in Brielle, New Jersey. Mr. Callas has served as a member of the
Board of Directors of Allaire since its inception. At Allaire, Mr. Callas is the
Chairman of the Building, Nominating and Merger/Acquisition Committees and he
also serves on the Executive, Asset/Liability, Advertising, Investment, Audit,
Loan, Personnel and Ethics Committees.
Carl F. Chirico has served as the President and Chief Executive Officer of
Allaire since its inception. Mr. Chirico has over forty years of banking
experience. From 1993 through 1996, he served as the Southern Regional President
of the Bank of New York (N.J.) National Community Division. In 1966, Mr. Chirico
joined National Community Bank of N.J., and served in various capacities with
such organization through 1993, including Branch Manger, Commercial Credit
Officer, Regional Administrator and as First Senior Vice President and Senior
Zone Officer for Central and Southern, New Jersey. He is the Treasurer of the
Dr. Joseph Clayton Scholarship Fund and is a member of The 200 Club of Monmouth
County. Mr. Chirico is a former member of the Monmouth/Ocean Development
Council, the Hamilton Economic Development Council, the Old Bridge Development
Council and the Spring Lake Rotary Club. He also previously served as a Director
and Chairman of the Monmouth County Private Industry Council and as a member of
the Board of Directors of the American Heart Association, Monmouth County
Division. Mr. Chirico graduated from the Consumer School of Banking at the
University of Virginia in 1979. Mr. Chirico resides in Toms River, New Jersey.
He has served as a member of the Board of Directors of Allaire since its
inception. At Allaire, Mr. Chirico is the Chairman of the Asset/Liability and
Ethics Committees and he is also a member of the Executive, Investment, Loan,
Nominating, Advertising, Building and Merger/Acquisition Committees.
M. Claire French has served at all levels of government. She currently
serves as the Monmouth County Clerk and served as the former Vice Chairman of
the State Local Finance Board from 1996 to 2002. Mrs. French presided over the
Monmouth County Improvement Authority from 1986 to 1996 and served as the Mayor
of Wall Township or as Committee Woman thereof from 1979 to 1986. She is a
member of the Meridian Hospital System Board of Directors where she serves as
Chair of the Government and Community Relations Committee. She is active in many
of the Chambers of Commerce located in Ocean and Monmouth Counties,
78
New Jersey, and is Treasurer of the Route 34 Business Group. Mrs. French served
on both the Wall Township and Monmouth County Planning Boards and was President
of her State Association of Constitutional Officials. She was a charter member
of the Wall Township Foundation for Educational Excellence and was a former
Regional Director for the Bank of New York. Mrs. French and her husband Robert
own French Contracting Company and reside in Wall Township. She has served as a
member of the Board of Directors of Allaire since 1997.
William H. Jewett is the Vice Chairman of the Board of Directors of
Allaire. He is has been the President of Ecumenical Capital, Brielle, New Jersey
since 1995. He was C.F.O. of the Synod of the Mid-Atlantics and the Synod
Foundation for fourteen years (1978 to 1992), Treasurer of the New Jersey
Council of Churches for twelve years (1978 to 1990), and Chairman of Development
for the Classis of New Brunswick for six years (1971 to 1977). He is a past
President of Synod of the Mid-Atlantics, the Classis of New Brunswick and the
Shore Area Council of Churches. He was elected Chaplain of the New Jersey State
Senate for three terms, and served as Chairman of the Juvenile Conference
Committee of the Domestic Relations Court of Monmouth County. He is a life
member of the Association of Individual Investors, and is active in Rotary
International. Reverend Jewett resides in Brielle, New Jersey. Reverend Jewett
earned his M.B.A. at the Wharton School of Finance and Commerce, University of
Pennsylvania and his Master of Divinity at New Brunswick Theological Seminary
(Rutgers). He has served as a member of the Board of Directors of Allaire since
its inception. At Allaire, Reverend Jewett is the Chairman of Allaire's
Executive, Investment and Stock Option Committees and he also serves on the
Asset/Liability, Loan, Audit, Ethics, Advertising, Nominating, Building,
Merger/Acquisition and Personnel Committees.
Paul A. Larson, Jr. is the President of Larson Ford -Suzuki, Lakewood, New
Jersey and Chairman of the New Jersey Coalition of Automotive Retailers. He is
the past President of the Ocean County Auto Dealers Associations, the past
President and Director of Shore Area YMCA, a former member of the Summit Bank
Advisory Board, and past President of the New Jersey Employers Association. He
also served as Treasurer, Secretary and Membership Chairman at Manasquan River
Golf Club and Secretary for the Haystack Club. Mr. Larson has volunteered much
of his time as: a member of the Wall Township Board of Adjustment; a Vice
President of Shelter Inc.; the SME Chairman for the Thunderbird District of the
Monmouth County Boy Scouts; a member of the Lakewood Athletic Foundation, a Vice
President of the Wall Foundation for Educational Excellence and the Treasurer of
the Wall Township Football Club. He earned his degree in Business Administration
from Northwood University, Michigan. Mr. Larson resides in Wall Township, New
Jersey. He has served as a member of the Board of Directors of Allaire since its
inception. At Allaire, Mr. Larson is the Chairman of the Bank's Loan and Audit
Committees, and he also serves on the Executive (as a rotating member) and
Personnel Committees.
John F. McCann is recently retired from a 29-year career in the securities
industry, most recently with Salomon Smith Barney where he served in various
capacities including Group President and Senior Executive Vice President. Mr.
McCann is a former member of the Boards of Directors of the financial services
firms of Shearson American Express and Robinson Humphrey. Mr. McCann resides in
Rumson, New Jersey. Mr. McCann became a member of the Board of Directors of
Monmouth Community Bank on July 1, 1998 and has served as a member of the Board
of Directors of Bancorp since its inception.
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Mark G. Solow is a co-founder of GarMark Advisors, L.L.C., a firm which
manages a $410 million fund for mezzanine investments in connection with
leveraged buyouts, corporate recapitalizations and growth financings. Prior to
the formation of GarMark Advisors, L.L.C., Mr. Solow was a Senior Executive Vice
President at Chemical Bank and a member of its Management Committee. At Chemical
Bank, Mr. Solow was in charge of global investment banking and corporate and
multinational banking in North America, Western Europe and Asia-Pacific. In
addition, he was Senior Credit Officer for the United States, Canada, Western
Europe and Asia. Mr. Solow received his B.S. and M.B.A. degrees from Bowling
Green University. Mr. Solow resides in Red Bank, New Jersey. Mr. Solow has
served as a member of the Boards of Directors of Monmouth Community Bank and
Bancorp since their inception.
James S. Vaccaro has served as Chairman of the Board of Monmouth Community
Bank and Bancorp since their inception, Chief Executive Officer of Monmouth
Community Bank since April 3, 2000 and Chief Executive Officer of Bancorp since
its inception. Mr. Vaccaro served as a Director of ASA, Inc., a health care
consulting firm located in Somerset, New Jersey, from June 1999 to March 2000,
and served as a Senior Vice President of The Concord Group, a health care
consulting firm, from January 1997 to the acquisition of The Concord Group by
ASA, Inc. in June 1999. Prior to his involvement with The Concord Group, Mr.
Vaccaro was Executive Vice President and Chief Operating Officer of FOHP, Inc.,
a health maintenance organization based in Neptune, New Jersey. Prior to serving
as an officer of FOHP, Inc., Mr. Vaccaro had significant experience in the
banking industry. He was a member of the Board of Directors, Executive Vice
President and Chief Financial Officer of The Central Jersey Bank & Trust Co.,
and, prior to his affiliation with The Central Jersey Bank & Trust Co., was a
Manager of the Asset Services Division of Citibank, N.A. Mr. Vaccaro serves as
Vice Chair of the Board of Trustees of Monmouth Medical Center, is a member of
the Board of Trustees of Monmouth Medical Center Foundation; is Vice Chairman of
the Business Council of Monmouth University; is a member of the Board of
Directors of the New Jersey Repertory Company; is a member of the Advisory
Council of Interfaith Neighbors and is a member of Monmouth Council of Boy
Scouts Endowment Advisory Board. Mr. Vaccaro received his B.A. degree from
Ursinus College and an advanced degree from Harvard Graduate School of Business.
Mr. Vaccaro resides in West Allenhurst, New Jersey.
Robert S. Vuono is the Senior Executive Vice President, Chief Operating
Officer, Chief Financial Officer and Secretary of Allaire. Mr. Vuono has been
the Chief Financial Officer and Secretary of Allaire since its inception and was
appointed Senior Executive Vice President and Chief Operating Officer in June,
2004. Prior to his employment with Allaire, Mr. Vuono had been the Executive
Vice President of Colonial State Bank, in Freehold, New Jersey (February, 1989
to May, 1996), and Vice President of Central Jersey Bank & Trust Co., in
Freehold Township, New Jersey (January, 1974 to January, 1989). Mr. Vuono
resides in Wall Township, New Jersey. He has served as a member of the Board of
Directors of Allaire since August, 2002. At Allaire, Mr. Vuono also serves on
the Asset/Liability, Investment, Loan, Executive, Nominating, Merger/Acquisition
and Ethics Committees.
Increase of Size of Bank Boards; Composition of Bank Boards. Upon the
consummation of the combination, the boards of directors of Monmouth Community
Bank and Allaire shall be comprised of the combined boards of Monmouth Community
Bank and Allaire as they exist immediately prior to the combination. It is the
intention of Bancorp and Allaire
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that, once the bank subsidiaries have merged, subject to regulatory approval,
into a national association, to be named "Central Jersey Bank, National
Association," the board of directors of the surviving bank will be reduced to
eighteen directors by December 31, 2005, and, assuming no change in the
composition of the board of directors prior to such reduction, the board of
directors of "Central Jersey Bank, National Association" immediately after such
reduction will have an equal number of representatives from the pre-combination
Allaire and the pre-combination Monmouth Community Bank.
Executive Officers of Central Jersey Bancorp and Subsidiary Banks. At the
effective time of the combination, Mr. George Callas will become Chairman of the
boards of directors of Central Jersey Bancorp, Monmouth Community Bank and
Allaire; Mr. Carl Chirico will become Vice-Chairman of the boards of directors
of Central Jersey Bancorp, Monmouth Community Bank and Allaire; and Mr. James S.
Vaccaro will become President and Chief Executive Officer of Central Jersey
Bancorp, Monmouth Community Bank and Allaire. Each of these individuals will
serve in such capacity for at least two (2) years following the effective date
of the combination, assuming (i) that the individuals are able to serve in their
respective capacities, and (ii) with respect to the Chairman and Vice-Chairman
of the board of directors of Central Jersey Bancorp, that such individuals are
nominated and then elected by the shareholders of Central Jersey Bancorp to
serve on the board of directors of Central Jersey Bancorp for such period.
In addition, the name, age and position of each person who will serve as
an executive officer of Central Jersey Bancorp at the effective time of the
combination are set forth below and brief summaries of their business experience
and certain other information with respect to each of them is set forth in the
information which follows the table:
Executive Officers of Central Jersey Bancorp
--------------------------------------------
Name Age Position
---- --- --------
George W. Callas 72 Chairman of the Board
Carl F. Chirico 63 Vice Chairman of the Board
James S. Vaccaro 47 President and Chief Executive
Officer
Robert S. Vuono 54 Senior Executive Vice
President, Chief Operating
Officer and Secretary
Richard O. Lindsey 64 Executive Vice President and
Senior Lending Officer
Anthony Giordano, III 39 Executive Vice President,
Chief Financial Officer and
Treasurer
There are no family relationships among the individuals selected to be
executive officers of Central Jersey Bancorp following the combination. None of
the individuals selected to be executive officers of Central Jersey Bancorp are
directors of any company with a class of securities registered pursuant to
Section 12 of the Securities Exchange Act of 1934, as amended,
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or subject to the requirements of Section 15(d) of the Securities Exchange Act
of 1934, as amended, or any company registered as an investment company under
the Investment Company Act of 1940, as amended.
For the biographical information for George W. Callas, Carl F. Chirico,
James S. Vaccaro and Robert S. Vuono, see "Increase in Size of Bancorp Board;
Composition of Central Jersey Bancorp Board" on page 75.
Richard O. Lindsey has been employed in the banking industry for over 35
years, has been President of Monmouth Community Bank since April 1, 1997,
President of Bancorp since its inception and a member of the boards of directors
of Monmouth Community Bank and Bancorp since their inception. Mr. Lindsey also
served as Chief Executive Officer of Monmouth Community Bank from April 1, 1997
to March 31, 2000. His last twelve years of banking service have been
predominately in Monmouth County. From March, 1995 to March, 1997, he was Vice
President and Senior Lending Officer for West Caldwell based First DeWitt Bank.
From an office in Ocean Township, he was responsible for supervising all lending
by First DeWitt, in addition to managing his own loan portfolio and providing
commercial lending support to the bank's branches in Ocean and Monmouth
Counties. From January, 1991 to February, 1995, Mr. Lindsey was employed by The
Central Jersey Bank & Trust Co. as Executive Vice President and Senior Lending
Officer with oversight responsibilities for commercial loans, commercial
mortgages, residential mortgages, problem assets, and credit administration.
From April, 1988 to December, 1990, he served as President and Chief Executive
Officer of Covenant Bank for Savings, a savings bank located in Haddonfield, New
Jersey. Prior to his position with Covenant Bank for Savings, Mr. Lindsey served
in various positions at other New Jersey and Philadelphia banks, which gave him
a broad base of experience in managing commercial and consumer lending
functions, including asset based lending. Mr. Lindsey is active in community
affairs and in connection therewith is currently serving on the Board of the
United Methodist Homes of New Jersey; as Chairman of the New Beginnings Learning
Center; as a trustee of the Methodist Hospital Foundation; as a member of the
Methodist Hospital Division Committee of Thomas Jefferson University Hospitals,
Inc.; and as a member of the Advisory Board of the Haddonfield Symphony Society.
He is a past member of the Monmouth University Real Estate Institute and is the
former Chairman of the Commercial Lending Committee of the New Jersey Bankers
Association. Mr. Lindsey is a graduate of Gettysburg College from which he
received a B.A. degree in economics. He resides in Barrington, New Jersey.
Anthony Giordano, III joined Monmouth Community Bank in May 1998 as a
Senior Vice President and the Chief Financial Officer and Treasurer. He was
elected as Secretary of Bancorp and the Bank in March 2003 and promoted to
Executive Vice President in December 2003. Mr. Giordano has 16 years of
financial analysis and accounting experience in the banking industry. Prior to
joining Monmouth Community Bank, Mr. Giordano was employed by PNC Bank (formerly
Midlantic Bank), where he served as Real Estate Banking Officer from 1996 to
1998 and Senior Accountant/Financial Analyst from 1994 to 1996. From 1988 to
1994, Mr. Giordano served in various positions at Shadow Lawn Savings Bank,
including Budget and Financial Planning Manager and Financial Analyst. Mr.
Giordano received a Masters of Business Administration from Monmouth University
in 1992 and a Bachelor of Science degree in finance from Kean University in
1987. Mr. Giordano graduated from the Real Estate Institute
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at Monmouth University in 2000. Mr. Giordano has served on the Long Branch City
Council since 1994.
Appointments to Executive Committee. The executive committee of the board
of directors of Central Jersey Bancorp will have an equal number of
representatives from pre-combination Allaire and pre-combination Bancorp at
least through December 31, 2005.
Appointments to Other Committees. Each committee of Central Jersey Bancorp
and its bank subsidiaries will have an equal number of representatives from
pre-combination Allaire and pre-combination Bancorp at least through December
31, 2005.
Through December 31, 2005, the chairperson of the personnel committee,
compensation committee, advertisement committee, investment committee,
nominating committee and asset-liability ("ALCO") committee of any of Central
Jersey Bancorp and its bank subsidiaries will be a representative of
pre-combination Allaire, and the chairperson of the executive committee,
expansion committee, ethics committee, loan committee and audit committee of any
of Central Jersey Bancorp and its bank subsidiaries will be a representative of
pre-combination Bancorp.
Management of Nonbank Subsidiaries. The members of the executive committee
of Bancorp shall serve as the members of the boards of directors of MCB
Investment Company and Allaire Investment Corporation, Inc., the investment
subsidiaries of Bancorp and Allaire, respectively. The officers of Monmouth
Community Bank and Allaire initially shall serve as the officers of MCB
Investment Company and Allaire Investment Corporation, Inc.
Conduct of Business Pending the Combination
The agreement and plan of acquisition requires that each of Bancorp and
Allaire and their respective subsidiaries shall (i) conduct their business in
the ordinary course and maintain their respective properties and assets in
satisfactory condition and repair, ordinary wear and tear excepted, (ii) use
reasonable best efforts to keep their respective businesses, customer bases, and
employment relationships intact, and (iii) refrain from taking actions that
would prevent them from fulfilling their respective representations and
warranties or satisfying any conditions necessary for the consummation of the
combination. The agreement and plan of acquisition also provides that the data
processing service providers to Bancorp and Allaire will cooperate and assist
each other in connection with an electronic and systematic conversion of all
applicable data to a mutually agreed-upon electronic data processing system.
In addition, Bancorp and Allaire have agreed that, except as expressly
contemplated or permitted by the agreement and plan of acquisition, without the
prior written consent of the other, neither will:
o amend, repeal or otherwise modify any provision of its
certificate of incorporation, bylaws or other formation
documents, except as otherwise contemplated by the agreement
and plan of acquisition;
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o knowingly take any action or knowingly fail to take any action
reasonably likely to prevent the combination from qualifying
as a "reorganization" within the meaning of Section 368(a) of
the Internal Revenue Code of 1986, as amended;
o take any action that would materially impede or delay the
ability of either party to obtain any regulatory approvals or
consents necessary to effect the combination;
o agree to take, make any commitments to take, or adopt any
resolutions of its board of directors in support of, any
prohibited actions pending the consummation of the
combination;
o disclose the confidential information of the other party
without authorization unless otherwise required by law, or use
such information for any competitive or other commercial
purposes; or
o make payments to any director, officer or employee in
accordance with any agreement, contract, plan or arrangement
except as agreed to by the other party or as otherwise
permitted by the agreement and plan of acquisition.
In addition to these covenants, the agreement and plan of acquisition
contains various other customary covenants, including, among other things,
reporting to the other party any material events or changes, furnishing access
to information, employees and facilities, and each party's efforts to cause its
representations and warranties to be true and correct on the closing date.
Bancorp Stock Split
Pursuant to the agreement and plan of acquisition, Bancorp effected a 6
for 5 stock split for shareholders of record on July 15, 2004, for purposes of
having a one-for-one exchange ratio. Immediately after the stock split was
placed into effect, Bancorp had 1,860,725 outstanding shares of Bancorp common
stock.
Representations and Warranties
The agreement and plan of acquisition contains a number of representations
and warranties by Bancorp and Allaire regarding aspects of their respective
businesses, financial condition, structure and other facts pertinent to the
combination that are customary for a transaction of this nature. They include,
among other things, representations as to:
o the organization, existence, corporate power and authority and
capitalization of each party;
o the absence of conflicts with and violations of law and various
documents, contracts and agreements;
o the absence of any event or circumstance which is reasonably likely
to be materially adverse to a party;
84
o the absence of any materially adverse litigation or adverse
regulatory action;
o the accuracy of reports and financial statements filed with
applicable regulatory authorities;
o required consents and filings with governmental entities and other
approvals required for the combination;
o the existence, performance and legal effect of certain contracts;
o compliance with applicable laws;
o loan and investment portfolio matters;
o the filing of tax returns, payment of taxes and other tax matters;
o labor and employee benefit matters;
o title to property and real estate matters; and
o compliance with applicable environmental laws.
The representations, warranties, covenants and agreements of the parties,
other than the covenants in specified sections which relate to continuing
matters, terminate upon the closing of the combination.
Conditions to the Combination
The respective obligations of Bancorp and Allaire to complete the
combination are subject to various conditions prior to the combination. These
conditions include the following:
o the New Jersey Department of Banking and Insurance, the
Federal Reserve Bank of New York and the Federal Deposit
Insurance Corporation approval or non-objection of the
combination and the expiration of all statutory waiting
periods, and obtaining all other regulatory consents to
consummate the combination;
o approval of the agreement and plan of acquisition by the
required affirmative vote of the issued and outstanding shares
of Bancorp common stock and the issued and outstanding shares
of Allaire common stock;
o the dissent from the combination of no more than 2% of the
issued and outstanding shares of Allaire common stock and
Bancorp common stock, respectively;
o listing with the NASDAQ SmallCap Market of the Bancorp common
stock to be issued to Allaire stockholders;
85
o amendment of Bancorp's certificate of incorporation to change
Bancorp's name to "Central Jersey Bancorp," and, subject to
all applicable rules and regulations, the filing by Monmouth
Community Bank of the documentation necessary to change its
name to "Central Jersey Bank, National Association;"
o the registration statement of which this joint proxy
statement/prospectus forms a part is declared effective by the
Securities and Exchange Commission and no stop order is issued
suspending the effectiveness of such registration statement;
o completion of the Bancorp stock split described above in
"Bancorp Stock Split;"
o the absence of any litigation, statute, law, regulation, order
or decree which would enjoin or prohibit the combination, and
the absence of any regulatory action which imposes material
adverse conditions to the effectiveness of the combination;
o obtaining any necessary third-party consents;
o the receipt of legal opinions delivered by counsel to Bancorp
and to Allaire;
o the receipt of a legal opinion satisfactory to Allaire that
the exchange of shares of Bancorp common stock for shares of
Allaire common stock as a result of the combination qualifies
as a tax free exchange; and
o the accuracy of the representations and warranties of the
parties, and the performance by the parties and their
respective directors and officers, as applicable, of all
agreements and covenants, set forth in the agreement and plan
of acquisition.
The parties may waive certain conditions to their obligations unless they
are legally prohibited from doing so. Approvals of the Allaire stockholders, the
Bancorp shareholders and applicable regulators may not be legally waived.
Regulatory Approvals Required for the Combination
Bancorp and Allaire have agreed to use reasonable best efforts to take all
actions and comply with all requirements legally necessary to consummate the
combination. This includes the approval of the New Jersey Department of Banking
and Insurance, the Federal Deposit Insurance Corporation and the non-objection
of the Federal Reserve Bank of New York. Bancorp and Allaire have filed the
application materials necessary to obtain the required approvals. The
combination cannot be completed without such approvals and non-objection. We
cannot assure you that we will obtain the required regulatory approvals and
non-objection, when they will be received or whether there will be conditions in
the approvals or any litigation challenging the approvals. Further, as a
national association, Monmouth Community Bank is regulated and supervised by the
Office of the Comptroller of the Currency. It is the intent of Bancorp and
Allaire that as soon as is reasonably practicable following the combination,
Monmouth Community Bank and Allaire will merge to form a combined banking
subsidiary
86
under the name "Central Jersey Bank, National Association." The combined bank
will be regulated and supervised by the Office of the Comptroller of the
Currency.
We are not aware of any material governmental approvals or actions that
are required prior to the combination other than those described in this joint
proxy statement/prospectus. We presently contemplate that we will seek any
additional governmental approvals or actions that may be required in addition to
those requests for approval currently pending; however, we cannot assure you
that we will obtain any such additional approvals or actions.
Federal Reserve Bank of New York. The combination is subject to the
non-objection of the Federal Reserve Bank of New York, as the primary regulator
Bancorp. We have submitted the requisite notice filing and have published notice
of the filing, but the time period during which the Federal Reserve Bank may
respond has not yet expired. The Federal Reserve Bank of New York will make a
determination on the notice filing based on the effect that the combination will
have on the local banking marketplace, on the financial soundness of Bancorp, on
its managerial resources, and based on the impact that the combination will have
on the convenience and needs of the communities to be served by the combined
entities. In addition, under federal law, a period of thirty (30) days must
expire following approval by the Federal Reserve Bank of New York, within which
period the Department of Justice may file objections to the combination under
the federal antitrust laws. This waiting period may be reduced to fifteen (15)
days if the Department of Justice has not provided any adverse comments relating
to the competitive factors of the transaction.
Federal Deposit Insurance Corporation. The combination is subject to
approval by the Federal Deposit Insurance Corporation. We have filed the
required application, but we have not yet received the Federal Deposit Insurance
Corporation's approval.
The Federal Deposit Insurance Corporation may not approve any transaction
that would result in a monopoly or otherwise substantially lessen competition or
restrain trade, unless it finds that the anti-competitive effects of the
transaction are clearly outweighed by public interest. In addition, the Federal
Deposit Insurance Corporation considers the financial and managerial resources
of the companies and their subsidiary institutions and the convenience and needs
of the communities to be served. Under the Community Reinvestment Act, the
Federal Deposit Insurance Corporation must take into account the record of
performance of each company in meeting the credit needs of its entire
communities, including low and moderate income neighborhoods, served by each
company. Both Monmouth Community Bank and Allaire have a satisfactory CRA
rating. The Federal Deposit Insurance Corporation also must consider the
effectiveness of each company involved in the proposed transaction in combating
money laundering activities.
Federal law requires publication of notice of, and the opportunity for
public comment on, the applications submitted by Bancorp and Monmouth Community
Bank for approval of the combination and authorizes the Federal Deposit
Insurance Corporation to hold a public hearing in connection with the
application if it determines that such a hearing would be appropriate. Any such
hearing or comments provided by third parties could prolong the period during
which the application is subject to review.
87
New Jersey Department of Banking and Insurance. The combination is also
subject to the prior approval of the New Jersey Department of Banking and
Insurance under certain provisions off the New Jersey Banking Act of 1948, as
amended. Under that statute, the New Jersey Department of Banking and Insurance
has up to sixty (60) days to review a completed application, and may extend that
time period if it requires additional information or determines that a public
hearing is warranted. We filed an application with the New Jersey Department of
Banking and Insurance in August, 2004 for approval of the combination but we
have not received approval. In determining whether to approve such application,
the New Jersey Department of Banking and Insurance may consider, among other
factors, whether the combination will compromise the safety and soundness of
Allaire, impair competition among area banks, and will further the convenience
and needs of the affected communities.
Approvals Required for Merger of Banks Following the Combination. In
addition to the approvals described above that are necessary for the
consummation of the combination, additional regulatory approvals will be
required following the closing in order to merge Allaire with Monmouth Community
Bank, and to change the name of the resulting entity to "Central Jersey Bank,
National Association." Approvals from the Office of the Comptroller of the
Currency, the Federal Deposit Insurance Corporation, and the New Jersey
Department of Banking and Insurance will be required for these actions. We can
not assure you whether or when we will receive such approvals.
No Solicitation
Until the combination is completed or the agreement and plan of
acquisition is terminated, each of Bancorp and Allaire have agreed that neither
of them, nor any of their respective directors, officers, employees or
representatives, shall directly or indirectly initiate, solicit, encourage or
otherwise facilitate any inquiries, proposals or offers that constitute or could
lead to any business combination or acquisition proposal of Bancorp or Allaire,
as the case may be, by any other party. Neither Bancorp nor Allaire shall
furnish any non-public information or negotiate or enter into any agreement or
contract with respect to any takeover proposal, unless furnishing such
information or engaging in such negotiations is necessary to comply with the
fiduciary duties or legal obligations of the board of directors of Bancorp or
Allaire, as the case may be. Each party has agreed to promptly notify the other
party in the event that it receives any inquiry or proposal relating to any such
transaction.
Termination; Amendment; Waiver
The agreement and plan of acquisition may be terminated and the
combination may be abandoned at any time prior to the effective time, whether
before or after stockholder or shareholder approval of the matters presented in
connection with the combination, as follows:
o by the mutual written agreement of Bancorp and Allaire;
o by either Bancorp or Allaire if the closing of the combination
has not occurred on or before December 31, 2004, and such
failure to close is not due to the
88
terminating party's breach of any of the representations,
warranties, covenants or other agreements contained in the
agreement and plan of acquisition;
o by a non-breaching party in the event of an inaccuracy of any
representation or warranty or a material breach of any
covenant or agreement contained in the agreement and plan of
acquisition if such inaccuracy or breach has not been cured
within thirty (30) days after notice from the terminating
party;
o by either party if any required regulatory approvals for
consummation of the combination are not obtained;
o by either party if the stockholders or shareholders of either
party fail to approve the agreement and plan of acquisition
and the combination;
o by either party, if the other party fails to hold its
stockholder or shareholder meeting to vote on the agreement
and plan of acquisition within sixty (60) days of the
registration statement, of which this joint proxy
statement/prospectus forms a part, being declared effective by
the Securities and Exchange Commission, except if such delay
is caused by a regulatory authority, or if the other party's
board of directors either fails to recommend, fails to
continue to recommend, or changes or withdraws its
recommendation that its stockholders or shareholders vote in
favor of the agreement and plan of acquisition; or
o by either party, if its board of directors is advised by
counsel that accepting an alternative proposal for a merger,
consolidation, or acquisition is required in order for the
board of directors to comply with its fiduciary duties under
applicable law.
If the combination is not consummated for reasons other than the final
reason set forth above, the agreement and plan of acquisition shall terminate
and have no effect except for the provisions that are intended to survive such
termination. If the agreement and plan of acquisition is terminated by either
party due to the last reason set forth above, then the terminating party shall
pay to the other party a cash payment of $1,500,000, which constitutes an
agreed-upon termination fee plus reimbursement to the other party for the
expenses incurred in connection with the preparation of the agreement and plan
of acquisition.
In addition, if Allaire does not receive a legal opinion satisfactory to
Allaire that the exchange of shares of Bancorp common stock for shares of
Allaire common stock as a result of the combination qualifies as a tax free
exchange, Allaire will not have to consummate the combination and, as a result
thereof, the agreement and plan of acquisition would subsequently terminate.
The agreement and plan of acquisition may be amended by written agreement
of each party, to the extent permitted by law. Prior to or at the effective time
of the combination, either party shall have the right to waive the other party's
default of any term of the agreement and plan of acquisition or waive or extend
the time for the compliance or fulfillment by the other of any obligations or
conditions under the combination, unless the waiver is related to a condition or
obligation required by applicable law.
89
Name of Organization After the Combination
Contemporaneous with the closing of the combination, Bancorp will amend
its certificate of incorporation to change its name to "Central Jersey Bancorp."
It is the intent of Bancorp and Allaire that as soon as is reasonably
practicable following the combination, Allaire and Monmouth Community Bank will
merge to form a combined national banking subsidiary under the name "Central
Jersey Bank, National Association."
Effects of the Combination
Under the terms of the agreement and plan of acquisition, the certificate
of incorporation and by-laws of Bancorp, as amended for the purpose of changing
the name of Bancorp to "Central Jersey Bancorp" and to reflect the other terms
and conditions of the combination, shall be the certificate of incorporation and
by-laws of Bancorp at and after the effective time of the combination. A copy of
the form of the amended and restated certificate of incorporation of Central
Jersey Bancorp has been included with this document as Appendix F and a copy of
the form of the amended and restated by-laws of Central Jersey Bancorp has been
included with this document as Appendix G.
At the effective time of the combination, the certificate of incorporation
and bylaws of Allaire shall be amended, if necessary, to give effect to the
terms and conditions of the agreement and plan of acquisition and the
combination. In addition, at the effective time of the combination, Allaire will
become a wholly-owned banking subsidiary of Bancorp. Bancorp does not currently
anticipate closing any branches of Allaire or Monmouth Community Bank. The net
result of the combination will be a greater number of branches, a stronger
presence in existing markets, and the addition of new market areas for Bancorp.
Bancorp will also recognize cost savings through consolidation of back office
functions.
Effective Date of the Combination
Bancorp and Allaire expect that the closing of the combination will occur
by year end 2004, or as soon as possible after the receipt of all regulatory,
stockholder and shareholder approvals and all regulatory waiting periods expire.
If the combination is not consummated by December 31, 2004, the agreement and
plan of acquisition may be terminated by either party, unless the failure to
consummate the combination is due to the terminating party's breach of any of
the representations, warranties, covenants or other agreements contained in the
agreement and plan of acquisition. See "Conditions to the Combination" on page
85.
Public Trading Markets
Bancorp common stock is currently traded on the NASDAQ SmallCap Market
under the symbol "MCBK." As of September 10, 2004, 1,860,725 shares of Bancorp
common stock were outstanding and held by approximately 401 shareholders of
record. Allaire common stock is currently traded on the OTC Bulletin Board under
the symbol "ALCY." As of September 10, 2004, 1,973,361 shares of Allaire common
stock were outstanding and held by approximately 449 stockholders of record.
Upon completion of the combination, Allaire common stock will cease to trade.
The shares of Central Jersey Bancorp common stock issued pursuant to the
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agreement and plan of acquisition will be traded on the NASDAQ SmallCap Market,
subject to regulatory approval.
The shares of Central Jersey Bancorp common stock to be issued in
connection with the combination will be freely transferable under the Securities
Act of 1933, as amended, except for shares issued to any shareholder who may be
deemed to be an affiliate of Allaire or Bancorp, as discussed in "Resale of
Bancorp Common Stock" on page 93.
Fees and Expenses
Expenses incurred by Allaire and Bancorp in connection with the agreement
and plan of acquisition and the transactions contemplated therein, including all
fees and expenses of agents, representatives, counsel and accountants employed
by either such party, shall be shared equally by Allaire and Bancorp, except for
the termination fee and related expenses upon one party's termination of the
agreement and plan of acquisition to pursue another transaction. See
"Termination; Amendment; Waiver" on page 88.
Material Federal Income Tax Consequences of the Combination
The following is a discussion of the material United States federal income
tax consequences of the combination to holders of Allaire common stock. This
discussion is based upon the Internal Revenue Code of 1986, as amended, the
regulations of the United States Treasury Department, Internal Revenue Service
rulings, and judicial and administrative rulings and decisions in effect on the
date of this joint proxy statement/prospectus. These authorities may change at
any time, possibly retroactively, and any change could affect the continuing
validity of this discussion. This discussion does not address any tax
consequences arising under the laws of any state, locality or foreign
jurisdiction, and, accordingly, is not a comprehensive description of all of the
tax consequences that may be relevant to any given holder of Allaire common
stock or any holder of Bancorp common stock who dissents from the combination.
This discussion assumes that Allaire stockholders hold their shares of
Allaire common stock, and dissenting Bancorp shareholders hold their shares of
Bancorp common stock, as capital assets and does not address the tax
consequences that may be relevant to a particular Allaire stockholder or
dissenting Bancorp shareholder receiving special treatment under some United
States federal income tax laws. Allaire stockholders or dissenting Bancorp
shareholders receiving this special treatment include, but are not limited to,
banks, foreign investors, financial institutions, tax-exempt organizations,
insurance companies, mutual funds, traders in securities that elect
mark-to-market, dealers in securities or foreign currencies, persons who
received their Allaire common stock or Bancorp common stock through the exercise
of employee stock options or otherwise as compensation, persons who have a
functional currency other than the U.S. dollar, and persons who hold shares of
Allaire common stock or Bancorp common stock as part of a hedge, straddle or
conversion transaction.
Neither Bancorp nor Allaire has requested, nor do they intend to request,
an advance ruling from the Internal Revenue Service as to the tax consequences
of the combination. In connection with the filing of the registration statement
of which this joint proxy statement/prospectus forms a part, Bancorp and Allaire
have received an opinion of corporate
91
counsel to Bancorp, rendered on the basis of facts, representations of facts,
covenants and assumptions set forth or referred to in such opinion, which such
counsel has assumed to be consistent with those existing at the effective time
of the combination. The opinion of Bancorp's corporate counsel states that the
combination will be treated for United States federal income tax purposes as a
"reorganization" within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended. If the combination is treated in this manner:
o no gain or loss will be recognized by Bancorp or Allaire as a result
of the combination;
o no gain or loss will be recognized by a stockholder of Allaire who
exchanges all of his, her or its shares of Allaire common stock
solely for shares of Bancorp common stock;
o the aggregate tax basis of the shares of the Bancorp common stock
received by holders of Allaire common stock who exchange all of
their Allaire common stock for shares of Bancorp common stock in the
combination will be the same as the aggregate tax basis of the
shares of Allaire common stock surrendered in exchange therefor;
o the holding period of the shares of Bancorp common stock received by
an Allaire stockholder generally will include the holding period of
the shares of Allaire common stock surrendered in exchange therefor;
o each dissenting Allaire stockholder receiving cash in exchange for
his, her or its Allaire common stock will be treated as if he, she
or it received such cash in redemption of his, her or its Allaire
common stock, subject to the provisions of Section 302(b) of the
Internal Revenue Code of 1986, as amended; the amount of such
Allaire stockholder's recognized gain or loss will be the
difference, if any, between (i) the amount of cash so received and
(ii) such stockholder's tax basis in the Allaire common stock
exchanged; and such gain or loss would be capital gain or loss if
the Allaire common stock was held as a capital asset, and would be
long term if the holding period was more than one year; and
o each dissenting Bancorp shareholder receiving cash in exchange for
his, her or its Bancorp common stock will be treated as if he, she
or it received such cash in redemption of his, her or its Bancorp
common stock, subject to the provisions of Section 302(b) of the
Internal Revenue Code of 1986, as amended; the amount of such
Bancorp shareholder's recognized gain or loss will be the
difference, if any, between (i) the amount of cash so received and
(ii) such shareholder's tax basis in the Bancorp common stock
exchanged; and such gain or loss would be capital gain or loss if
the Bancorp common stock was held as a capital asset, and would be
long term if the holding period was more than one year.
Opinions of counsel are not binding on the Internal Revenue Service or the
courts. Accordingly, there can be no assurance that the Internal Revenue Service
will not challenge the conclusions reflected in the opinion of Bancorp's
corporate counsel as to the matters discussed herein or that a court will not
sustain such a challenge. A successful challenge by the Internal Revenue Service
to the tax-free status of the combination would result in an Allaire stockholder
recognizing gain or loss with respect to each share of Allaire common stock
surrendered equal to
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the difference between his, her or its tax basis in such share and the fair
market value, as of the effective time of the combination, of the Bancorp common
stock received in exchange therefor (such gain or loss would be capital gain or
loss if the Allaire common stock was held as a capital asset, and would be long
term if the holding period was more than one year). In such event, an Allaire
stockholder's aggregate tax basis in the Bancorp common stock received in the
exchange would equal the fair market value of such shares, and the holding
period for such shares would not include the period during which he, she or it
held Allaire common stock.
Tax matters are very complicated, and the tax consequences of the
combination to each Allaire stockholder and any dissenting Bancorp shareholder
will depend on the facts of that stockholder's or shareholder's situation.
Allaire stockholders and dissenting Bancorp shareholders are encouraged to
consult their own tax advisors regarding the specific tax consequences of the
combination, including the applicability and effect of any federal, state, local
and foreign income and other tax laws.
Resale of Bancorp Common Stock
The shares of Bancorp common stock that Allaire stockholders will receive
in the combination have been registered under the Securities Act of 1933, as
amended. They may be freely traded, without restriction, by persons who are not
deemed to be "affiliates" of Allaire or Bancorp under the Securities Act of
1933, as amended. An affiliate generally includes any person who is an executive
officer, director or 10% stockholder/shareholder of Allaire or Bancorp at the
time the combination was submitted for a vote of the shareholders of Bancorp or
the stockholders of Allaire. Affiliates may only sell their shares of Bancorp
common stock if such shares are registered subsequent to the combination or in
accordance with Rule 145 of the Securities Act of 1933, as amended. Affiliates
of both parties have previously been notified of their status. The agreement and
plan of acquisition requires Allaire to obtain a letter agreement from each
person who is an affiliate of Allaire restricting the transferability of any
shares of Bancorp common stock received in the combination.
This joint proxy statement/prospectus does not cover resales of Bancorp
common stock received by any person who may be deemed to be an affiliate of
Bancorp or Allaire.
Accounting Treatment
In accordance with accounting principles generally accepted in the United
States of America, the combination will be accounted for using the purchase
method. As a result, the recorded assets and liabilities of Bancorp will be
carried forward at their recorded amounts, the historical operating results will
be unchanged for the prior periods being reported on and that the assets and
liabilities from the combination with Allaire will be adjusted to fair value at
the date of completion of the combination. In addition, all identified
intangibles, which presently consists of a core deposit intangibles, will be
recorded at fair value and included as part of the net assets acquired. To the
extent that the purchase price, consisting of the number of shares of Bancorp
common stock to be issued to former Allaire stockholders at fair value and
amounts paid for combination and closing costs, exceeds the fair value of the
net assets including identifiable intangibles of Allaire at the combination
date, that amount will be reported as goodwill. In accordance with Statement of
Financial Accounting Standards No. 142, "Goodwill and Other
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Intangible Assets," goodwill will not be amortized but will be evaluated for
impairment at least annually. Identified intangibles will be amortized over
their estimated lives. Further, the purchase accounting method results in the
operating results of Allaire being included in the consolidated income of
Bancorp beginning from the date of consummation of the combination.
Dissenters' Rights of Bancorp Shareholders and Allaire Stockholders
Bancorp Shareholders.
The following summary of Sections 14A:11-1 through 14A:11-11 of the New
Jersey Business Corporation Act does not purport to be complete and is qualified
in its entirety by reference to Appendix D hereto, which contains the complete
text of those sections:
General. Bancorp is a New Jersey corporation subject to the New Jersey
Business Corporation Act. Section 14A:10-12 of the New Jersey Business
Corporation Act provides that holders of Bancorp common stock have the right to
dissent from the combination and receive the fair value of their shares of
Bancorp common stock as determined in accordance with the provisions of Sections
14A:11-1 through 14A11-11 of the New Jersey Business Corporation Act. Each
Bancorp shareholder has the right to dissent from the combination because the
number of shares of Bancorp common stock outstanding immediately after the
combination, plus the number of shares of Bancorp common stock issuable on
conversion of other securities, will exceed by more than 40% the total number of
shares of Bancorp common stock outstanding immediately before the transaction.
A Bancorp shareholder may dissent from the combination and demand the fair
value of his, her or its shares of Bancorp common stock, provided that the
Bancorp shareholder sends written notice to Bancorp of his, her or its dissent
and demand for payment of the fair value of his, her or its shares, and does not
vote for the approval and adoption of the combination proposal. If the
combination is not consummated for any reason, the demand by a Bancorp
shareholder for the fair value of his, her or its shares of Bancorp common stock
will terminate and be of no effect.
Notice of Dissent. A Bancorp shareholder wishing to exercise his, her or
its right to dissent from the combination must file with the Secretary of
Monmouth Community Bancorp, 627 Second Avenue, P.O. Box 630, Long Branch, New
Jersey 07740, a written notice of dissent stating that such shareholder intends
to demand payment for his, her or its shares of Bancorp common stock if the
combination is completed. This objection to the combination must be received by
the Secretary before the vote on the combination proposed is taken at the
Bancorp special meeting. Voting against the combination proposal, by proxy or
otherwise, is not sufficient to enable a Bancorp shareholder to perfect the
rights of a dissenting shareholder. However, any shareholder who files the
required notice of dissent and votes in favor of the combination proposal,
whether in person or by proxy (including those shareholders who return the
enclosed proxy card executed but without a designation as to the vote on the
combination proposal) will be deemed to have waived the right to qualify as a
dissenter.
Written Demand. Within ten (10) days after the effective date of the
combination, Central Jersey Bancorp, as the surviving corporation, will give
written notice of the effective
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date of the consummation of the combination by certified mail to each
shareholder who filed written notice of dissent and who did not vote in favor of
the combination. A dissenting shareholder who filed a timely written objection
and did not vote in favor of the combination, must within twenty (20) days of
the mailing of such notice, make written demand on Bancorp for payment of the
fair value of his, her or its shares.
Delivery of Shares for Notation. Within twenty (20) days of demanding
payment for his, her or its shares, a dissenting shareholder must submit the
certificate(s) representing his, her or its shares of Bancorp common stock to
Bancorp for notation thereon that a demand for payment has been made, after
which the certificate(s) will be returned to the shareholder. If those shares
are transferred, each new certificate issued for such shares shall bear similar
notation, and the transferee shall acquire the rights the dissenting shareholder
had. If the shareholder does not submit the stock certificate(s) for notation,
Bancorp may elect to terminate the shareholder's status as a dissenting
shareholder.
Unless a Bancorp shareholder files a written notice of dissent prior to
the vote on the combination and also makes demand for the payment of the fair
value of such shares within the applicable time period, the shareholder will be
conclusively presumed to have consented to the combination and will be bound by
the terms of the combination. Purchasers of shares of Bancorp common stock as to
which dissenters' rights have been exercised are bound by that exercise and
acquire no rights in Bancorp other than the rights of a dissenting shareholder.
Termination of Demand. Once made, a demand for payment cannot be withdrawn
except with the consent of Bancorp. A dissenting shareholder's right to payment
of fair value shall terminate (i) if the combination is abandoned, (ii) if the
approval of the combination is rescinded, (iii) if a court of competent
jurisdiction determines that the shareholder is not entitled to payment, (iv)
the fair value of the shares is not agreed upon by Bancorp and the dissenting
shareholder and an action for the determination of such fair value is not
commenced by the dissenting shareholder within a specified time period, (v) the
demand is withdrawn with the consent of Bancorp, (vi) a court permanently
enjoins the combination from being completed. Upon withdrawal or upon
termination of the right to be paid fair value, such person's status as a
Bancorp shareholder will be restored retroactively, or (vii) the dissenting
shareholder fails to present his, her or its certificates for notation, unless a
court having jurisdiction, for good and sufficient cause shown, shall otherwise
direct.
Statement of Financial Condition. Not later than ten (10) days after the
expiration of the period within which shareholders must make written demand for
payment, Bancorp will deliver to dissenting shareholders a statement of
financial condition, a statement of shareholders' equity, and a statement of
income as of and for the latest available date, but dated not more than twelve
(12) months prior to such delivery. Bancorp may include with such statements an
offer for payment of a specified price deemed fair value by Bancorp (the offer).
Demand that Bancorp Institute Lawsuit. If the fair value of the shares can
be agreed upon between Bancorp and a dissenting shareholder within thirty (30)
days after the offer by Bancorp is made (the negotiation period), Bancorp shall
pay the agreed value to that shareholder upon surrender of the certificate(s)
representing Bancorp common stock held by that shareholder.
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If the shareholder and Bancorp cannot agree to a fair value during the
negotiation period, the shareholder may make written demand upon Bancorp not
later than thirty (30) days after the expiration of the negotiation period for
commencement of a judicial determination of fair value, and Bancorp would have
to commence such determination proceeding within thirty (30) days of such
demand. If Bancorp fails to commence the judicial proceeding within that time,
any dissenting shareholder may commence such judicial proceeding in the name of
Bancorp not later than sixty (60) days after such failure.
Under New Jersey law, the costs and expenses of a judicial proceeding
shall be determined by the court and shall be apportioned and assessed upon the
parties as the court may find equitable.
NO NOTIFICATION OF THE BEGINNING OR END OF ANY STATUTORY PERIOD WILL BE
GIVEN BY BANCORP TO ANY DISSENTING SHAREHOLDER EXCEPT AS REQUIRED BY LAW.
BANCORP SHAREHOLDERS WHO ARE CONSIDERING DISSENTING FROM THE COMBINATION ARE
URGED TO CONSULT THEIR OWN LEGAL COUNSEL.
Allaire Stockholders.
The following is a summary of the steps which must be taken by an Allaire
stockholder to exercise the right to dissent from the combination and is
qualified in its entirety by reference to the sections of The New Jersey Banking
Act of 1948, as amended, set forth in Appendix E.
General. Under The New Jersey Banking Act of 1948, as amended, Allaire
stockholders may dissent from the combination and be paid the fair value of
their shares provided that they comply with the applicable provisions of The New
Jersey Banking Act of 1948, as amended. Allaire stockholders may only dissent as
to their entire amount of shares. Stockholders contemplating the exercise of
their right to dissent should review the procedures set forth in Sections 360
through 369 of The New Jersey Banking Act of 1948, as amended, which are
attached to this joint proxy statement/prospectus as Appendix E.
Notice of Dissent. To be eligible to exercise his, her or its right of
dissent, an Allaire stockholder must file with the Secretary of Allaire a
written notice of dissent, stating that he, she or it intends to demand payment
for his, her or its shares of Allaire common stock if the combination is
consummated. The notice of dissent must be filed before the vote of the Allaire
stockholders on the combination proposal. A vote against the combination
proposal by a stockholder does not constitute the valid exercise of the right to
dissent from the combination by such stockholder. A stockholder who votes in
favor of the combination proposal waives his, her or its right to dissent. The
notice of dissent should be delivered to: Allaire Community Bank, 2200 Highway
35, Post Office Box 440, Sea Girt, New Jersey 08750 Attention: Secretary.
Written Demand. If the combination proposal is approved by the necessary
vote of Allaire stockholders, Allaire, within ten (10) days of the approval,
will notify by certified mail stockholders who have filed a notice of dissent
that the combination proposal was approved. Within twenty (20) days after
Allaire's notice is mailed, a stockholder who wishes to dissent must file with
Allaire a written demand for the payment of the fair value of his, her or its
shares
96
of Allaire common stock. Such written demand should be delivered to the address
set forth above. Once the demand notice has been sent by an Allaire stockholder,
such person ceases to be a stockholder of Allaire and forfeits all rights as
such except to obtain the fair value of his, her or its shares of Allaire common
stock.
Delivery of Shares for Notation. Within twenty (20) days after making the
written demand for payment, a dissenting Allaire stockholder must submit his,
her or its certificate(s) evidencing Allaire common stock to the Secretary of
Allaire. Allaire will make a notation thereon that the stockholder has made a
demand to be paid the fair value of his, her or its shares of Allaire common
stock and thereafter the certificate(s) will merely represent the rights of a
dissenting stockholder, and will not represent shares of Allaire common stock or
Bancorp common stock.
Demand that Allaire Institute Lawsuit. Within ten (10) days of the later
of (i) the expiration of the period within which Allaire stockholders may make a
written demand or (ii) the effective date of the combination, Allaire will mail
to each dissenting stockholder the latest available 12-month profit-and-loss
statement and a balance sheet as of the close of the 12-month period. The close
of the profit-and-loss statement and the balance sheet will be as of a date
within 12 months prior to the mailing. Allaire may, but is not required to,
accompany these financial statements with a written offer to pay a specified
price. Each dissenting stockholder will have a 30-day period following Allaire's
mailing of the financial statements to agree upon a price with Allaire. If the
dissenting stockholder and Allaire are unable to agree upon a price within the
30-day period, the dissenting stockholder must serve a written demand on Allaire
to commence an action in the New Jersey Superior Court for the determination of
the fair value of his, her or its shares of Allaire common stock. The dissenting
stockholder's demand to commence an action must be served not later than thirty
(30) days after the expiration of the 30-day period dissenting stockholders have
in which to agree upon a price with Allaire.
Commencement of Lawsuit by Dissenting Stockholder. Allaire has thirty (30)
days after receipt of a dissenting stockholder's demand for Allaire to commence
a proceeding in the New Jersey Superior Court to commence such proceeding. If
Allaire fails to institute the proceeding, the dissenting stockholder may
institute the proceeding in the name of Allaire during the 60-day period after
expiration of Allaire's 30-day period.
Determination and Payment of Fair Value. In the New Jersey Superior Court
proceeding, the court has jurisdiction over all dissenting stockholders who have
not agreed upon a price with Allaire and may proceed in a summary fashion to
determine the fair value of their shares of Allaire common stock. The court's
judgment must include interest from the date of the Allaire special meeting
approving the combination proposal to the date of payment unless the court finds
that the refusal of any dissenting stockholder to accept Allaire's offered price
was arbitrary, vexatious or otherwise not in good faith. The costs of the action
(excluding the fees and expenses of each party's attorneys and experts) and of
any court-appointed appraiser will be apportioned equitably by the court. The
court may in its discretion award a dissenting stockholder reasonable fees and
expenses of his, her or its counsel and of any experts employed by the
dissenting stockholder if the court finds that the price offered by Allaire was
not offered in good faith or if no such offer was made.
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NO NOTIFICATION OF THE BEGINNING OR END OF ANY STATUTORY PERIOD WILL BE
GIVEN BY ALLAIRE TO ANY DISSENTING STOCKHOLDER EXCEPT AS REQUIRED BY LAW.
STOCKHOLDERS WHO ARE CONSIDERING DISSENTING FROM THE COMBINATION ARE URGED TO
CONSULT THEIR OWN LEGAL COUNSEL.
Allaire Stock Trading and Dividend Information
The common stock of Allaire currently is quoted on the NASDAQ OTC Bulletin
Board under the symbol "ALCY."
The following table sets forth, for the periods indicated, the high and
low last sale information for Allaire's common stock, as reported on the NASDAQ
OTC Bulletin Board. Please note that the information set forth below reflects
inter-dealer prices, without retail mark-up, mark-down or commission and may not
represent actual transactions. All amounts set forth in this table have been
adjusted to give affect to the 3 for 2 stock split effected February 11, 2003
and the 5% stock distributions effected on April 24, 2002 and June 7, 2004.
Year Ending December 31, 2004 High Low
------ ------
First Quarter .................................... $19.76 $16.67
Second Quarter ................................... 18.10 15.95
Third Quarter (through September 10, 2004) ....... 24.00 20.01
Year Ended December 31, 2003 High Low
------ ------
First Quarter .................................... $26.67 $17.11
Second Quarter ................................... 21.90 16.67
Third Quarter .................................... 17.38 15.71
Fourth Quarter ................................... 19.76 14.29
Year Ended December 31, 2002 High Low
------ ------
First Quarter .................................... $ 8.92 $ 7.89
Second Quarter ................................... 10.48 8.77
Third Quarter .................................... 12.83 10.16
Fourth Quarter ................................... 16.35 12.22
The NASDAQ OTC Bulletin Board is generally considered to be a less active
and efficient market than the NASDAQ National Market System or SmallCap Market
or any national exchange and will not provide investors with the liquidity the
NASDAQ National Market System or SmallCap Market or a national exchange would
offer. Janney Montgomery Scott LLC and Munroe Securities are market makers for
Allaire's common stock.
As of September 10, 2004, the approximate number of registered holders of
Allaire common stock was 449.
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The holders of Allaire's common stock are entitled to receive dividends if
declared by the board of directors of Allaire out of funds legally available for
such purpose. The ability of Allaire to pay cash dividends is strictly limited
by applicable state and federal law. Since its formation, Allaire has not paid
any cash dividends to its stockholders. The future dividend policy of Allaire is
subject to the discretion of the board of directors and will depend upon a
number of factors, including future earnings, financial conditions, cash needs,
general business conditions and applicable dividend limitations.
Bancorp Stock Trading and Dividend Information
The common stock of Bancorp currently trades on the NASDAQ SmallCap Market
under the ticker symbol "MCBK."
The following table sets forth, for the periods indicated, the high and
low last sale information for Bancorp's common stock, as reported on the NASDAQ
SmallCap Market for the period commencing May 12, 2003 through June 30, 2004 and
the NASDAQ OTC Bulletin Board for the period commencing January 1, 2002 through
May 11, 2003. Please note that the information set forth below reflects
inter-dealer prices, without retail mark-up, mark-down or commission and may not
represent actual transactions and has been adjusted to reflect the 5% stock
distributions effected on December 31, 2003 and 2002, respectively. All amounts
set forth in this table have also been adjusted to give effect to the 6 for 5
stock split effected as of July 15, 2004.
Year Ending December 31, 2004 High Low
------ ------
First Quarter ................................ $24.79 $21.67
Second Quarter ............................... 24.77 20.00
Third Quarter (through September 10, 2004) ... 24.23 19.79
Year Ended December 31, 2003 High Low
------ ------
First Quarter ................................ $12.50 $11.75
Second Quarter ............................... 16.23 11.98
Third Quarter ................................ 16.98 15.08
Fourth Quarter ............................... 21.87 14.48
Year Ended December 31, 2002 High Low
------ ------
First Quarter ................................ $12.47 $10.58
Second Quarter ............................... 12.09 9.52
Third Quarter ................................ 11.53 9.33
Fourth Quarter ............................... 12.47 10.66
- ----------
As of September 10, 2004, the following were market makers for Bancorp's
common stock: Ryan, Beck & Co., LLC; Hill Thompson; Magid, L.P.; Sandler, O'
Neill & Partners, L.P.; Knight Securities, L.P.; Schwab Capital Markets, L.P.;
and The Brut ECN, LLC.
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As of September 10, 2004, the approximate number of registered holders of
Bancorp's common stock was 401.
Bancorp has not paid any cash dividends on its common stock and does not
intend to declare or pay cash dividends in the foreseeable future. Bancorp's
dividend policy is subject to certain regulatory considerations and the
discretion of its board of directors and depends upon a number of factors,
including operating results, financial condition and general business
conditions. Holders of Bancorp common stock are entitled to receive dividends
as, if and when declared by Bancorp's board of directors out of funds legally
available therefor, subject to the restrictions set forth under the Federal Bank
Holding Company Act. Bancorp may pay cash dividends without regulatory approval
if net income available to shareholders fully funds the proposed dividends, and
the expected rate of earnings retention is consistent with capital needs, asset
quality and overall financial condition.
Comparison of Bancorp Shareholders' and Allaire Stockholders' Rights
General. The rights of the holders of Bancorp common stock differ in
certain respects from the rights of the holders of Allaire common stock. The
following discussion describes certain rights of the holders of Allaire common
stock and Bancorp common stock and notes the material differences which arise
primarily because the New Jersey Business Corporation Act, which governs
Bancorp, provides security holders with different rights than the rights
provided for under The New Jersey Banking Act of 1948, as amended, which governs
Allaire. The rights of security holders may also be affected because Bancorp is
subject to supervision and regulation by governmental agencies which are
different than those supervising and regulating Allaire. While the following
discussion summarizes certain provisions of Bancorp's certificate of
incorporation and by-laws, as are proposed to be amended and restated in
connection with the combination, any statements concerning the certificate of
incorporation and by-laws are qualified in their entirety by reference to those
documents, which are attached to this joint proxy statement/prospectus as
Appendices F and G.
Capital Structure. Allaire's certificate of incorporation currently
provides for 7,500,000 shares of authorized capital stock, all of which have
been designated as common stock, par value $3.33333 per share. Bancorp's
certificate of incorporation provides for 100,000,000 shares of authorized
capital stock, all of which have been designated as common stock, par value $.01
per share. Upon consummation of the combination, Bancorp will have approximately
3,834,086 shares of Bancorp common stock outstanding (fewer shares to the extent
any Allaire stockholder or Bancorp shareholder exercises his, her or its right
to dissent from the combination).
Liquidation Rights. The liquidation rights of the holders of Allaire
common stock and Bancorp common stock are substantially similar. In the event of
liquidation, dissolution or winding up of either Allaire or Bancorp, holders of
either common stock are entitled to receive, on a pro rata per share basis, any
assets distributable to stockholders or shareholders, after the payment of debts
and liabilities and after the distribution to holders of any outstanding shares
hereafter issued which have prior rights upon liquidation.
Dividend Rights. The holders of Allaire's common stock are entitled to
receive dividends if declared by the board of directors of Allaire out of funds
legally available for such purpose.
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The ability of Allaire to pay cash dividends is strictly limited by applicable
state and federal law. Since its formation, Allaire has not paid any cash
dividends to its stockholders.
Bancorp has not paid any cash dividends on its common stock and does not
intend to declare or pay cash dividends in the foreseeable future. Bancorp's
dividend policy is subject to certain regulatory considerations and the
discretion of its board of directors and depends upon a number of factors,
including operating results, financial condition and general business
conditions. Holders of Bancorp common stock are entitled to receive dividends
as, if and when declared by Bancorp's board of directors out of funds legally
available therefor, subject to the restrictions set forth under the Federal Bank
Holding Company Act. Bancorp may pay cash dividends without regulatory approval
if net income available to shareholders fully funds the proposed dividends, and
the expected rate of earnings retention is consistent with capital needs, asset
quality and overall financial condition.
Voting Rights. Under The New Jersey Banking Act of 1948, as amended, and
Allaire's certificate of incorporation and bylaws, each share of Allaire's
common stock is entitled to one vote per share. Under the New Jersey Business
Corporation Act and Bancorp's certificate of incorporation and by-laws, each
share of Bancorp common stock is also entitled to one vote per share. Cumulative
voting is not permitted with respect to either Allaire or Bancorp.
While generally the voting rights of the shareholders in Bancorp are the
same as they are for the stockholders of Allaire, there are several material
differences. Among other things, The New Jersey Banking Act of 1948, as amended,
requires the affirmative vote of two-thirds (2/3) of the outstanding shares of
Allaire common stock to approve a merger or consolidation or a stock option
plan. Under the New Jersey Business Corporation Act, the affirmative vote of a
majority of the votes cast is required to approve any merger, consolidation or
disposition of substantially all of Bancorp's assets or a stock option plan.
Dissenters' Rights. Under The New Jersey Banking Act of 1948, as amended,
stockholders of Allaire have the right to dissent upon a merger or certain other
business combinations. See "Dissenters' Rights of Bancorp Shareholders and
Allaire Stockholders - Allaire Stockholders" on page 96.
Under the New Jersey Business Corporation Act, dissenting shareholders of
Bancorp will have dissenters' rights (subject to the broad exception set forth
in the next sentence) upon certain mergers other business combinations. Unlike
under The New Jersey Banking Act of 1948, as amended, however, dissenters'
rights for shareholders of Bancorp are not available in any such transaction if
shares of Bancorp are listed for trading on a national securities exchange or
held of record by more than one thousand (1,000) holders. In addition,
dissenters' rights are not available to shareholders of an acquired corporation
if, as a result of the transaction, shares of the acquired corporation are
exchanged for any of the following: (i) cash; (ii) any securities listed on
national securities exchange or held of record by more than one thousand (1,000)
holders; or (iii) any combination of the above. The New Jersey Business
Corporation Act also provides that a corporation may grant dissenters' rights in
other types of transactions regardless of the consideration received by
providing for such rights in its certificate of incorporation. Bancorp's
certificate of incorporation does not provide dissenters' rights beyond those
called for under the New Jersey Business Corporation Act.
101
Annual Meetings. Allaire's bylaws provide that the annual meeting of
stockholders will be held on the fourth Wednesday of April of each year and that
notice of such meeting will be given to the stockholders entitled to notice
thereof not less than ten (10) and no more than thirty (30) days prior to the
date fixed for the annual meeting. In addition, to comply with applicable state
banking regulations, notice of the annual meeting must be published once in a
newspaper published in the county in which Allaire maintains its principal
office, or published in a newspaper that is published in an adjoining county but
which has general circulation in the municipality in which Allaire maintains its
principal office, not less than ten (10) days prior to the date fixed for such
meeting. Bancorp's bylaws, as proposed to be amended in connection with the
combination, provide that the annual meeting of shareholders of Bancorp is to be
held in the month of April, May or June, on such date and at such time as is
determined by the board of directors of Bancorp. In addition, notice of any
annual meeting must be provided to the shareholders of Bancorp by mailing not
less than ten (10) nor more than sixty (60) days prior to the date fixed for
such meeting. Bancorp is not required to publish notice in any newspaper or
other periodical of any annual meeting.
Special Meetings. Allaire's bylaws provide that the holders of ten percent
(10%) or more of the outstanding shares of Allaire entitled to vote at a meeting
may call a special meeting of stockholders. Bancorp's by-laws, as proposed to be
amended in connection with the combination, provide that only the Chairman of
the Board, Vice Chairman of the Board, Chief Executive Officer, President or a
majority of the members of its board of directors, may call a special meeting of
Bancorp's shareholders.
Directors. Under The New Jersey Banking Act of 1948, as amended, Allaire
is authorized to have a minimum of five (5) directors and a maximum of
twenty-five (25) directors. Within the limits prescribed by The New Jersey
Banking Act of 1948, as amended, Allaire's certificate of incorporation and
bylaws authorize the board of directors to fix the exact number of directors.
Allaire currently has nine (9) directors.
Under the New Jersey Business Corporation Act and Bancorp's by-laws,
Bancorp is to have a minimum of three (3) directors and a maximum of twenty-five
(25) directors, with the number of directors at any given time to be fixed by
Bancorp's board of directors.
Indemnification. The bylaws of Allaire do not contain any indemnification
provisions. However, the by-laws of Bancorp provide that Bancorp will indemnify
a corporate agent against his or her expenses and liabilities actually and
reasonably incurred in connection with the defense of any proceeding involving
the corporate agent by reason of his or her being or having been such a
corporate agent. Bancorp will also indemnify a corporate agent against his or
her liabilities and expenses incurred by him or her in connection with the
defense by or in the right of Bancorp to procure a judgment in its favor which
involves the corporate agent by reason of his or her being or having been such
corporate agent. For such indemnification to apply, the corporate agent must
have acted in good faith and in a manner he or she reasonably believed to be in
or not opposed to the best interests of Bancorp. Indemnification, however, will
not be provided in respect of any claim, issue or matter as to which such
corporate agent shall have been adjudged liable to Bancorp unless and only to
the extent that the court in which such proceeding was brought shall determine
that despite the adjudication of liability such corporate agent is fairly and
reasonably entitled to indemnity for such expenses or liabilities.
102
Limitation of Liability. The certificate of incorporation of Bancorp
contains provisions which may limit the liability of any director or officer of
Bancorp to Bancorp or its shareholders to the fullest extent permitted by the
laws of the State of New Jersey for breach of any duty owed to Bancorp or its
shareholders.
The certificate of incorporation of Allaire contains provisions which are
substantially similar to those included in Bancorp's certificate of
incorporation with respect to limiting the liability of an officer or director
of Allaire to Allaire and its stockholders.
Shareholders Protection Act. A provision of New Jersey law applicable to
Bancorp, the New Jersey Shareholders Protection Act, prohibits certain
transactions involving an "interested shareholder" and a company. An "interested
shareholder" is generally defined as one who is the beneficial owner, directly
or indirectly, of ten percent or more of the voting power of the outstanding
stock of the corporation. The New Jersey Shareholders Protection Act prohibits
certain business combinations between an interested shareholder and a New Jersey
corporation subject to the New Jersey Shareholders Protection Act for a period
of five (5) years after the date the interested shareholder acquired his or her
stock, unless the transaction was approved by the corporation's board of
directors prior to the time the interested shareholder acquired its shares.
After the five (5) year period expires, the prohibition on business combinations
with an interested shareholder continues unless certain conditions are met. The
conditions include (i) the approval of the business combination by the board of
directors of the target corporation; (ii) the approval of the business
combination by a vote of two-thirds (2/3) of the voting stock not owned by the
interested shareholder; and (iii) the receipt by the shareholders of the
corporation of a price determined in accordance with a fair price formula set
forth in the statute.
The New Jersey Shareholders Protection Act is not applicable to Allaire.
Although a party seeking control of Allaire is required to file applications
with the Federal Deposit Insurance Corporation pursuant to the Bank Merger Act
and with the commissioner of the New Jersey Department of Banking pursuant to
The New Jersey Banking Act of 1948, as amended, neither the Bank Merger Act nor
The New Jersey Banking Act of 1948, as amended, have prohibitions and standards
similar to those contained in the New Jersey Shareholders Protection Act.
Description of Capital Stock of Bancorp
The authorized capital stock of Bancorp consists of 100,000,000 shares of
common stock, par value $.01 per share, of which 1,860,725 shares are currently
issued and outstanding. Each share of Bancorp common stock has the same relative
rights as, and is identical in all respects with, each other share of common
stock.
Liquidation Rights. In the event of liquidation, dissolution or winding up
of Bancorp, holders of Bancorp common stock are entitled to receive, on a pro
rata basis, any assets distributable to shareholders, after the payment of debts
and liabilities and after the distribution to holders of any outstanding shares
hereafter issued which have priority rights upon liquidation.
Dividend Rights. The holders of Bancorp common stock are entitled to
dividends when, as and if declared by Bancorp's board of directors, subject to
the restrictions imposed by the Bank Holding Company Act. The Bank Holding
Company Act restricts dividend payments
103
except if net income available to shareholders fully funds the proposed
dividends, and the expected rate of earnings retention is consistent with
capital needs, asset quality and overall financial condition.
Voting Rights. Under the New Jersey Business Corporation Act and Bancorp's
certificate of incorporation and by-laws, each share of Bancorp common stock is
entitled to one vote per share. Holders of Bancorp common stock do not have
cumulative voting rights.
104
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION OF BANCORP
The following discussion and analysis is intended to provide information
about Bancorp's financial condition as of June 30, 2004 and results of
operations for the six months ended June 30, 2004 and 2003 and the years ended
December 31, 2003 and 2002. The following information should be read in
conjunction with Bancorp's unaudited financial statements for the six months
ended June 30, 2004 and the audited financial statements for the years ended
December 31, 2003 and 2002, including the related notes thereto, which begin on
page F-1 of this joint proxy statement/prospectus.
Critical Accounting Policies
Disclosures contained in this "Management's Discussion and Analysis or
Plan of Operation of Bancorp," as well as disclosures with respect to Bancorp's
financial condition and results of operations for the six months ended June 30,
2004 and 2003 found elsewhere in this joint proxy statement/prospectus, are
based upon Bancorp's unaudited consolidated financial statements for the six
months ended June 30, 2004 and 2003, which have been prepared in accordance with
accounting principles generally accepted in the United States of America. The
preparation of those unaudited consolidated financial statements requires
Bancorp to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses.
Note (1) to Bancorp's unaudited consolidated financial statements for the
six months ended June 30, 2004 and June 30, 2003 and Note (1) to Bancorp's
audited consolidated financial statements for the years ended December 31, 2003
and 2002, contained elsewhere in this joint proxy statement/prospectus, include
summaries of our significant accounting policies. Bancorp believes its policy,
with respect to the methodology for the determination of the allowance for loan
losses, involves a high degree of complexity and requires management to make
difficult and subjective judgments which often requires assumptions or estimates
about uncertain matters. Changes in these judgments, assumptions or estimates
could cause reported results to differ materially. This critical policy and its
application is periodically reviewed by Bancorp's audit committee and board of
directors.
The allowance for loan losses is based upon management's evaluation of the
adequacy of the allowance, including an assessment of: (i) known and inherent
risks in the portfolio, (ii) the size and composition of the portfolio, (iii)
actual loan loss experience, (iv) the level of delinquencies, (v) the individual
loans for which full collectibility may not be assured, (vi) the existence and
estimated net realizable value of any underlying collateral and guarantees
securing the loans, and (vii) the current economic and market conditions.
Although Bancorp management uses the best information available, the level of
the allowance for loan losses remains an estimate that is subject to significant
judgment and short-term change. Various regulatory agencies, as an integral part
of their examination process, periodically review Bancorp's allowance for loan
losses. Such agencies may require Bancorp to make additional provisions for loan
losses based upon information available to them at the time of their
examination. Furthermore, the majority of Bancorp's loans are secured by real
estate in the State of New Jersey. Accordingly, the collectibility of a
substantial portion of the carrying value of Bancorp's loan portfolio is
susceptible
105
to changes in local market conditions and may be adversely affected should real
estate values decline or the Central New Jersey area experience an adverse
economic climate. Future adjustments to the allowance for loan losses may be
necessary due to economic, operating, regulatory and other conditions beyond
Bancorp's control.
The number of shares outstanding and earnings per share amounts set forth
in this section for all periods presented have been adjusted to reflect the
six-for-five stock split for Bancorp shareholders of record on July 15, 2004.
Overview
For the six months ended June 30, 2004, Bancorp's net income from
operations was $610 thousand, as compared to net income from operations of $216
thousand for the six months ended June 30, 2003. Basic earnings per share were
$0.33 for the six months ended June 30, 2004, as compared to $0.12 for the same
period in 2003. Diluted earnings per share were $0.31 for the six months ended
June 30, 2004, as compared to $0.11 for the same period in 2003.
Net income from operations for the year ended December 31, 2003 was $482
thousand, or $.26 per basic share and $.25 per diluted share, compared to a net
profit of $784 thousand, or $.54 per basic share and $.53 per diluted share, for
the year ended December 31, 2002. Per share earnings have been adjusted in both
periods to reflect the 5% stock distributions to the shareholders of Bancorp
paid on December 31, 2003 and 2002, respectively, and the 6 for 5 stock split
for shareholders of record on July 15, 2004.
Total assets at June 30, 2004 were $255.4 million, an increase of $32.8
million, or 14.7%, over the December 31, 2003 total of $222.6 million. Total
assets at December 31, 2003 were $222.6 million, an increase of 24% over the
year-end 2002 figure of $179.5 million.
Deposits at June 30, 2004 totaled $221.5 million, an increase of $14.3
million, or 6.9%, over the December 31, 2003 total of $207.2 million. Deposits
of $207.2 million at December 31, 2003 exceeded the December 31, 2002 total of
$164.0 million by $43.2 million.
At June 30, 2004, Monmouth Community Bank had $14 million in overnight
borrowings as compared to no borrowings at December 31, 2003. The increase in
borrowings was necessary in order to fund the increased demand for loans that
occurred during the second quarter of 2004. All $14 million of these borrowings
were repaid during July, 2004.
Loans, net of the allowance for loan losses, closed the six months ended
June 30, 2004 at $133.0 million, an increase of $17.2 million, or 14.9%, over
the $115.8 million balance at December 31, 2003. The allowance for loan losses,
which began the year at $1.38 million, or 1.18% of total loans, was $1.51
million at June 30, 2004, with the allowance for loan losses ratio at 1.13%.
There were no loans charged-off during the six months ended June 30, 2004.
During the year ended December 31, 2003, Monmouth Community Bank experienced one
non-accrual loan totaling $40 thousand and no charge-offs as compared to one
non-accrual loan totaling $43 thousand and a $1 thousand charge-off, which was
subsequently recovered, for the year ended December 31, 2002.
106
(Annualized)
Six Months ended Year ended
June 30, December 31,
---------------- ----------------------
Performance Ratios: 2004 2003 2002
---- ---- ----
Return on average assets 0.53% 0.24% 0.51%
Return on average shareholders' equity 8.02% 3.23% 7.64%
Equity to assets 5.66% 6.69% 8.32%
Dividend payout --% --% --%
Investments totaled $95.8 million at June 30, 2004, an increase of $12.4
million, or 14.9%, from the December 31, 2003 total of $83.3 million. Of the
$25.8 million in investment purchases occurring during the first six months of
2004, $20.8 million were classified available for sale in order to maintain
desired levels of liquidity and flexibility. This strategy resulted in an
available for sale portfolio balance of $77.8 million at June 30, 2004, an
increase of $9.6 million, or 14.1%, from the December 31, 2003 total of $68.2
million. The held to maturity portfolio of $17.9 million at June 30, 2004,
reflected an increase of $2.8 million, or 18.5%, from the December 31, 2003
total of $15.1 million. The increase resulted from the purchase of one
mortgage-backed security totaling $5.0 million.
Bancorp issued $5.1 million of subordinated debentures during March 2004.
See discussion under "Guaranteed Preferred Beneficial Interest in Bancorp's
Subordinated Debt" on page 132. Bancorp is using the proceeds it received from
the subordinated debentures to support the general balance sheet growth of
Monmouth Community Bank and to help ensure that Monmouth Community Bank
maintains the required regulatory capital ratios.
Results of Operations
Bancorp's principal source of revenue is derived from Monmouth Community
Bank's net interest income, which is the difference between interest income on
earning assets and interest expense on deposits and borrowed funds.
Interest-earning assets consist principally of loans, securities and federal
funds sold, while the sources used to fund such assets consist primarily of
deposits. Bancorp's net income is also affected by Monmouth Community Bank's
provision for loan losses, other income and other expenses. Other income
consists primarily of service charges and fees. Other expenses consist primarily
of salaries and employee benefits, occupancy costs and other operating related
expenses.
For the Six Months Ended June 30, 2004 and 2003
Interest Income and Expense
Interest income for the six months ended June 30, 2004 was $5.4 million,
as compared to $4.5 million for the six months ended June 30, 2003. The $971
thousand, or 21.7%, increase in interest income was due primarily to general
balance sheet growth. The yield on interest-earning assets declined to 4.91% for
the six months ended June 30, 2004, as compared to 4.97% for the same prior year
period as a result of the general interest rate environment. Average
interest-earning assets, which were 95% of average total assets, were $220.2
million for the six months
107
ended June 30, 2004, and were comprised primarily of $122.6 million in loans,
$16.0 million in securities held to maturity, $77.1 million in securities
available for sale, $3.9 million in federal funds sold and $535 thousand in
other interest bearing deposits.
Interest expense for the six months ended June 30, 2004 was $1.3 million,
as compared to $1.4 million for the six months ended June 30, 2003. The slight
decrease was due to interest expense on deposits which decreased to $1.2 million
for the six months ended June 30, 2004 as compared to $1.4 million for the same
prior year period due primarily to a decrease in the cost of interest-bearing
liabilities to 1.39% for the six months ended June 30, 2004, as compared to
1.87% in the same prior year period. This decrease mitigated an increase in
average interest-bearing deposits which were $184.4 million for the six months
ended June 30, 2004, as compared $149.9 million for the same period in the prior
year. Average interest-bearing liabilities for the six months ended June 30,
2004 were comprised of $56.5 million in interest-bearing demand, $42.0 million
in money market accounts, $20.0 million in savings accounts and $65.8 million in
term accounts. Interest expense associated with borrowings and subordinated
debentures totaled $11 thousand and $61 thousand, respectively, for the six
months ended June 30, 2004, as compared to no interest expense for those items
in the same prior year period.
108
The following table presents a summary of the principal components of
interest income and income expense for the six months ended June 30, 2004:
(dollars in thousands) Six months ended June 30, 2004
---------------------- ------------------------------
Average
Balance Interest Average Yield/Cost
------- -------- ------------------
Interest earning assets:
Federal funds sold $ 3,974 $ 15 0.76%
Loans receivable, gross 122,591 3,836 6.20%
Deposits with banks 535 16 5.99%
Securities 93,143 1,581 3.39%
--------- --------- ------
Total interest earning assets 220,243 5,448 4.91%
Cash and due from banks 8,925
Allowance for loan losses (1,430)
Other assets 3,734
---------
Total Assets $ 231,472
=========
Interest bearing liabilities:
Interest bearing demand $ 56,511 $ 306 1.09%
Money market 42,037 247 1.18%
Savings 19,998 53 0.53%
Time 65,848 632 1.93%
--------- --------- ------
Total interest-bearing deposits 184,434 1,238 1.35%
Other borrowed funds 1,793 11 1.24%
Long-term debt 2,842 61 4.31%
--------- --------- ------
Total interest-bearing liabilities 189,069 1,310 1.39%
--------- --------- ------
Non-interest bearing demand 26,626
Other liabilities 571
Shareholders' equity 15,206
---------
Total liabilities and shareholders' equity $ 231,472
=========
Net interest income $ 4,138
=========
Net interest rate spread(1) 3.52%
Net interest margin(2) 3.72%
- ----------
(1) Net interest rate spread represents the difference between the yield on
interest-earning assets and the cost of interest-bearing liabilities.
(2) Net interest margin represents net interest income divided by average
interest-earning assets.
109
Rate Volume Analysis
The following table presents the extent to which changes in interest rates
and changes in the volume of interest-earning assets and interest-bearing
liabilities have affected Monmouth Community Bank's interest income and interest
expense during the periods indicated. Information is provided in each category
with respect to: (i) changes attributable to changes in volume (changes in
volume multiplied by prior rate); (ii) changes attributable to changes in rate
(changes in rate multiplied by prior volume); and (iii) the net change. The
changes attributable to the combined impact of volume and rate have been
allocated proportionately to the changes due to volume and the changes due to
rate (in thousands).
Six months ended June 30, 2004
Compared to
Six months ended June 30, 2003
-----------------------------------
Increase (Decrease)
Due to Change in:
--------------------- Total
Increase
Volume Rate (Decrease)
------- ------- ----------
Interest Income:
Loans $ 1,417 $ (654) $ 763
Securities 394 (133) 261
Other interest-bearing deposits (4) -- (4)
Federal funds sold (37) (12) (49)
-----------------------------------
Total interest-earning assets 1,770 (799) 971
Interest Expense:
Checking deposits 133 (116) 17
Savings deposits 23 (32) (9)
Money market deposits 18 (164) (146)
Time deposits 436 (451) (15)
-----------------------------------
Total interest-bearing deposits 610 (763) (153)
Borrowings 72 -- 72
-----------------------------------
Total interest-bearing liabilities 682 (763) 81
-----------------------------------
Net interest income $ 1,088 $ (36) $ 1,052
======= ======= =======
Provision for Loan Losses
For the six months ended June 30, 2004, Bancorp's provision for loan
losses was $128 thousand, as compared to $23 thousand for the same prior year
period. The increase in the provision for loan losses for the six months ended
June 30, 2004 was commensurate with the growth in the loan portfolio as compared
to the same period in 2003. There were no significant changes in loan portfolio
composition, asset quality, or credit delinquencies that impacted the allowance
for loan losses during the six months ended June 30, 2004, as compared to the
same period in 2003.
110
Non-Interest Income
Non-interest income was $412 thousand for the six months ended June 30,
2004, as compared to $390 thousand for the same period in 2003. Service charges
on deposit accounts totaled $394 thousand for the six months ended June 30,
2004, as compared to $310 thousand for the same period in 2003. These service
charge revenues are consistent with the growth of the deposit base and number of
deposit accounts. Other service charges, commissions and fees totaled $18
thousand for the six months ended June 30, 2004 as compared to $30 thousand for
the same period in 2003. There were no gains from the sale of available for sale
securities for the six months ended June 30, 2004, as compared to the gain from
the sale of available for sale securities of $50 thousand for the same period in
2003.
Non-Interest Expense
Non-interest expense was $3.4 million for the six months ended June 30,
2004, as compared to $3.1 million for the same period in 2003. The period
increase was consistent with the general growth of Bancorp. Non-interest expense
generally includes costs associated with employee salaries and benefits,
occupancy expenses, data processing fees, professional fees and other operating
expenses. Full-time equivalent employees totaled 74.5 at June 30, 2004 as
compared to 70 at June 30, 2003. The table below presents non-interest expense,
by major category, for the six months ended June 30, 2004 and 2003,
respectively.
Six months ended
June 30,
----------------------
Non-Interest expense 2004 2003
---- ----
Salaries and employee benefits $1,746 $1,569
Net occupancy expenses 400 401
Data processing fees 270 242
Outside service fees 251 240
Advertising and marketing expenses 116 64
Printing, stationery, and supplies 89 98
Audit and tax fees 58 42
Legal fees and expenses 42 42
Other operating expenses 459 395
------ ------
Total $3,431 $3,093
====== ======
111
For the Years Ended December 31, 2003 and 2002
Net Interest Income
Net interest income of Monmouth Community Bank was $6.5 million for the
year ended December 31, 2003, as compared to $5.5 million for the year ended
December 31, 2002. Net interest income for the year ended December 31, 2003 was
comprised primarily of $140 thousand in interest on federal funds sold and due
from banks, $6.4 million in interest on loans and $2.5 million in interest on
securities, less interest expense on deposits of $2.6 million, whereas net
interest income for the year ended December 31, 2002 was comprised primarily of
$254 thousand in interest on federal funds sold and due from banks, $5.6 million
in interest on loans and $2.5 million in interest on securities, less interest
expense on deposits of $2.8 million.
Interest-earning assets averaged $191.5 million for the year ended
December 31, 2003, a 33% increase over interest-earning assets of $144.3 million
for the year ended December 31, 2002. Interest-earning assets for such periods
were funded primarily by deposit inflows. Deposits for the year ended December
31, 2003 averaged $185.8 million, of which $160.3 million, or 86%, were
interest-bearing. This number represents a 31% increase over average total
deposits of $141.8 million for the year ended December 31, 2002, of which $120.1
million, or 85%, were interest-bearing.
Net interest margin, which represents net-interest income as a percentage
of average interest-earning assets, was 3.39% for the year ended December 31,
2003, as compared to 3.80% for the year ended December 31, 2002. The net
interest margin compression experienced in 2003 and 2002 was primarily
attributable to the general interest rate-declines that occurred during such
years. During 2003 and 2002, interest rates, as measured by the prime rate of
interest, decreased from 4.75% at the beginning of 2002 to 4.00% by December 31,
2003. As Monmouth Community Bank generates the majority of its interest income
on loans and investments, the prevailing interest rate environment resulted in
significantly lower rates available on interest earning assets.
112
The following table presents a summary of the principal components of
interest income and interest expense for the years ended December 31, 2003, 2002
and 2001:
(dollars in thousands) Year ended December 31, 2003 Year ended December 31, 2002 Year ended December 31, 2001
-------------------------------- -------------------------------- -------------------------------
Average Average Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost Balance Interest Yield/Cost
--------- --------- ---------- --------- --------- ---------- --------- --------- ----------
Interest earning assets:
Federal funds sold $ 11,976 $ 105 0.88% $ 15,484 $ 222 1.43% $ 12,107 $ 455 3.77%
Loans receivable, gross 97,016 6,438 6.64% 77,347 5,568 7.20% 52,917 4,310 8.15%
Deposits with banks 593 35 5.84% 535 32 5.92% 396 23 5.86%
Securities 81,909 2,533 3.09% 50,914 2,453 4.82% 27,674 1,755 6.34%
--------- --------- ---- --------- --------- ---- --------- --------- ----
Total interest earning
assets 191,494 9,111 4.76% 144,280 8,275 5.74% 93,094 6,543 7.03%
Cash and due from banks 7,837 6,435 4,113
Allowance for loan losses (1,256) (1,036) (713)
Other assets 3,144 2,824 2,206
--------- --------- ---------
Total Assets $ 201,219 $ 152,503 $ 98,700
========= ========= =========
Interest bearing liabilities:
Interest bearing demand $ 47,581 $ 553 1.16% $ 42,274 $ 796 1.88% $ 27,295 $ 778 2.85%
Money market 42,921 661 1.54% 27,322 707 2.59% 9,368 339 3.62%
Savings 18,232 116 0.64% 15,247 209 1.37% 10,605 274 2.58%
Time 51,542 1,282 2.49% 35,279 1,077 3.05% 26,487 1,312 4.96%
--------- --------- ---- --------- --------- ---- --------- --------- ----
Total interest bearing
liabilities 160,276 2,612 1.63% 120,122 2,789 2.32% 73,755 2,703 3.67%
Non-interest bearing demand 25,554 21,727 15,893
Other liabilities 488 386 361
Shareholders' equity 14,901 10,268 8,691
--------- --------- ---------
Total liabilities and
shareholders' equity $ 201,219 $ 152,503 $ 98,700
========= ========= =========
Net interest income $ 6,499 $ 5,486 $ 3,840
========= ========= =========
Net interest rate spread(1) 3.13% 3.42% 3.36%
Net interest margin(2) 3.39% 3.80% 4.12%
- ----------
(1) Net interest rate spread represents the difference between the yield on
interest-earning assets and the cost of interest-bearing liabilities.
(2) Net interest margin represents net interest income divided by average
interest-earning assets.
113
Rate Volume Analysis
The following table presents the extent to which changes in interest rates
and changes in the volume of interest-earning assets and interest-bearing
liabilities have affected Monmouth Community Bank's interest income and interest
expense during the periods indicated. Information is provided in each category
with respect to: (i) changes attributable to changes in volume (changes in
volume multiplied by prior rate); (ii) changes attributable to changes in rate
(changes in rate multiplied by prior volume); and (iii) the net change. The
changes attributable to the combined impact of volume and rate have been
allocated proportionately to the changes due to volume and the changes due to
rate (in thousands).
Year ended December 31, 2003 Year ended December 2002
Compared to Compared to
Year ended December 31, 2002 Year ended December 31, 2001
------------------------------------------ ------------------------------------
Increase (Decrease) Increase (Decrease)
Due to Change in: Due to Change in:
------------------------- Total ---------------------- Total
Increase Increase
Volume Rate (Decrease) Volume Rate (Decrease)
-------- -------- ---------- -------- -------- ----------
(in thousands)
Interest Income:
Loans $ 1,378 $ (508) $ 870 $ 1,807 $ (549) $ 1,258
Securities 1,157 (1,077) 80 1,199 (501) 698
Other interest-bearing deposits 3 -- 3 9 -- 9
Federal funds sold (43) (74) (117) 102 (335) (233)
---------------------------------------- ----------------------------------
Total interest-earning assets 2,495 (1,659) 836 3,117 (1,385) 1,732
Interest Expense:
Interest-bearing checking 91 (334) (243) 337 (319) 18
Savings deposits 35 (128) (93) 93 (158) (65)
Money market deposits 308 (354) (46) 489 (121) 368
Time deposits 431 (226) 205 358 (593) (235)
---------------------------------------- ----------------------------------
Total interest-bearing liabilities 865 (1,042) (177) 1,277 (1,191) 86
---------------------------------------- ----------------------------------
Net interest income $ 1,630 $ (617) $ 1,013 $ 1,840 $ (194) $ 1,646
======================================== ==================================
Provision for Loan Losses
For the year ended December 31, 2003, Monmouth Community Bank's provision
for loan losses was $150 thousand, as compared to $373 thousand for the prior
year.
See "Financial Condition - Allowance for Loan Losses and Related
Provision" on page 124 for a further discussion on provision for loan losses.
Non-Interest Income
Non-interest income was $780 thousand for the year ended December 31,
2003, as compared to $661 thousand for the year ended December 31, 2002, an
increase of $119 thousand, or 18%. The increase was due primarily to service
charges on bank accounts which were $656 thousand for the year ended December
31, 2003, as compared to $438 thousand for the prior year, an increase of $218
thousand, or 50%. In addition, Monmouth Community Bank generated $35 thousand in
fees from GMAC which, as part of a strategic partnership that
114
commenced at the beginning of 2003, provides residential mortgage products and
services to customers of Monmouth Community Bank. However, as a direct result of
Monmouth Community Bank switching from a residential mortgage provider to one
that is a true referral source in 2003, gains from the sale of loans held for
sale declined to $13 thousand in 2003 from $64 thousand in 2002. Gains on the
sale of available for sale securities were $76 thousand in 2003 as compared to
$159 thousand in 2002.
Non-Interest Expense
Non-interest expense includes, among other costs and expenses, salaries,
costs of employee benefits, professional and application fees and occupancy
expense. Non-interest expense for the year ended December 31, 2003 was $6.3
million, as compared to non-interest expense of $4.9 million for the year ended
December 31, 2002. This increase was due to expenses incurred to support the
general growth of Monmouth Community Bank. During 2003, Monmouth Community Bank
opened one new branch. The Route 33 Neptune, New Jersey branch was opened in
February of 2003.
For the Years Ended December 31, 2002 and 2001
Net Interest Income
Net interest income of Monmouth Community Bank was $5.5 million for the
year ended December 31, 2002, as compared to $3.8 million for the year ended
December 31, 2001. Net interest income for the year ended December 31, 2002 was
comprised primarily of $254 thousand in interest on federal funds sold and due
from banks, $5.6 million in interest on loans and $2.5 million in interest on
securities, less interest expense on deposits of $2.8 million, whereas net
interest income for the year ended December 31, 2001 was comprised primarily of
$478 thousand in interest on federal funds sold and due from banks, $4.3 million
in interest on loans and $1.8 million in interest on securities, less interest
expense on deposits of $2.7 million.
Interest-earning assets averaged $144.3 million for the year ended
December 31, 2002, a 55% increase over interest-earning assets of $93.1 million
for the year ended December 31, 2001. Interest-earning assets for such periods
were funded primarily by deposit inflows. Deposits for the year ended December
31, 2002 averaged $141.8 million, of which $120.1 million, or 85%, were
interest-bearing. This number represents a 58% increase over average total
deposits of $89.6 million for the year ended December 31, 2001, of which $73.8
million, or 82%, were interest-bearing.
Net interest margin, which represents net-interest income as a percentage
of average interest-earning assets, was 3.80% for the year ended December 31,
2002, as compared to 4.12% for the year ended December 31, 2001. The net
interest margin compression experienced in 2002 and 2001 was primarily
attributable to the general interest rate-declines that occurred during such
years. During 2002, interest rates, as measured by the prime rate of interest,
decreased from 4.75% at the beginning of the year to 4.25% by December 31, 2002.
As Monmouth Community Bank generates the majority of its interest income on
loans and investments, the prevailing interest rate environment resulted in
significantly lower rates available on interest earning assets.
115
Provision for Loan Losses
For the year ended December 31, 2002, Monmouth Community Bank's provision
for loan losses was $373 thousand, as compared to $211 thousand for the prior
year.
See "Financial Condition - Allowance for Loan Losses and Related
Provision" on page 124 for a further discussion on provision for loan losses.
Non-Interest Income
Non-interest income was $661 thousand for the year ended December 31,
2002, as compared to $440 thousand for the year ended December 31, 2001, an
increase of $221 thousand, or 50%. The increase was due primarily to gains on
the sale of available for sale securities which totaled $159 thousand for 2002
and $0 for 2001, net gains on the sale of residential mortgage loans, servicing
released, which was $64 thousand for the year ended December 31, 2002, as
compared to $57 thousand for the prior year. Service charges on bank accounts
were $438 thousand for the year ended December 31, 2002, as compared to $354
thousand for the prior year.
Non-Interest Expense
Non-interest expense includes, among other costs and expenses, salaries,
costs of employee benefits, professional and application fees and occupancy
expense. Non-interest expense for the year ended December 31, 2002 was $4.9
million, as compared to non-interest expense of $3.5 million for the year ended
December 31, 2001. This increase was due to expenses incurred to support the
general growth of Monmouth Community Bank. During 2002, Monmouth Community Bank
opened one new branch. The Ocean Grove, New Jersey branch was opened in
September of 2002.
116
Financial Condition
Securities Portfolio
At June 30, 2004, Monmouth Community Bank's securities portfolio consisted
of obligations of United States Government sponsored agencies and
mortgaged-backed securities of United States Government sponsored agencies.
Securities held to maturity of $17.9 million at June 30, 2004, represented an
increase of $2.8 million over the year ended December 31, 2003 total of $15.1
million. Securities available-for-sale had a market value of $77.8 million at
June 30, 2004, representing an increase of $9.6 million over the December 31,
2003 total of $68.2 million. This increase was the result of the general balance
sheet growth that occurred during the first six months of 2004 and that most
investment purchases made during this period occurred in the available for sale
portfolio.
The following table summarizes the maturity and weighted average yields in
each of Monmouth Community Bank's securities portfolios at June 30, 2004:
Over Over
Maturities and weighted average yields: Within 1 to 5 5 to 10 Over 10
(dollars in thousands) 1 Year Years Years Years Total
---------- ---------- ---------- ---------- ----------
Securities held to maturity
Mortgage-backed securities:
Amortized cost $ -- $ 685 $ 6,260 $ 6,992 $ 13,937
Weighted average yield -- 4.66% 4.09% 4.86% 4.50%
Obligations of U.S. Government agencies
Amortized cost -- 3,991 -- -- 3,991
Weighted average yield -- 3.57% -- -- 3.57%
------------------------------------------------------------------------------------
Total securities held to maturity
Amortized cost $ -- $ 4,676 $ 6,260 $ 6,992 $ 17,928
Weighted average yield -- 3.73% 4.09% 4.86% 4.29%
====================================================================================
Securities available for sale:
Mortgage-backed securities
Amortized cost $ -- $ 6,994 $ 36,066 $ -- $ 43,060
Weighted average yield -- 2.33% 3.42% -- 3.24%
Obligations of U.S. Government agencies
Amortized cost -- 33,752 973 -- 34,725
Weighted average yield -- 3.04% 4.28% -- 3.08%
------------------------------------------------------------------------------------
Total securities available for sale
Amortized cost $ -- $ 40,746 $ 37,039 $ -- $ 77,785
Weighted average yield -- 2.92% 3.44% -- 3.17%
====================================================================================
117
At December 31, 2003, securities held to maturity of $15.1 million
represented a decrease of $10.4 million from the year ended December 31, 2002
total of $25.5 million. Securities available-for-sale had a market value of
$68.2 million at December 31, 2003, representing an increase of $23.4 million
over the December 31, 2002 total of $44.8 million. This increase was the result
of the general balance sheet growth that occurred during 2003 and that virtually
all investment purchases made during 2003 occurred in the available for sale
portfolio.
The following table summarizes the maturity and weighted average yields in
each of Monmouth Community Bank's securities portfolios at December 31, 2003:
Over Over
Maturities and weighted average yields: Within 1 to 5 5 to 10 Over 10
(dollars in thousands) 1 Year Years Years Years Total
--------- --------- --------- --------- ---------
Securities held to maturity
Mortgage-backed securities:
Amortized cost $ -- $ 82 $ 6,863 $ 3,624 $ 10,569
Weighted average yield -- 7.57% 4.04% 4.18% 4.12%
Obligations of U.S. Government agencies
Amortized cost -- 4,510 -- -- 4,510
Weighted average yield -- 3.62% -- -- 3.62%
--------------------------------------------------------------------------------
Total securities held to maturity
Amortized cost $ -- $ 4,592 $ 6,863 $ 3,624 $ 15,079
Weighted average yield -- 3.69% 4.04% 4.18% 3.97%
================================================================================
Securities available for sale:
Mortgage-backed securities
Amortized cost $ -- $ 9,248 $ 34,170 $ -- $ 43,418
Weighted average yield -- 2.59% 3.28% -- 3.14%
Obligations of U.S. Government agencies
Amortized cost -- 21,826 2,952 -- 24,778
Weighted average yield -- 3.03% 3.50% -- 3.08%
--------------------------------------------------------------------------------
Total securities available for sale
Amortized cost $ -- $ 31,074 $ 37,122 $ -- $ 68,196
Weighted average yield -- 2.90% 3.30% -- 3.12%
================================================================================
Investment Policy
The board of directors of Bancorp has adopted an investment policy to
govern the investment function of Monmouth Community Bank, which includes the
purchase of securities for the held-to-maturity and available-for-sale
portfolios and the sale of securities from the available-for-sale portfolio.
The basic objectives of the investment function are:
o to keep Monmouth Community Bank's funds fully employed at the
maximum after-tax return;
o to minimize exposure to credit risk; and
o to provide liquidity required by current circumstances.
As used in our investment policy and in other policies of Monmouth
Community Bank, the term "liquidity" refers to the expected cash flow from
performing assets and secondary to
118
borrowings secured by performing assets. These two sources of liquidity are
expected to fund the operations of Monmouth Community Bank. For this reason,
unless otherwise indicated, the term "liquidity" in Monmouth Community Bank's
policies does not refer to proceeds from the sale of assets, except for the sale
of assets available-for-sale.
Investment management therefore emphasizes:
o preservation of principal;
o strong cash-flow characteristics;
o ready availability of credit information;
o appropriateness of size both as to Monmouth Community Bank and as to
an obligor's outstanding debt;
o eligibility as collateral for public-agency deposits and customer
repurchase-agreement accounts; and
o broad marketability, as an indicator of quality.
The purpose of bonds in the held-to-maturity portfolio is to provide
earnings consistent with the safety factors of quality, maturity and risk
diversification. This purpose is reflected in the accounting principle that
carrying a debt security at amortized cost is appropriate only if the investment
committee of Monmouth Community Bank has the intent and ability to hold that
security to maturity. Management should be indifferent to price fluctuations
unrelated to the continuing ability of a security to contribute to recurring
income. For purposes of our investment policy, a security shall be deemed to
have matured if it is sold (i) within 3 months of maturity or a call date if
exercise of the call is probable, or (ii) after collection of at least 85% of
the principal outstanding at acquisition.
Debt securities that are not positively expected to be held to maturity,
but rather for indefinite periods of time, and equity securities, shall be
booked to the available-for-sale portfolio, which shall be monitored daily and
reported at fair value with unrealized holding gains and losses excluded from
earnings and reported as a tax-effected net amount in a separate component of
shareholders' equity. However, in calculating and reporting regulatory capital,
only net unrealized losses on marketable equity securities is deducted from Tier
1 or core capital.
Loan Portfolio
Monmouth Community Bank's primary policy goal is to establish a sound
credit portfolio that contributes, in combination with other earning assets, to
a satisfactory return on assets, return on shareholders' equity and capital to
asset ratio.
Monmouth Community Bank conducts both commercial and retail lending
activities. The loan approval process at Monmouth Community Bank is driven by
the aggregate indebtedness of the borrower and related entities. Executive
officers with lending authority and loan officers have various individual and
collective loan approval authority up to $250,000. All credit accommodations
exceeding $250,000 are referred to Monmouth Community Bank's loan committee for
review and approval. The loan committee is comprised of internal officers and
outside directors. A loan officer with a loan application for more than $250,000
(or from a borrowing relationship with aggregate debt in excess of $250,000)
presents a complete analysis
119
of the proposed credit accommodation to the members of the loan committee for
their consideration. The analysis includes, among other things, the following:
o a description of the borrower;
o the loan purpose and use of proceeds;
o the requested loan amount;
o the recommended term;
o the recommended interest rate;
o primary, secondary and tertiary sources of repayment;
o proposed risk rating;
o full collateral description;
o fees (if any);
o full borrower financial analysis, including comparative
balance sheets, income statements and statements of cash
flows; and
o inherent strengths and weaknesses of the requested credit
accommodation.
A similar analysis is prepared for those loan requests aggregating in
excess of $100,000 but less than the $250,000 threshold. The senior loan officer
and President or Chief Executive Officer of Bancorp review this analysis for
approval consideration.
Monmouth Community Bank utilizes a comprehensive approach to loan
underwriting. The primary quantitative determinants in the underwriting process
include overall creditworthiness of the borrower, cash flow from operations in
relation to debt service requirements and the ability to secure the credit
accommodation with collateral of adequate value.
For commercial loans, the collateral is somewhat dependent on the loan
type. Commercial lines of credit, term loans and time notes are typically
secured by a general lien on business assets and qualified (typically less than
90 days) accounts receivable (based upon an acceptable advance rate). Commercial
mortgage loans are secured by the underlying property with an acceptable equity
margin. Personal guarantees from the principals of a business are generally
required. In general, Monmouth Community Bank requires that income available to
service debt repayment requirements be equal to at least 125% of those
requirements.
Commercial loans are often subject to cyclical economic risks of the
underlying business(s) of the borrower. Such risks are generally reduced during
the loan approval process. For example, Monmouth Community Bank requires that a
loan amount be less than the value of the collateral securing the loan and that
the standard cash flow analysis of the commercial borrower shows an ample margin
for debt service even with significant business contraction. Commercial mortgage
underwriting also requires that available funds for debt service exceed debt
service requirements.
Retail or consumer loan credit accommodations include home equity loans,
home equity lines of credit, direct automobile loans and secured and unsecured
personal loans. Underwriting criteria for home equity products include an
acceptable independent credit score for the borrower(s), a loan to value not to
exceed 75% and a debt service to income ratio not to exceed
120
45%. Such criteria provides Monmouth Community Bank with underwriting comfort
without placing the institution in a position of competitive disadvantage.
There are a number of risks associated with the granting of consumer
loans. While income and equity or collateral values are primary determinants of
the loan approval process for consumer loans, Monmouth Community Bank also gives
much consideration to employment and debt payment history of the borrower(s). As
with the commercial underwriting process, consumer loans require both an income
cushion and a collateral cushion. Such criteria provide for a margin should a
borrower's income diminish or the collateral securing the loan depreciate in
value.
The granting of a loan, by definition, contains inherent risks. Monmouth
Community Bank attempts to mitigate risks through sound credit underwriting.
Each loan that Monmouth Community Bank approves undergoes credit scrutiny that
results in a quantification of risk and then the assignment of a risk rating.
Individual risk ratings carry with them a required reserve that is used to fund
Monmouth Community Bank's allowance for loan losses. The inherent risk
associated with each loan is a function of loan type, collateral, cash flow,
credit rating, general economic conditions and interest rates.
Monmouth Community Bank is limited by regulation as to the total amount
which may be committed and loaned to a borrower and its related entities.
Monmouth Community Bank's legal lending limit is equal to 15% of its capital
funds, including capital stock, surplus, retained earnings and the allowance for
loan losses. Monmouth Community Bank may lend an additional 10% of its capital
funds to a borrower and its related entities if the additional loan or extension
of credit is fully secured by readily marketable collateral having a market
value at least equal to the amount borrowed. The additional limitation is
separate from, and in addition to, the general limitation of 15%.
121
The following table summarizes net loans outstanding by loan category and
amount at June 30, 2004 and December 31, 2003, 2002, 2001, 2000 and 1999.
June 30, December 31, December 31, December 31, December 31, December 31,
(in thousands) 2004 2003 2002 2001 2000 1999
- ----------------------------------------------------------------------------------------------------------------------------------
Commercial and industrial loans $ 22,560 $ 20,380 $ 17,060 $ 17,396 $ 11,913 $ 8,672
Real estate loans - commercial 90,585 77,799 57,079 32,776 25,355 14,936
Home equity and second mortgages 20,660 17,734 14,816 11,182 9,279 4,668
Consumer loans 705 1,270 1,601 1,113 1,047 607
- ----------------------------------------------------------------------------------------------------------------------------------
Total 134,510 117,183 90,556 62,467 47,594 28,883
Less allowance for loan losses 1,506 1,378 1,228 855 650 359
- ----------------------------------------------------------------------------------------------------------------------------------
Net loans $133,004 $115,805 $ 89,328 $ 61,612 $ 46,944 $ 28,524
==================================================================================================================================
Loans held for sale $ 0 $ 0 $ 302 $ 269 $ 0 $ 0
For the six months ended June 30, 2004, net loans increased by $17.2
million to $133.0 million, which represents a 14.9% increase from the $115.8
million at December 31, 2003.
For the six months ended June 30, 2004, commercial and industrial loans
and commercial real estate loans increased by $14.9 million to $113.1 million,
which represents a 15.2% increase from the $98.2 million at December 31, 2003.
For the six months ended June 30, 2004, home equity and second mortgages
increased by $2.9 million to $20.6 million, which represents a 16.4% increase
from the $17.7 million at December 31, 2003.
For the year ended December 31, 2003, net loans increased by $26.5 million
to $115.8 million, which represents a 30% increase from the $89.3 million at
December 31, 2002.
For the year ended December 31, 2003, commercial and industrial loans and
commercial real estate loans increased by $24.1 million to $98.2 million, which
represents a 33% increase from the $74.1 million at December 31, 2002.
During 2003, home equity and second mortgages increased by $2.9 million to
$17.7 million at December 31, 2003, which represents a 20% increase from the
$14.8 million at December 31, 2002.
122
The following table summarizes the maturities of loans by category and
whether such loans are at a fixed or floating rate at June 30, 2004.
June 30, 2004
-------------------------------------------------------------------------
Maturity and repricing data for loans: Within Over 1 to 3 Over 3 to 5 Over 5 to 10 Over 10
(in thousands) 1 Year Years Years Years Years Total
-------------------------------------------------------------------------
Loans secured by 1-4 family residential properties
Fixed rate $ 346 $ 1,154 $ 1,466 $ 901 $ 293 $ 4,160
Adjustable rate 25,171 -- -- -- -- 5,171
All other loans secured by real estate
Fixed rate 4,287 12,041 30,721 19,047 -- 66,096
Adjustable rate 15,856 -- -- -- -- 15,856
All other loans
Fixed rate 2,429 4,002 4,286 2,850 41 13,608
Adjustable rate 9,619 -- -- -- -- 9,619
-------------------------------------------------------------------------
Total $ 57,708 $ 17,197 $ 36,473 $ 22,798 $ 334 $134,510
=========================================================================
The following table summarizes the maturities of loans by category and
whether such loans are at a fixed or floating rate at December 31, 2003.
December 31, 2003
-------------------------------------------------------------------------
Maturity and repricing data for loans: Within Over 1 to 3 Over 3 to 5 Over 5 to 10 Over 10
(in thousands) 1 Year Years Years Years Years Total
-------------------------------------------------------------------------
Loans secured by 1-4 family residential properties
Fixed rate $ 667 $ 667 $ 2,129 $ 795 $ 397 $ 4,655
Adjustable rate 20,954 -- -- -- -- 20,954
All other loans secured by real estate
Fixed rate 3,804 8,523 29,959 14,133 -- 56,419
Adjustable rate 13,505 -- -- -- -- 13,505
All other loans
Fixed rate 2,686 4,764 3,055 1,726 26 12,257
Adjustable rate 9,393 -- -- -- -- 9,393
-------------------------------------------------------------------------
Total $ 51,009 $ 13,954 $ 35,143 $ 16,654 $ 423 $117,183
=========================================================================
Non-Performing Loans
A loan is considered to be non-performing if it (i) is on a non-accrual
basis, (ii) is past due ninety (90) days or more and still accruing interest, or
(iii) has been renegotiated to provide a reduction or deferral of interest or
principal because of a weakening in the financial position of the borrower. A
loan which is past due ninety (90) days or more and still accruing interest
remains on accrual status only where it is both adequately secured as to
principal and is in the
123
process of collection. Monmouth Community Bank had three non-performing loans at
June 30, 2004 totaling $310 thousand, one non-performing loan at December 31,
2003 totaling $40 thousand and one at December 31, 2002 totaling $43 thousand.
Potential Problem Loans
In addition to non-performing loans, Monmouth Community Bank maintains a
"watch list" of loans which are subject to heightened scrutiny and more frequent
review by management. Loans may be placed on the "watch list" because of
documentation deficiencies, or because management has identified "structural
weaknesses" which potentially could cause such loans to become non-performing in
future periods.
As of June 30, 2004 and December 31, 2003, there were no loans identified
as having structural weaknesses on the "watch list." The total balance of loans
on the "watch list" at June 30, 2004 and December 31, 2003 was $4.4 million and
$1.9 million, respectively.
Allowance for Loan Losses and Related Provision
The allowance for loan losses is a valuation reserve available for losses
incurred or expected on extension of credit. The determination of the adequacy
of the allowance for loan losses is a critical accounting policy of Monmouth
Community Bank, due to the inherently subjective nature of the evaluation.
Credit losses primarily arise from Monmouth Community Bank's loan portfolio, but
also may be derived from other credit-related sources, including commitments to
extend credit. Additions are made to the allowance through periodic provisions
which are charged to expense. All losses of principal are charged to the
allowance when incurred or when a determination is made that a loss is expected.
Subsequent recoveries, if any, are credited to the allowance.
As part of our evaluation of the adequacy of our allowance for loan
losses, each quarter Monmouth Community Bank prepares an analysis. This analysis
categorizes the entire loan portfolio by certain risk characteristics such as
loan type (commercial, commercial real estate, one- to four-family, consumer,
etc.) and loan risk rating.
Loan risk ratings for every loan are determined by individual credit
officers who consider various factors including the borrower's current financial
condition and payment status, historical loan performance, underlying
collateral, as well as internal loan review and regulatory ratings. Any loans
with known potential losses are categorized and reserved for separately.
The loss factors applied to each loan risk rating are inherently
subjective in nature, and, in Monmouth Community Bank's circumstances, even more
so due to the relatively unseasoned nature of the loan portfolio and the lack of
any meaningful charge-off experience. Loss factors are assigned to loan risk
rating categories on the basis of our assessment of the potential risk inherent
in each loan type. Key factors Monmouth Community Bank considers in determining
loss factors for each loan type include the current real estate market
conditions, changes in the trend of delinquencies and non-performing loans, the
current state of the local and national economy, loan portfolio growth and
changes in composition and concentrations within the portfolio. The loss factors
are evaluated by management on a quarterly basis and any
124
adjustments are approved by the board of directors of Bancorp. There have been
no significant changes in loss factors in the first six months of 2004 as
compared to 2003 or 2002.
Monmouth Community Bank establishes the provision for loan losses after
considering the allowance for loan loss worksheet, the amount of the allowance
for loan losses in relation to the total loan balance, loan portfolio growth,
loan delinquency trends and peer group analysis. Monmouth Community Bank's
allowance for loan losses is allocated on an individual loan basis and Monmouth
Community Bank does not maintain an unallocated allowance for loan losses.
Monmouth Community Bank has applied this process consistently and have made
minimal changes in the estimation methods and assumptions that we have used.
Bancorp's primary lending emphasis is the origination of commercial real
estate loans, commercial and industrial loans, and to a lesser extent, home
equity and second mortgages. As a result of our strategic plans and lending
emphasis, Monmouth Community Bank has a loan concentration in commercial loans
at June 30, 2004 and December 31, 2003, the majority of which are secured by
real property located in New Jersey.
Based on the composition of our loan portfolio and the growth in our loan
portfolio over the past five years, the management of Monmouth Community Bank
believes the primary risks inherent in our portfolio are possible increases in
interest rates, a possible decline in the economy, generally, and a possible
decline in real estate market values. Any one or a combination of these events
may adversely affect our loan portfolio resulting in increased delinquencies and
loan losses.
The provision for loan losses for the six months ended June 30, 2004 was
$128 thousand, an increase of $105 thousand, as compared to the same period in
2003. The increase was the result of the $17.2 million in loan growth that
occurred during the six months ended June 30, 2004. The provision for loan
losses was $150 thousand for 2003, as compared to $373 thousand for 2002. The
2003 provision was required based upon credit characteristics of the net loan
growth of 30% for the year ended December 31, 2003. The provision for loan
losses of $373 thousand for the year ended December 31, 2002 was in response to
net loan growth of 45% during such period. There were no significant changes in
loan portfolio composition, asset quality, or credit delinquencies that impacted
the allowance for loan losses during the six months ended June 30, 2004, as
compared to the same period in 2003, and during the year ended December 31,
2003, as compared to 2002.
Loan portfolio composition remained consistent at June 30, 2004 as
compared to December 31, 2003 with commercial loans comprising 84% of total
loans outstanding at the end of both periods. In addition, Monmouth Community
Bank had three non-accrual loans at June 30, 2004 totaling $310 thousand as
compared to one totaling $40 thousand at December 31, 2003. Gross loans
outstanding totaled $134.5 million at June 30, 2004, as compared to $117.2
million at December 31, 2003, an increase of $17.3 million, or 14.8%. The
allowance for loan losses increased to $1.51 million, or 1.13%, at June 30,
2004, as compared to $1.38 million, or 1.18%, at December 31, 2003.
125
Loan portfolio composition remained consistent in 2003 as compared to 2002
with commercial loans comprising 84% of total loans outstanding at December 31,
2003 as compared to 82% at December 31, 2002. In addition, Monmouth Community
Bank had one non-accrual or impaired loan at December 31, 2003 totaling $40
thousand as compared to one totaling $43 thousand at December 31, 2002. Gross
loans outstanding totaled $117.2 million at December 31, 2003, as compared to
$90.9 million at December 31, 2002, an increase of $26.3 million, or 29%. The
allowance for loan losses increased to $1.38 million, or 1.18%, at December 31,
2003, as compared to $1.23 million, or 1.36%, at December 31, 2002.
The following table summarizes Monmouth Community Bank's allowance for
loan losses for the six months ended June 30, 2004 and the years ended December
31, 2003, 2002, 2001, 2000 and 1999.
June 30, December 31, December 31, December 31, December 31, December 31,
(in thousands) 2004 2003 2002 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------------
Balance, beginning of year $ 1,378 $ 1,228 $ 855 $ 650 $ 359 $ 85
Provision charged to expense 128 150 373 211 291 334
Charge-offs 0 0 (1) (6) 0 (60)
Recoveries 0 0 1 0 0 0
- ---------------------------------------------------------------------------------------------------------------------------------
Balance, end of year $ 1,506 $ 1,378 $ 1,228 $ 855 $ 650 $ 359
=================================================================================================================================
Ratio of allowance for loan
losses to total loans 1.13% 1.18% 1.36% 1.37% 1.37% 1.24%
Ratio of net charge-offs to
average loans outstanding 0.00% 0.00% 0.00% 0.00% 0.00% 0.16%
126
The following table sets forth Monmouth Community Bank's percent of
allowance for loan losses to total allowance and the percent of loans to total
loans in each of the categories listed at the dates indicated (dollars in
thousands):
June 30, 2004 December 31, 2003 December 31, 2002
---------------------------------- ---------------------------------- --------------------------------
Percent of Percent Percent of Percent Percent Percent
allowance of loans allowance of loans of allowance of loans
to total to total to total to total to total to total
Amount allowance loans Amount allowance loans Amount allowance loans
---------------------------------- ---------------------------------- --------------------------------
Commercial
loans $1,251 83.1% 84.1% $1,151 83.5% 83.8% $1,007 82.0% 81.9%
Consumer loans 255 16.9% 15.9% 227 16.5% 16.2% 221 18.0% 18.1%
------ ----- ----- ------ ----- ----- ------ ----- -----
Total $1,506 100.0% 100.0% $1,378 100.0% 100.0% $1,228 100.0% 100.0%
====== ===== ===== ====== ===== ===== ====== ===== =====
December 31, 2001 December 31, 2000 December 31, 1999
---------------------------------- ---------------------------------- --------------------------------
Percent of Percent Percent of Percent Percent Percent
allowance of loans allowance of loans of allowance of loans
to total to total to total to total to total to total
Amount allowance loans Amount allowance loans Amount allowance loans
---------------------------------- ---------------------------------- --------------------------------
Commercial
loans $ 709 82.9% 80.3% $ 523 80.5% 78.3% $ 301 83.8% 81.7%
Consumer loans 146 17.1% 19.7% 127 19.5% 21.7% 58 16.2% 18.3%
------ ----- ----- ------ ----- ----- ------ ----- -----
Total $ 855 100.0% 100.0% $ 650 100.0% 100.0% $ 359 100.0% 100.0%
====== ===== ===== ====== ===== ===== ====== ===== =====
Deposits
One of Monmouth Community Bank's primary strategies is the accumulation
and retention of core deposits. Core deposits are defined as of all deposits
except certificates of deposits with balances in excess of $100 thousand.
Total deposits were $221.5 million at June 30, 2004, an increase of $14.3
million, or 6.9%, from the year ended December 31, 2003 total of $207.2 million.
Core deposits as a percentage of total deposits were 78.6% at June 30, 2004 as
compared to 78.4% at December 31, 2003.
Total deposits were $207.2 million at December 31, 2003, an increase of
$43.2 million, or 26%, from the year ended December 31, 2002 total of $164.0
million. Core deposits as a percentage of total deposits were 78% at December
31, 2003 as compared to 84% at December 31, 2002.
127
The following table represents categories of Monmouth Community Bank's
deposits at June 30, 2004, December 31, 2003 and 2002.
(in thousands) June 30, 2004 December 31, 2003 December 31, 2002
------------- ----------------- -----------------
Demand deposits, non-interest bearing $ 31,191 $ 26,818 $ 22,581
Savings, N.O.W. and money market accounts 115,989 118,265 98,328
Certificates of deposit of less than $100,000 26,845 17,449 16,863
Certificates of deposit of $100,000 or more 47,524 44,702 26,235
-------- -------- --------
Total deposits $221,549 $207,234 $164,007
======== ======== ========
The following table represents categories of Monmouth Community Bank's
average deposit balances and weighted average interest rates for the six months
ended June 30, 2004 and the years ended December 31, 2003 and 2002.
(in thousands) June 30, 2004 December 31, 2003 December 31, 2002
------------- ----------------- -----------------
Weighted Weighted Weighted
Average Average Average Average Average Average
Balance Rate Balance Rate Balance Rate
-------- -------- -------- -------- -------- --------
Demand deposits, non-interest bearing $ 26,626 --% $ 25,554 --% $ 21,727 --%
Savings, N.O.W. and money market accounts 118,586 1.02% 108,734 1.22% 84,843 2.02%
Certificates of deposit of less than $100,000 22,882 2.15% 17,306 2.95% 13,572 3.43%
Certificates of deposit of $100,000 or mor 42,966 1.80% 34,236 2.22% 21,707 2.82%
-------- -------- -------- -------- -------- --------
Total deposits $211,060 1.18% $185,830 1.41% $141,849 1.97%
======== ======== ======== ======== ======== ========
At June 30, 2004, Monmouth Community Bank had $74.4 million in time
deposits maturing as follows (in thousands):
3 months or Over 3 to Over 1 year Over 3
less 12 months to 3 years years Total
------------------------------------------------------------------
Less than $100,000 $ 4,417 $ 18,104 $ 3,145 $ 1,179 $ 26,845
Equal to or more than $100,000 20,791 19,138 1,590 6,005 47,524
----------------------------------------------------------------
Total $ 25,208 $ 37,242 $ 4,735 $ 7,184 $ 74,369
================================================================
At December 31, 2003, Monmouth Community Bank had $62.2 million in time
deposits maturing as follows (in thousands):
3 months or Over 3 to Over 1 year Over 3
less 12 months to 3 years years Total
------------------------------------------------------------------
Less than $100,000 $ 5,370 $ 7,666 $ 3,370 $ 1,043 $ 17,449
Equal to or more than $100,000 17,179 24,089 3,114 320 44,702
-------- -------- -------- -------- --------
Total $ 22,549 $ 31,755 $ 6,484 $ 1,363 $ 62,151
======== ======== ======== ======== ========
128
Liquidity and Capital Resources
Liquidity defines the ability of the Monmouth Community Bank to generate
funds to support asset growth, meet deposit withdrawals, maintain reserve
requirements and otherwise operate on an ongoing basis. An important component
of a bank's asset and liability management structure is the level of liquidity,
which are net liquid assets available to meet the needs of its customers and
regulatory requirements. Since inception, cash on hand and loan and investment
amortizations primarily met the liquidity needs of Monmouth Community Bank.
Monmouth Community Bank invests funds not needed for operations (excess
liquidity) primarily in daily federal funds sold. With adequate cash flows
resulting from deposit growth and the proceeds received by Monmouth Community
Bank in connection with Bancorp's issuance of subordinated debentures, during
the first six months of 2004 and the year 2003 Monmouth Community Bank
maintained levels of short-term assets sufficient to maintain ample liquidity.
During the first six months of 2004 and the year 2003, Monmouth Community Bank
continued to grow its investment securities available for sale portfolio that
serves as a secondary source of liquidity. The market value of that portfolio
was $77.8 million at June 30, 2004 and $68.2 million at December 31, 2003.
It has been Monmouth Community Bank's experience that its deposit base,
both core (defined as transaction accounts and term deposits less than $100,000)
and non-core (defined as term deposits $100,000 or greater), are primarily
relationship driven and not highly sensitive to changes in interest rates.
However, adequate sources of reasonably priced on-balance sheet funds such as
overnight federal funds sold, due from banks and short-term investments maturing
in less than one year must be continually accessible for times of need. This is
accomplished primarily by the daily monitoring of certain accounts for
sufficient balances to meet future loan commitments as well as measuring
Monmouth Community Bank's liquidity position on a monthly basis.
Supplemental sources of liquidity include lines of credit with
correspondent banks, certificates of deposit and wholesale as well as retail
repurchase agreements. Correspondent banks are typically referred to as a
"bank's bank" by offering essential services such as cash letter processing,
investment services, loan participation support, wire transfer operations and
other traditional banking services. "Brokered deposits," as defined in Federal
Deposit Insurance Corporation Regulation 337.6, means any deposit that is
obtained, directly or indirectly, from or through the mediation or assistance of
a deposit broker. Brokered deposits may be utilized only if authorized by
Bancorp's Board of Directors. Contingent liquidity sources will include
off-balance sheet funds such as advances from the Federal Reserve Bank and
federal funds purchase lines with upstream correspondents, commonly defined as a
banking institution that provides correspondent banking services. An additional
source of liquidity is made available by decreasing loan activity and using the
cash available as a result of such decreased loan activity to fund short-term
investments such as overnight federal funds sold or other approved investments
maturing in less than one year. In addition, future expansion of Monmouth
Community Bank's retail banking network will create additional sources of
liquidity from new deposit customer relationships.
Monmouth Community Bank is subject to various regulatory capital
requirements administered by federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory, and possibly additional
discretionary, actions by regulators that, if undertaken, could have a material
effect on Monmouth Community Bank's financial statements.
129
Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, Monmouth Community Bank must meet specific capital guidelines
that involve quantitative measures of Monmouth Community Bank's assets,
liabilities and certain off-balances sheet items as calculated under regulatory
accounting practices. Monmouth Community Bank's capital amounts and
classifications are also subject to qualitative judgments by the regulators
about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require Monmouth Community Bank to maintain minimum amounts and ratios (set
forth in the table on the next page) of total capital and Tier I Capital to risk
weighted assets, and of Tier I Capital to average assets (leverage ratio).
Monmouth Community Bank believes that, as of June 30, 2004, it met all capital
adequacy requirements to which it is subject.
As of June 30, 2004, the most recent notification from the Office of the
Comptroller of the Currency categorized Monmouth Community Bank as "well
capitalized" under the regulatory framework for prompt corrective action. No
conditions or events have occurred since that notification that management
believes has changed Monmouth Community Bank's category.
130
Monmouth Community Bank's actual capital ratios at June 30, 2004 and
December 31, 2003 and 2002 are presented in the following table:
Tier I Tier I
Capital to Capital to Total Capital to
Average Assets Ratio Risk Weighted Risk Weighted
(Leverage Ratio) Asset Ratio Asset Ratio
------------------------------ ----------------------------- ---------------------------
June 30, December 31, June 30, December 31, June 30, December 31,
2004 2003 2002 2004 2003 2002 2004 2003 2002
---- ---- ---- ---- ---- ---- ---- ---- ----
Monmouth Community Bank 8.32% 6.86% 8.12% 12.49% 11.01% 14.19% 13.44% 12.01% 15.37%
"Adequately capitalized"
institution (under
federal regulations) 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% 8.00% 8.00% 8.00%
"Well capitalized"
institution (under
federal regulations) 5.00% 5.00% 5.00% 6.00% 6.00% 6.00% 10.00% 10.00% 10.00%
Bancorp's actual Capital ratios at June 30, 2004 and December 31, 2003 and
2002 are presented in the following table:
Tier I Tier I
Capital to Capital to Total Capital to
Average Assets Ratio Risk Weighted Risk Weighted
(Leverage Ratio) Asset Ratio Asset Ratio
------------------------------ ----------------------------- ---------------------------
June 30, December 31, June 30, December 31, June 30, December 31,
2004 2003 2002 2004 2003 2002 2004 2003 2002
---- ---- ---- ---- ---- ---- ---- ---- ----
Monmouth Community Bancorp
8.29% 6.86% 8.12% 12.44% 11.01% 14.19% 13.39% 12.01% 15.37%
"Adequately capitalized"
institution (under
federal regulations) 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% 8.00% 8.00% 8.00%
"Well capitalized"
institution (under
federal regulations) 5.00% 5.00% 5.00% 6.00% 6.00% 6.00% 10.00% 10.00% 10.00%
131
Guaranteed Preferred Beneficial Interest in Bancorp's Subordinated Debt
In March 2004, MCBK Capital Trust I, a newly formed Delaware statutory
business trust and a wholly-owned, unconsolidated subsidiary of Bancorp, issued
an aggregate of $5.0 million of trust preferred securities to ALESCO Preferred
Funding III, a pooled investment vehicle. Sandler O'Neill acted as placement
agent in connection with the offering of the trust preferred securities. The
securities issued by MCBK Capital Trust I are fully guaranteed by Bancorp with
respect to distributions and amounts payable upon liquidation, redemption or
repayment. These securities have a floating interest rate equal to the
three-month LIBOR plus 285 basis points, which resets quarterly, with an initial
interest rate of 3.96%. The securities mature on April 7, 2034 and may be called
at par by Bancorp any time after April 7, 2009. These securities were placed in
a private transaction exempted from registration under the Securities Act of
1933, as amended.
The entire proceeds to MCBK Capital Trust I from the sale of the trust
preferred securities were used by MCBK Capital Trust I in order to purchase
subordinated debentures from Bancorp. The subordinated debentures bear a
variable interest rate equal to LIBOR plus 2.85% (1.60% + 2.85% = 4.45% at July
7, 2004). Although the subordinated debentures are treated as debt of Bancorp,
they currently qualify as Tier I Capital investments, subject to the 25%
limitation under risk-based capital guidelines of the Federal Reserve System.
The portion of the trust preferred securities that exceeds this limitation
qualifies as Tier II Capital of Bancorp. At June 30, 2004, the $5.0 million of
the trust preferred securities qualified for treatment as Tier I Capital.
Bancorp is using the proceeds it received from the subordinated debentures to
support the general balance sheet growth of Bancorp and to help ensure that
Monmouth Community Bank maintains the required regulatory capital ratios.
On May 6, 2004, the Federal Reserve issued a proposed rule that would
continue to allow trust preferred securities issued by variable interest
entities, such as MCBK Capital Trust I, to constitute Tier I Capital for bank
holding companies. The proposed rules would impose stricter quantitative and
qualitative limits on the Tier I Capital treatment of trust preferred
securities. Currently, trust preferred securities and qualifying perpetual
preferred stock are limited in the aggregate to no more than 25% of a holding
company's core capital elements. The proposed rules would amend the existing
limit by providing that restricted core capital elements (including trust
preferred securities and qualifying perpetual preferred stock) can be no more
than 25% of core capital, net of goodwill. The proposed rules would not have an
adverse impact on the treatment of the trust preferred securities issued by MCBK
Capital Trust I. However, it is possible that the Federal Reserve rules will not
be adopted as proposed and that the Federal Reserve will conclude that trust
preferred securities should no longer be treated as Tier I Capital. Assuming
Bancorp would not be allowed to include the $5.0 million in trust preferred
securities issued by the subsidiary trust in Tier I Capital, Monmouth Community
Bank, due to its capital structure, would remain "well capitalized" at June 30,
2004.
132
Impact of Inflation
The financial statements and related financial data presented in this
report have been prepared in accordance with generally accepted principles,
which require the measurement of financial position and operating results in
terms of historical dollars without considering changes in the relative
purchasing power of money over time due to inflation. The primary impact of
inflation on the operation of Bancorp and Monmouth Community Bank is reflected
in increased operating costs. Unlike most industrial companies, virtually all of
the assets and liabilities of a financial institution are monetary in nature. As
a result, interest rates have a more significant impact on a financial
institution's performance than the effects of general levels of inflation.
Interest rates do not necessarily move in the same direction or in the same
magnitude as the prices of goods and services. The management of Monmouth
Community Bank believes that the continuation of their efforts to manage the
rates, liquidity and interest sensitivity of Monmouth Community Bank's assets
and liabilities is necessary to generate an acceptable return on assets.
Recent Accounting Pronouncements
Financial Accounting Standards Board ("FASB") Interpretation No. 46,
Consolidation of Variable Interest Entities ("FIN 46"), was issued in January
2003. FIN 46 applies immediately to enterprises that hold a variable interest in
variable interest entities created after January 31, 2003. FIN 46 provides
guidance on the identification of entities controlled through means other than
voting rights. Further, FIN 46 specifies how a business enterprise should
evaluate its interest in a variable interest entity to determine whether to
consolidate that entity. A variable interest entity must be consolidated by its
primary beneficiary if the entity does not effectively disperse risks among the
parties involved. The adoption of FIN 46 did not have an impact Bancorp's
consolidated financial statements, however, Bancorp will not be permitted to
consolidate the subsidiary trust created in the issuance of trust preferred
securities. The deconsolidation of a subsidiary trust results in Bancorp
reporting on its statements of condition the subordinated debentures that have
been issued from Bancorp to the subsidiary trust.
133
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF ALLAIRE
Allaire's management's discussion and analysis of financial condition and
results of operations is intended to provide a better understanding of the
significant changes and trends relating to the financial condition, results of
operations, capital resources, liquidity and interest rate sensitivity of
Allaire as of June 30, 2004 and during the six months ended June 30, 2004 and
2003 and as of December 31, 2003 and 2002 and for each of the years in the three
year period ended December 31, 2003. The following information should be read in
conjunction with the unaudited consolidated financial statements as of June 30,
2004 and 2003 and for the six months ended June 30, 2004 and 2003 and the
audited consolidated financial statements as of December 31, 2003 and 2002 and
for each of the years in the three year period ended December 31, 2003,
including the related notes thereto, which begin on page F-34 of this joint
proxy statement/prospectus.
Critical Accounting Policies and Estimates
The following discussion is based upon Allaire's consolidated financial
statements, which have been prepared in accordance with accounting principles
generally accepted in the United States of America. The preparation of these
financial statements requires Allaire to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues and expenses. Note
(1) to Allaire's unaudited consolidated financial statements for the six months
ended June 30, 2004 and 2003 and Note (1) to Allaire's 2003 audited consolidated
financial statements contain a summary of Allaire's significant accounting
policies. Management believes Allaire's policy with respect to the methodology
for the determination of the allowance for loan losses involves a higher degree
of complexity and requires management to make difficult and subjective judgments
which often require assumptions or estimates about highly uncertain matters.
Changes in these judgments, assumptions or estimates could materially impact
results of operations. This critical policy and its application is periodically
reviewed with Allaire's audit committee and board of directors.
The provision for loan losses is based upon management's evaluation of the
adequacy of the allowance for loan losses, including an assessment of known and
inherent risks in the portfolio, giving consideration to the size and
composition of the loan portfolio, actual loan loss experience, level of
delinquencies, detailed analysis of individual loans for which full
collectibility may not be assured, the existence and estimated net realizable
value of any underlying collateral and guarantees securing the loans, and
current economic and market conditions. Although management uses the best
information available, the level of the allowance for loan losses remains an
estimate that is subject to significant judgment and short-term change. Various
regulatory agencies, as an integral part of their examination process,
periodically review Allaire's allowance for loan losses. Such agencies may
require Allaire to make additional provisions for loan losses based upon
information available to them at the time of their examination. Furthermore, the
majority of Allaire's loans are secured by real estate in the State of New
Jersey, primarily Monmouth and Ocean Counties. Accordingly, the collectibility
of a substantial portion of the carrying value of Allaire's loan portfolio is
susceptible to changes in local market conditions and may be adversely affected
should real estate values decline or the New Jersey and/or Allaire's local
market areas experience an adverse economic shock. Future
134
adjustments to the allowance for loan losses may be necessary due to economic,
operating, regulatory and other conditions beyond Allaire's control.
All per share amounts and number of shares outstanding set forth herein reflect
a 5% stock distribution declared on April 6, 2001, a 5% stock distribution
declared on March 15, 2002, a 3 for 2 stock split declared on December 12, 2002
and a 5% stock distribution declared on April 28, 2004.
Overview
For the six months ended June 30, 2004, net interest income increased
$667,000, or 19.4%, to $4.1 million, as compared to $3.4 million for the same
period in 2003. Basic earnings per share were $0.43 for the six months ended
June 30, 2004, as compared to $0.37 for the same period in 2003. Diluted
earnings per share were $0.39 for the six months ended June 30, 2004, as
compared to $0.33 for the same period in 2003.
Net interest income increased $1.6 million, or 27.6%, to $7.3 million for
the year ended December 31, 2003 from $5.7 million in 2002. Basic earnings per
share were $0.81 for the year ended December 31, 2003, as compared to $0.47 for
2002. Diluted earnings per share were $0.73 for the year ended December 31,
2003, as compared to $0.45 for 2002.
Net interest income increased $2.0 million, or 55.1%, to $5.7 million for
the year ended December 31, 2002 from $3.7 million in 2001. Basic earnings per
share were $0.47 for the year ended December 31, 2002, as compared to $0.08 for
2001. Diluted earnings per share were $0.45 for the year ended December 31,
2002, as compared to $0.08 for 2001.
Total assets increased to $206.0 million at June 30, 2004, reflecting an
increase of $23.9 million, or 13.15%, from the December 31, 2003 total at $182.0
million. Total assets increased $28.3 million, or 18.4% to $182.0 million at
December 31, 2003 from $153.7 million at December 31, 2002. The change in assets
consisted primarily of increases in outstanding loan balances, federal funds
sold and securities available for sale.
Deposits increased $32.7 million from December 31, 2003 to June 30, 2004,
an increase of 20.8%. Deposits increased $17.4 million from December 31, 2002 to
December 31, 2003, an increase of 12.4%. These increases are primarily
attributable to the growth of new branches and continued marketing efforts.
Allaire's borrowing position declined $8.75 million at June 30, 2004 from
$10.3 million at December 31, 2003. The decrease was primarily due to the
increase in deposit growth, allowing Allaire to pay down the overnight
borrowings with the Federal Home Loan Bank of New York.
Allaire is currently a member of the Federal Home Loan Bank of New York
which is the primary source used for daily and other borrowings. The Federal
Home Loan Bank of New York prices its advances daily at favorable rates for all
of its members. At June 30, 2004, Allaire had a $1.5 million two year term
advance, as compared to no borrowings at June 30, 2003.
135
Loans, net of the allowance for loan losses, totaled $116.5 million at
June 30, 2004, an increase of $8.3 million, or 7.7%, over the $108.2 million
balance at December 31, 2003. The allowance for loan losses, which totaled $1.10
million, or 1% of total loans, at December 31, 2003, was $1.16 million at June
30, 2004, with the allowance for loan losses ratio at 1%. Allaire had no
non-accrual loans at June 30, 2004 or December 31, 2003.
Six Months ended Year ended
June 30, December 31,
---------------- ------------------------------
Performance Ratios: 2004 2003 2002 2001
---- ---- ---- ----
Return on average assets .91% .97% .74% .18%
Return on average stockholders' equity 12.05% 12.14% 7.82% 1.36%
Equity to assets (average) 7.52% 8.00% 9.43% 13.50%
Dividend payout --% --% --% --%
Investments totaled $65.0 million at June 30, 2004, an increase of $5.9
million, or 9.96%, from the December 31, 2003 total of $59.2 million. For the
six months ended June 30, 2004, maturities, calls and pay downs of investment
securities totaled $4.8 million, sales totaled $1.8 million, while purchases
totaled $13.9 million. A gain on the sale of securities available for sale of
$11,000 was realized for the six months ended June 30, 2004, as compared to a
gain of $112,000 on sales of $5.7 million in the same 2003 period. Federal funds
sold increased $6.8 million from December 31, 2003, which was primarily funded
by the growth in deposits.
Results of Operations
Allaire's principal source of revenue is net interest income, the
difference between interest income on earning assets and interest expense on
deposits and borrowings. Interest earning assets consists principally of loans,
securities and federal funds sold, while the sources used to fund such assets
consist primarily of deposits and borrowed funds. Allaire's net income is also
affected by its provision for loan losses, other income and other expenses.
Other income consists primarily of service charges, commissions, fees, security
gains and income earned on bank-owned life insurance. Other expenses consist
primarily of salaries and employee benefits, occupancy costs and other operating
related charges.
For the Six Months Ended June 30, 2004 and 2003
Interest Income and Expense
Interest income for the six months ended June 30, 2004, increased by
$634,000, or 14.52% from the same period in 2003. Interest on loans increased
$215,000, or 6.65%, to total $3.4 million for the six months ended June 30,
2004, as compared to $3.2 million for the same period in 2003. The increase was
primarily due to loan originations exceeding principal repayments. The average
balance of the loan portfolio for the six month period ended June 30, 2004
increased to $112.7 million from $96.5 million for the same period in 2003,
while the average yield on the portfolio decreased to 6.1% for the six months
ended June 30, 2004, from 6.7% for the same period in 2003.
136
Interest income on securities available for sale increased $347,000 for
the six months ended June 30, 2004 compared to the same prior year period.
Interest income on securities held to maturity increased $92,000 for the six
months ended June 30, 2004 compared to the same prior year period. The average
balance of the available for sale portfolios totaled $47.6 million, with an
annualized yield of 5.20% for the six months ended June 30, 2004, while the
average balance of the held to maturity portfolios totaled $12.1 million, with
an annualized yield of 4.90% for the six months ended June 30, 2004. The
available for sale portfolio's average balance was $32.8 million with an
annualized yield of 5.23% for the six months ended June 30, 2003 while the
average balance of the held to maturity portfolio balance was $8.1 million with
an annualized yield of 5.12% for the six months ended June 30, 2003. The
decrease in interest rates significantly affected the yield on the portfolio.
Rates on investment securities were negatively affected as higher yielding
investments were called in a lower rate environment. Due to market interest
rates, new purchases had a lower yield than the securities held in portfolio in
2003. Interest income on Federal Funds Sold decreased $20,000 for the six months
ended June 30, 2004 compared to the same prior year period. Growth in
interest-earning assets is expected to continue. Yields on the portfolio will
continue to be affected by market interest rates.
Interest expense on deposits decreased $67,000 to $867,000 for the six
months ended June 30, 2004 compared to $934,000 for the comparable 2003 period.
Management continues to concentrate its efforts on increasing the level of core
accounts and decreasing certificate accounts as a percentage of overall
deposits. The increase in the average balance of NOW and money market demand
accounts, along with the increase in the average balance of non-interest bearing
deposits, reflect this strategy. The average balance of these core accounts
totaled $114.9 million for the six months ended June 30, 2004, as compared to
$97.1 million for the same period in 2003. The average interest cost on deposits
for the six months ended June 30, 2004 was .90% as compared to .77% for the same
period in 2003. The average total outstanding balances of certificates of
deposit increased to $54.4 million for the six months ended June 30, 2004, from
$42.7 million for the same period in 2003. Certificates of deposit represented
31.1% of total deposits at June 30, 2004, as compared to 27.6% at June 30, 2003.
Due to prevailing interest rates, the average cost of certificates over the six
month period ended June 30, 2004, was 1.93%, as compared to 2.6% over the same
period in 2003. Management will continue to offer certificate rates that are
competitive, but lower than certain area competition. This strategy could cause
a limited outflow of funds. For the six months ended June 30, 2004, interest
expense on borrowings was $34,000, as compared to no expense for the six months
ended June 30, 2003. As previously stated, Allaire can borrow funds from the
Federal Home Loan Bank of New York or the Atlantic Central Bankers Bank to fund
loan closings or investment purchases.
137
The following table presents a summary of the principal components of
interest income and interest expense for the six months ended June 30, 2004
(dollars in thousands):
(dollars in thousands) Six months ended June 30, 2004
---------------------- --------------------------------
Average
Average Yield/
Balance Interest Cost
------- -------- -------
Interest earning assets:
Federal funds sold $ 2,523 $ 10 0.79%
Loans receivable, net 112,122 3,448 6.15
Investment securities 59,690 1,543 5.17
-------- ------ ----
Total interest earning assets 174,355 5,001 5.74
-------- ------ ----
Cash and due from banks 6,622
Other assets 7,575
--------
Total assets $188,532
========
Interest bearing liabilities:
N.O.W. and money market accounts $ 26,645 $ 95 0.71
Savings deposits 50,098 250 1.00
Certificates of deposit 54,434 522 1.92
Short term borrowings 4,481 34 1.52
-------- ------ ----
Total interest bearing liabilities 135,658 901 1.33
-------- ------ ----
Non-interest bearing deposits 38,146
Other liabilities 542
Total liabilities 174,346
Stockholders' equity 14,186
--------
Total liabilities and stockholders' equity $188,532
========
Net interest income $4,100
======
Net interest rate spread (1) 4.41%
Net interest margin (2) 4.69%
(1) Net interest rate spread represents the difference between the yield
on interest-earning assets and the cost of interest-bearing
liabilities.
(2) Net interest margin represents net interest income divided by
average interest-earning assets.
138
Net Interest Income Before Provisions for Loan Losses
Net interest income before provision for loan losses increased $667,000,
or 19.4%, to $4.1 million for the six months ended June 30, 2004, as compared to
$3.4 million for the same period in 2003. The increase was due to the changes in
interest income and interest expense described above. The net interest margin
decreased to 4.7% for the six months ended June 30, 2004, from 4.8% for the same
period in 2003. This decrease was also due to the changes in interest income and
interest expense described above.
Analysis of Changes in Net Interest Income
The following table sets forth for the periods indicated a summary of the
changes in interest earned and interest paid resulting from changes in volume
and changes in rates (in thousands):
Six months ended June 30, 2004
Compare to
Six months ended June 30, 2003
------------------------------------------
Increase (Decrease)
Due to Change in:
Total Increase Volume Rate
-------------- ------ ----
Interest income:
Total loans $ 215 $ 510 $ (295)
Securities available for sale 347 388 (41)
Securities held to maturity 92 101 (9)
Federal funds sold (20) (13) (7)
-------- -------- --------
Total interest earnings assets 634 986 (352)
-------- -------- --------
Interest expense:
N.O.W. and money market accounts (32) 3 (35)
Savings deposits 3 60 (57)
Time deposits (38) 132 (170)
Short term borrowings 34 34 --
-------- -------- --------
Total interest bearing liabilities (33) 229 (262)
-------- -------- --------
Net interest income $ 667 $ 757 $ (90)
======== ======== ========
The change in interest due to both volume and rate has been allocated
proportionally to both, based on their relative absolute values.
Provision for Loan Losses
The provision for loan losses for the six months ended June 30, 2004,
decreased $50,000, or 43.5%, to $65,000, as compared to the same period in 2003.
In management's opinion, the allowance for loan losses, totaling $1.16 million
at June 30, 2004, is adequate to cover losses inherent in the portfolio. The
amount of the provision is based on management's evaluation of risk inherent in
the loan portfolio. As of June 30, 2004, Allaire had no non-accrual loans.
Management will continue to review the need for additions to its allowance for
loan losses based
139
upon its quarterly review of the loan portfolio, the level of delinquencies, and
general market and economic conditions.
Non-Interest Income
For the six months ended June 30, 2004, non-interest income totaled $307,000, a
decrease of $59,000, or 16.1% from the same period in 2003. This decrease was
primarily due to the decrease of $101,000 in the gain on sale of securities for
the six months ended June 30, 2004, partially offset by an increase of $36,000
in cash surrender value of bank owned life insurance for the six months ended
June 30, 2004 due to an additional $3.0 million purchased in 2003.
Non-Interest Expense
Non-interest expense for the six months ended June 30, 2004, increased
$424,000, or 16.6%, to $3.0 million, compared to $2.6 million for the same
period in 2003. Salary and employee benefits increased $185,000 and occupancy
expense increased $20,000 for the six months ended June 30, 2004 as compared to
the same period in 2003. These increases were primarily due to the expenses
associated with branch expansion and increased personnel to support Allaire's
growth. Data processing fees and stationery and supplies increased primarily due
the increase in Allaire's asset size and the number of customer transactions.
Other expenses increased $152,000 for the six months ended June 30, 2004. This
increase was primarily due to the added expenses associated with the
combination.
Six months ended
June 30,
------------------------
Non-interest expense 2004 2003
---- ----
Salaries and employee benefits $ 1,464 $ 1,279
Occupancy expenses 527 507
Data processing fees 430 357
Professional fees 90 87
Advertising and marketing expenses 30 35
Printing, stationery, and supplies 112 116
Other expenses 329 177
--------- ---------
Total $ 2,982 $ 2,558
========= =========
Income Taxes
Allaire recorded income tax expense of $505,000 during the six month
period ended June 30, 2004, as compared to $405,000 for the same period in 2003.
The effective tax rate was 37.1% for the six month period ended June 30, 2004,
as compared to 36.0% for the six month period ended June 30, 2003, due to
non-deductible expenses associated with the combination, partially offset by
higher levels of tax-exempt income from bank owned life insurance.
140
For the Years Ended December 31, 2003 and 2002
Net Interest Income
Net interest income increased $1.6 million or 27.6% to $7.3 million in
2003 from $5.7 million in 2002. The primary reason for the increase was an
increase of $34.5 million in average interest-earning assets. Management
continued to invest cash inflows into current loan demand thereby reducing Fed
Funds Sold Balances, while increasing investment securities to maintain
liquidity and fund future loan closings. The loan portfolio was 65.6% of average
earning assets in 2003 an increase from 62.8% in 2002, while average securities
represented 31.5% of average earning assets in 2003, up from 27.2% in 2002. The
increase in loans outstanding was due to an increased emphasis on marketing
Allaire's products to new and existing customers and the addition of retail and
commercial lending personnel and new branches.
For 2003, average interest-earning assets increased $34.5 million or 29.4%
over 2002 while the average yield on earning assets decreased 28 basis points,
netting to an increase in total interest income of $1.7 million or 23.5% from
2002. Interest earning assets were funded primarily by deposit inflows and
short-term borrowings. Average yields and costs declined in 2003 as a result of
the low interest rate environment.
Allaire continually monitors the rates paid on all categories of
interest-bearing liabilities to reflect existing market conditions. Average
interest-bearing deposits increased $30.4 million or 36%, over 2002 while the
cost of interest bearing deposits decreased 40 basis points. The decrease in
deposit rates was due primarily to the lower cost of funds in all interest
bearing deposits due to the decreasing interest rate environment in 2003.
The net interest margin, which represents net interest income as a
percentage of average interest-earning assets, is a key indicator of net
interest income performance. The net interest margin decreased during 2003 to
4.81% from 4.87% in 2002. The decrease in the net interest margin in 2003
resulted from a decline in rates earned on interest earning assets partially
offset by a decrease in interest bearing deposits rates and higher levels of
non-interest bearing deposits.
141
The following table presents a summary of the principal components of
interest income and interest expense for the years ended December 31, 2003 and
2002 (dollars in thousands):
2003 2002
----------------------------------- ------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
------- -------- ---- ------- -------- ----
Interest earning assets:
Federal funds sold $ 4,436 $ 55 1.24% $ 11,780 $ 168 1.43%
Loans receivable, net 99,624 6,542 6.56 73,769 5,321 7.21
Investment securities 47,190 2,516 5.17 31,921 1,890 5.92
-------- -------- ---- -------- ------ ----
Total interest earning assets 151,970 9,113 6.00 117,470 7,379 6.28
-------- -------- ---- -------- ------ ----
Cash and due from banks 4,576 5,027
Other assets 8,486 4,068
-------- --------
Total assets $165,032 $126,565
======== ========
Interest bearing liabilities:
N.O.W. and money market accounts $ 27,521 $ 232 0.84 $ 23,291 $ 290 1.25
Savings deposits 43,684 491 1.12 34,438 523 1.52
Certificates of deposit 43,936 1,057 2.41 26,966 840 3.12
Short term borrowings 1,734 27 1.56 -- -- --
-------- -------- ---- -------- ------ ----
Total interest bearing liabilities 116,875 1,807 1.55 84,695 1,653 1.95
-------- -------- ---- -------- ------ ----
Non-interest bearing deposits 34,279 29,360
Other liabilities 683 570
-------- --------
Total liabilities 151,837 114,625
Stockholders' equity 13,195 11,940
-------- --------
Total liabilities and stockholders' equity $165,032 $126,565
======== ========
Net interest income $ 7,306 $5,726
======== ======
Net interest rate spread (1) 4.45% 4.33%
Net interest margin (2) 4.81% 4.82%
(1) Net interest rate spread represents the difference between the yield on
interest-earning assets and the cost of interest-bearing liabilities.
(2) Net interest margin represents net interest income divided by average
interest-earning assets.
142
Analysis of Changes in Net Interest Income
The following table sets forth for the periods indicated a summary of the
changes in interest earned and interest paid resulting from changes in volume
and changes in rates (in thousands):
2003 Compared with 2002
----------------------------------------
Increase (Decrease)
Due to Change in:
Total Increase Volume Rate
-------------- ------ ----
Interest income:
Total loans $ 1,221 $ 1,732 $ (511)
Securities available for sale 159 390 (231)
Securities held to maturity 467 497 (30)
Federal funds sold (113) (93) (20)
------- ------- -------
Total Interest Earnings Assets 1,734 2,526 (792)
------- ------- -------
Interest expense:
N.O.W. and money market accounts (58) 47 (105)
Savings deposits (32) 122 (154)
Time deposits 217 440 (223)
Short term borrowings 27 27 --
------- ------- -------
Total interest bearing liabilities 154 636 (482)
------- ------- -------
Net interest income $ 1,580 $ 1,890 $ (310)
======= ======= =======
The change in interest due to both volume and rate has been allocated
proportionally to both, based on their relative absolute values.
Provision for Loan Losses
Allaire's provision for loan losses is established periodically at levels
determined by management to be necessary to maintain the allowance for loan
losses at an adequate level. During 2003, Allaire recorded a provision for loan
losses of $185,000, a decrease of $90,000 from the provision recorded in 2002.
The decrease in the provision for loan losses is due primarily to a lower level
of loan growth in 2003 as compared to 2002.
The allowance for loan losses was deemed adequate at $1.1 million as of
December 31, 2003. At December 31, 2003, Allaire had no non-accrual loans or
loans greater than ninety (90) days delinquent and accruing interest. See
additional discussion under "Asset Quality" on page 152.
Non-Interest Income
During 2003, non-interest income increased $263,000, or 62.6%, from
$420,000 to $683,000 primarily due to increased charges and fees on deposit
accounts related to increases in deposit balances, the gain on sale of
securities available for sale and the increase of the cash surrender value of
bank owned life insurance.
143
Non-Interest Expense
The following table provides a summary of non-interest expense by category
for the two years ended December 31, 2003 (in thousands):
2003 2002
---- ----
Non-interest expenses:
Salaries and employee benefits $ 2,652 $ 2,155
Occupancy expense 932 806
Stationery, supplies and printing 129 122
Data processing 763 634
Advertising and marketing 60 67
Professional fees 241 214
Other expenses 546 377
-------- --------
Total $ 5,323 $ 4,375
======== ========
Non-interest expenses increased $948,000 from $4.4 million in 2002 to $5.3
million in 2003. The increase was primarily due to increases of $497,000,
$129,000 and $126,000 related to salaries and employee benefits, data processing
and occupancy expense, respectively, which were due to the increase in
headcount, transactions processed and premises during 2003.
Income Taxes
Allaire recorded income tax expense of $879,000 in 2003 as compared to
$562,000 in 2002. The increase in tax expense is due to higher taxable income in
2003. The effective tax rate decreased from 37.6% in 2002 to 35.4% in 2003 due
primarily to higher levels of tax exempt income from bank-owned life insurance.
For the Years Ended December 31, 2002 and 2001
Net Interest Income
Net interest income increased $2.0 million, or 55.1%, to $5.7 million in
2002 from $3.7 million in 2001. The primary reason for the increase was an
increase of $42.0 million in average interest-earning assets. Management
continued to deploy cash inflows in excess of current loan demand into liquid
interest earning assets. The loan portfolio was 62.8% of average earning assets
in 2002 down from 67.4% in 2001, while average securities represented 27.2% of
average earning assets in 2002, up from 16.2% in 2001. The increase in loans
outstanding was due to an increased emphasis on marketing Allaire's products to
new and existing customers and the addition of retail and commercial lending
personnel and new branches.
Allaire continually monitors the rates paid on all categories of
interest-bearing liabilities to reflect existing market conditions. Average
interest-bearing deposits increased $32.6 million or 62.6%, over 2001 while the
cost of interest bearing deposits decreased 106 basis points. The decrease in
deposit rates was due primarily to the lower cost of funds in all interest
bearing deposits due to the decreasing interest rate environment in 2002.
144
The net interest margin, which represents net interest income as a
percentage of average interest-earning assets, is a key indicator of net
interest income performance. The net interest margin decreased slightly during
2002 to 4.87% from 4.89% in 2001.
The following table presents a summary of the principal components of
interest income and interest expense for the years ended December 31, 2002 and
2001 (dollars in thousands):
2002 2001
---------------------------------- ----------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
------- -------- ---- ------- -------- ----
Interest earning assets:
Federal funds sold $ 11,780 $ 168 1.43% $ 12,395 $ 519 4.19%
Loans receivable, net 73,769 5,321 7.21 50,813 4,000 7.87
Investment securities 31,921 1,890 5.92 12,230 744 6.08
-------- -------- ---- -------- -------- ----
Total interest earning assets 117,470 7,379 6.28 75,438 5,263 6.98
-------- -------- ---- -------- -------- ----
Cash and due from banks 5,027 5,042
Other assets 4,068 3,432
-------- --------
Total assets $126,565 $ 83,912
======== ========
Interest bearing liabilities:
N.O.W. and money market accounts $ 23,291 $ 290 1.25 $ 14,884 $ 314 2.11
Savings deposits 34,438 523 1.52 20,974 410 1.95
Certificates of deposit 26,966 840 3.12 16,244 847 5.21
-------- -------- ---- -------- -------- ----
Total interest bearing liabilities 84,695 1,653 1.95 52,102 1,571 3.01
-------- -------- ---- -------- -------- ----
Non-interest bearing deposits 29,360 20,244
Other liabilities 570 238
-------- --------
Total liabilities 114,625 72,584
Stockholders' equity 11,940 11,328
-------- --------
Total liabilities and stockholders' equity $126,565 $ 83,912
======== ========
Net interest income $ 5,726 $ 3,692
======== ========
Net interest rate spread (1) 4.33% 3.97%
Net interest margin (2) 4.87% 4.89%
(1) Net interest rate spread represents the difference between the yield on
interest-earning assets and the cost of interest-bearing liabilities.
(2) Net interest margin represents net interest income divided by average
interest-earning assets.
145
Analysis of Changes in Net Interest Income
The following table sets forth for the periods indicated a summary of the
changes in interest earned and interest paid resulting from changes in volume
and changes in rates (in thousands):
2002 Compared with 2001
----------------------------------------
Increase (Decrease)
Due to Change in:
Total Increase Volume Rate
-------------- ------ ----
Interest income:
Total loans $ 1,321 $ 1,679 $ (358)
Securities available for sale 1,146 1,164 (22)
Federal funds sold (351) (25) (322)
------- ------- -------
Total interest earning assets 2,116 2,818 (702)
------- ------- -------
Interest expense:
N.O.W. and money market accounts (24) 135 (158)
Savings deposits 113 220 (107)
Time deposits (7) 419 (426)
------- ------- -------
Total interest bearing liabilities 82 774 (691)
------- ------- -------
Net interest income $ 2,034 $ 2,044 $ (11)
======= ======= =======
The change in interest due to both volume and rate has been allocated
proportionally to both, based on their relative absolute values.
Non-Interest Income
During 2002, non-interest income increased $117,000, or 38.6%, from
$303,000 to $420,000 primarily due to increased charges and fees on deposit
accounts related to increases in deposit balances.
Non-Interest Expense
The following table provides a summary of non-interest expense by category
for the two years ended December 31, 2002 (in thousands):
2002 2001
---- ----
Non-interest expenses:
Salaries and employee benefits $ 2,155 $ 1,723
Occupancy expense 806 729
Stationery, supplies, printing & postage 122 123
Data processing 634 498
Advertising and marketing 67 74
Professional fees 214 110
Other expenses 377 284
-------- --------
Total $ 4,375 $ 3,541
======== ========
146
Non-interest expenses increased $834,000 from $3.5 million at December 31, 2001
to $4.4 million at December 31, 2002. The increase was primarily due to
increases of $432,000, $136,000, and $77,000, respectively, related to salaries
and employee benefits, data processing and occupancy expense, respectively,
which were due to the increase in size both in personnel, transactions processed
and premises during 2002.
Income Taxes
Allaire recorded income tax expense of $562,000 in 2002, as compared to
$97,000 in 2001. The increase in tax expense is due to higher taxable income in
2002.
Financial Condition
General
Total assets increased to $206.0 million at June 30, 2004, reflecting an
increase of $23.9 million, or 13.15%, from the December 31, 2003 total of $182.0
million. The increase was primarily attributable to an increase in net loans of
$8.3 million, or 7.7%, from $108.2 million at December 31, 2003 to $116.5
million at June 30, 2004 and an increase in investment securities of $5.9
million, or 9.96%, from $59.2 million at December 31, 2003 to $65.0 million at
June 30, 2004.
Total assets increased $28.3 million, or 18.4%, to $182.0 million at
December 31, 2003 from $153.7 million at December 31, 2002. The increase was
primarily attributable to an increase in net loans of $18.0 million or 19.9%,
from $90.3 million at December 31, 2002 to $108.2 million at December 31, 2003
and an increase in securities available for sale and securities held to maturity
of $14.2 million, or 31.5%, from $45.0 million at December 31, 2002 to $59.2
million at December 31, 2003. In addition, there was a decrease in cash and cash
equivalents of $7.2 million, or 49.9%, from $14.5 million at December 31, 2002
to $7.2 million at December 31, 2003.
Liabilities
Deposits are the primary source of funds used by Allaire in lending and
other general business purposes. In addition to deposits, Allaire may derive
additional funds from principal repayments on loans, the sale of loans and
investment securities and borrowing from other financial institutions. Loan
amortization payments have historically been a relatively predictable source of
funds. The level of deposit liabilities can vary significantly and is influenced
by prevailing interest rates, money market conditions, general economic
conditions and competition. Allaire's deposits consist of checking accounts,
regular savings accounts, money market accounts and certificates of deposit.
Allaire also offers individual retirement accounts. Deposits are obtained from
individuals, partnerships, corporations and unincorporated businesses in
Allaire's market area. Allaire attempts to control the flow of deposits
primarily by pricing its accounts to remain generally competitive with other
financial institutions in its market area, although Allaire does not necessarily
seek to match the highest rates paid by competing institutions. Deposits
increased $32.7 million, or 20.8%, to $190.2 million at June 30, 2004.
147
The increase is primarily attributable to the growth of new branches and
continued marketing efforts.
Other liabilities decreased $35,000 at June 30, 2004 from $384,000 at
December 31, 2003. The decrease was primarily due to a decrease of $102,500 in
accrued income taxes which were paid out in the second quarter of 2004 and an
increase in accrued expenses of $ 69,000, due primarily to combination related
expenses.
Capital
Allaire's stockholders' equity increased $6,000 to $13.9 million at June
30, 2004. The primary reason for the increase was Allaire's profit for the six
months ended June 30, 2004 of $855,000, offset by an increase in unrealized
losses on securities available for sale, net of tax, of $850,000.
Allaire is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on Allaire's
financial statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, Allaire must meet specific capital
guidelines that involve quantitative measures of Allaire's assets, liabilities
and certain off-balance-sheet items as calculated under regulatory accounting
practices. Allaire's capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings and
other factors.
Quantitative measures established by regulation to ensure capital adequacy
require Allaire to maintain minimum amounts and ratios (set forth in the
following table) of total capital and Tier 1 Capital to risk weighted assets,
and of Tier 1 Capital to average assets (leverage ratio). Management believes
that, as of June 30, 2004, Allaire met all capital adequacy requirements to
which it is subject.
As of June 30, 2004, the most recent notification from the Federal Deposit
Insurance Corporation categorized Allaire as "well capitalized" under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized, Allaire must maintain minimum total risk-based, Tier 1 risk-based
and leverage ratios as set forth in the table set forth in the "Liquidity and
Capital Resources" section of this discussion. There are no conditions or events
since that notification that management believes have changed Allaire's
category.
148
Securities Portfolio
The following tables sets forth the carrying value of securities available
for sale and held to maturity at June 30, 2004 and December 31, 2003 and 2002
(in thousands):
June 30, December 31, December 31,
-------- ------------ ------------
2004 2003 2002
---- ---- ----
Securities available for sale:
Obligations of U.S. Government sponsored agencies $52,842 $46,506 $35,828
Corporate securities 98 103 1,102
------- ------- -------
$52,940 $46,609 $36,930
======= ======= =======
Securities held to maturity:
Obligations of U.S. Government sponsored agencies $12,100 $12,550 $ 8,056
======= ======= =======
The contractual maturity distribution and weighted average yield s
(calculated on the basis of the stated yields to maturity, considering
applicable premium or discount) of Allaire's securities available for sale and
held to maturity portfolio at June 30, 2004 is as follows (in thousands):
Securities Available for Sale:
Carrying Weighted Average
Value Yield
-------- ----------------
Due within one year through five years $ -- --%
Due after five years through ten years 30,687 5.14%
Due after ten years 22,253 5.31%
------- -------
$52,940 5.21%
======= =======
Securities Held to Maturity:
Due within one year through five years $ -- --%
Due after five years through ten years 8,102 5.02%
Due after ten years 3,998 4.61%
-------
Total $12,100 4.88%
======= =======
149
The contractual maturity distribution and weighted average yields
(calculated on the basis of the stated yields to maturity, considering
applicable premium or discount) of Allaire's securities available for sale and
held to maturity portfolio at December 31, 2003 is as follows (in thousands):
Securities Available for Sale:
Carrying Weighted Average
Value Yield
----- -----
Due within one year through five years $ -- --%
Due after five years through ten years 28,253 5.10
Due after ten years 18,356 5.02
------- ----
$46,609 5.07%
======= ====
Securities Held to Maturity:
Due within one year through five years $ -- --%
Due after five years through ten years 8,552 5.06
Due after ten years 3,998 4.61
------- ----
Total $12,550 4.92%
======= ====
Loan Portfolio
The following table summarizes total loans outstanding by loan category
and amount at June 30, 2004 and December 31, 2003 and 2002 (in thousands):
June 30, 2004 % 2003 % 2002 %
------------- - ---- - ---- -
Real estate loans - residential $ 16,535 14.1 $ 16,199 14.8 $ 17,079 18.7
Real estate loans - commercial 54,081 46.0 52,805 48.3 39,911 43.8
Home equity and second mortgages 18,051 15.3 16,963 15.5 16,183 17.7
Commercial and industrial loans 11,864 10.1 13,333 12.2 11,872 13.0
Construction loans & land
development 14,574 12.4 8,724 8.0 5,297 5.8
Consumer 2,580 2.1 1,301 1.2 834 1.0
-------- ----- -------- ----- -------- -----
$117,685 100.0 109,325 100.0 91,176 100.0
===== ===== =====
Less allowance for loan losses 1,155 1,090 906
-------- -------- --------
Total loans $116,530 $108,235 $ 90,270
======== ======== ========
For the six months ended June 30, 2004, net loans increased by $8.3
million to $116.5 million, which represents a 7.7% increase from the $108.2
million at December 31, 2003.
For the year ended December 31, 2003, net loans increased by $18.0 million
to $108.2 million, which represents a 19.9% increase from the $90.3 million at
December 31, 2002.
For the six months ended June 30, 2004, commercial real estate loans
increased by $1.3 million to $54.1 million, which represents a 2.4% increase
from the $52.8 million at December
150
31, 2003. Commercial and industrial loans decreased by $1.5 million to $11.9
million, which represents a 11% decrease from the $13.3 million at December 31,
2003.
Commercial real estate loans increased $12.9 million, or 32.3% for the
year ended December 31, 2003, as compared to the year ended December 31, 2002.
Commercial and Industrial loans increased $1.5 million, or 12.3%, for the year
ended December 31, 2003, as compared to the year ended December 31, 2002. The
increase in these portfolios was due primarily to increased marketing emphasis
on these product types.
For the six months ended June 30, 2004, residential real estate, home
equity and second mortgages, and consumer loans totaled $37.2 million, an
increase of $2.7 million, or 7.8%, from the $34.5 million at December 31, 2003.
Residential real estate, home equity and second mortgages, and consumer
loans totaled $34.5 million for the year ended December 31, 2003, an increase of
$367,000, or 1.1%, over the year ended December 31, 2002. The increase was due
to an increase in home equity lines and loans primarily through increased
marketing efforts and personnel as well as competitively priced products.
For the six months ended June 30, 2004, construction loans totaled $14.6
million, an increase of $5.9 million, or 67.1%, from the $8.7 million at
December 31, 2003. Construction loans totaled $8.7 million for the year ended
December 31, 2003, an increase of $3.4 million over the year ended December 31,
2002.
The following table shows the maturity of loans (excluding real estate
loans - residential, home equity and second mortgages and consumer loans)
outstanding as of June 30, 2004, and segregates loans with fixed interest rates
from those with floating or variable interest rates due after one year (in
thousands):
After One
Within But Within After
One Year Five Years Five Years Total
-------- ---------- ---------- -----
Real estate loans - commercial $ 4,787 $11,163 $38,131 $54,081
Commercial and industrial loans 3,831 4,266 3,767 11,864
Construction and land development 9,512 3,682 1,380 14,574
------- ------- ------- -------
$18,130 $19,111 $43,278 $80,519
======= ======= ======= =======
Amounts of loans due after one year based upon:
Fixed interest rates $15,060 $31,850
Variable interest rates 4,051 11,428
------- -------
$19,111 $43,278
======= =======
151
The following table shows the maturity of loans (excluding real estate
loans - residential, home equity and second mortgages and consumer loans)
outstanding as of December 31, 2003, and segregates loans with fixed interest
rates from those with floating or variable interest rates due after one year (in
thousands):
After One
Within But Within After
One Year Five Years Five Years Total
-------- ---------- ---------- -----
Real estate loans - commercial $ 5,246 $11,963 $35,596 $52,805
Commercial and industrial loans 3,427 4,896 5,010 13,333
Construction and land development 8,323 -- 401 8,724
------- ------- ------- -------
$16,996 $16,859 $41,007 $74,862
======= ======= ======= =======
Amounts of loans due after one year
based upon:
Fixed interest rates $15,338 $27,323
Variable interest rates 1,521 13,684
------- -------
$16,859 $41,007
======= =======
Asset Quality
Non-Performing Loans
Loans are considered to be nonperforming if they are (i) on a non-accrual
basis, (ii) past due ninety (90) days or more and still accruing interest, or
(iii) have been renegotiated to provide a reduction or deferral of interest or
principal because of a weakening in the financial positions of the borrowers. A
loan which is past due ninety (90) days or more and still accruing interest
remains on accrual status only where it is both adequately secured as to
principal and is in the process of collection. At June 30, 2004 and December 31,
2003 and 2002 there were no non-accrual loans ninety (90) days or more past due
and still accruing interest or impaired loans. For the six months ended June 30,
2004, Allaire charged-off $212, as compared to $920 in the same period of 2003.
During 2003, Allaire charged-off $920, compared to $2,000 in charge-offs in
2002.
Potential Problem Loans
In addition to non-performing loans and loans past due ninety (90) days or
more and still accruing interest, Allaire maintains a list of loans where
management has identified problems which potentially could cause such loans to
be placed on non-accrual status in future periods. Loans on this list are
subject to heightened scrutiny and more frequent review by management. The
balance of potential problem loans at June 30, 2004 and December 31, 2003
totaled approximately $861,000 and $872,000, respectively.
152
Allowance for Loan Losses
The following table summarizes Allaire's allowance for loan losses for the
six months ended June 30, 2004 and the years ended December 31, 2003 and 2002
(dollars in thousands):
June 30, 2004 2003 2002
------------- ---- ----
Balance, beginning of year $ 1,090 $ 906 $ 633
Provision charged to expense 65 185 275
Charge-offs - commercial and industrial loans -- (1) (2)
------- ------- -------
Balance, end of year $ 1,155 $ 1,090 $ 906
======= ======= =======
Ratio of net charge-offs during the period to
average loans outstanding during the period 0.00% 0.00% 0.00%
Ratio of allowance for loan losses to total loans 1.00% 1.00% 0.99%
The allowance for loan losses is a valuation reserve available for losses
incurred or expected on extension of credit. Credit losses primarily arise from
Allaire's loan portfolio, but may also be derived from other credit-related
sources including commitments to extend credit. Additions are made to the
allowance through periodic provisions which are charged to expense. All losses
of principal are charged to the allowance when incurred or when a determination
is made that a loss is expected. Subsequent recoveries, if any, are credited to
the allowance.
Allocation of the Allowance for Loan Losses
The accompanying table sets forth the allocation of the allowance for loan
losses by category of loans and the percentage of loans in each category to
total loans at June 30, 2004 and December 31, 2003 and 2002 (in thousands).
June 30, 2004 2003 2002
------------------------ ------------------------ ------------------------
Amount of % of Loans to Amount of % of Loans to Amount of % of Loans to
Allowance Total Loans Allowance Total Loans Allowance Total Loans
--------- ----------- --------- ----------- --------- -----------
Real estate loans - residential $ 163 14.1 $ 161 14.8 $ 169 18.7
Real estate loans - commercial 531 46.0 527 48.3 397 43.8
Home equity and second mortgages 177 15.3 169 15.5 160 17.7
Commercial and industrial loans 117 10.1 133 12.2 118 13.0
Construction and land development 143 12.4 87 8.0 53 5.8
Consumer 24 2.1 13 1.2 9 1.0
------ ------ ------ ------ ------ ------
$1,155 100.0 $1,090 100.0 $ 906 100.0
====== ====== ====== ====== ====== ======
Deposits
One of Allaire's primary strategies is the accumulation and retention of
core deposits. Core deposits consist of all deposits, except certificates of
deposit in excess of $100,000. Total deposits increased $32.7 million from
December 31, 2003 to June 30, 2004, an increase of 20.8%, and increased $17.4
million from December 31, 2002 to December 31, 2003, an increase of 12.4%.
Year-end core deposits, defined as total deposits excluding time deposits of
$100,000
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or more, as a percentage of total deposits were 90.1% and 91.6% at December 31,
2003 and 2002, respectively.
The following table reflects the average balances and average rates paid
on deposits for the six months ended June 30, 2004 and the years ended December
31, 2003 and 2002 (dollars in thousands):
June 30, 2004 2003 2002
------------------ ------------------ ------------------
Average Average Average Average Average Average
Balance Rate Balance Rate Balance Rate
------- ---- ------- ---- ------- ----
Non-interest bearing
deposits $ 38,146 --% $ 34,279 --% $ 29,360 --%
-------- -------- --------
N.O.W. and money
market accounts 26,645 .71 27,521 .84 23,291 1.25
Savings deposits 50,098 1.00 43,684 1.12 34,438 1.52
Certificates of
deposit 54,434 1.92 43,936 2.41 26,966 3.12
-------- -------- --------
Total interest
bearing deposits 131,177 1.33 115,141 1.55 84,695 1.95
-------- -------- --------
Total deposits $169,323 1.03 $149,420 1.19 $114,055 1.45
======== ======== ========
The following table sets forth a summary of the maturities of certificates
of deposit $100,000 and over at June 30, 2004 and December 31, 2003 (in
thousands):
June 30, 2004 December 31, 2003
------------- -----------------
Three months or less $ 5,313 $ 6,141
Over three through twelve months 11,239 9,281
Over twelve months through three years 407 180
------- -------
$16,959 $15,602
======= =======
Other Borrowings
Allaire currently is a member of the Federal Home Loan Bank of New York
and Atlantic Central Bankers Bank, which are both sources used for short and
long term borrowings. The Federal Home Loan Bank of New York and Atlantic
Central Bankers Bank both price their advances daily.
Borrowings are summarized as follows (in thousands):
Six Months Ended Year End
June 30, 2004 December 31, 2003
---------------- -----------------
Period end balance $ 1,500 $ 10,250
Weighted average rate at period end 2.25% 1.30%
Maximum outstanding
Balance at any month-end during the reported period $ 6,300 $ 10,250
Average balance outstanding during the reported period $ 4,481 $ 1,734
Weighted average rate during the reported period 1.52% 1.56%
154
Liquidity and Capital Resources
Liquidity defines the ability of Allaire to generate funds to support
asset growth, meet deposit withdrawals, maintain reserve requirements and
otherwise operate on an ongoing basis. An important component of a bank's asset
and liability management structure is the level of liquidity which is available
to meet the needs of its customers and requirements of creditors. During the
past two years, the liquidity needs of Allaire were primarily met by cash on
hand. Allaire invests funds not needed for operations primarily in daily federal
funds sold. With adequate cash inflows resulting from net increases in deposits
during 2002, 2003 and the first six months of 2004 Allaire maintained levels of
short-term assets which management believed to be adequate.
Allaire is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory and possibly additional discretionary, actions by
regulators that, if undertaken, could have a direct material effect on Allaire's
financial statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, Allaire must meet specific capital
guidelines that involve quantitative measures of Allaire's assets, liabilities
and certain off-balance-sheet items as calculated under regulatory accounting
practices. Allaire's capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings and
other factors.
Quantitative measures established by regulation to ensure capital adequacy
require Allaire to maintain minimum amounts and ratios (set forth in the
following table) of total capital and Tier 1 Capital to risk weighted assets,
and of Tier 1 capital to average assets (leverage ratio). Management believes
that, as of June 30, 2004 and December 31, 2003, Allaire met all capital
adequacy requirements to which it is subject.
As of December 31, 2003, the most recent notification from the Federal
Deposit Insurance Corporation categorized Allaire as "well capitalized" under
the regulatory framework for prompt corrective action. To be categorized as well
as capitalized, Allaire must maintain minimum total risk-based, Tier 1
risk-based and leverage ratios as set forth in the table. There are no
conditions or events since that notification that management believes have
changed Allaire's category.
155
Allaire's actual capital ratios at June 30, 2004 and 2003 are presented in
the following table:
Tier 1 Tier 1
Capital to Average Assets Capital to Risk Weighted Total Capital to Risk
Ratio (Leverage Ratio) Asset Ratio Weighted Asset Ratio
------------------------- ------------------------ ------------------------
June 30, June 30, June 30, June 30, June 30, June 30,
2004 2003 2004 2003 2004 2003
---- ---- ---- ---- ---- ----
Allaire 7.61% 8.25% 10.68% 11.16% 11.51% 12.03%
"Adequately capitalized"
institution (under federal
regulations) 4.00 4.00 4.00 4.00 8.00 8.00
"Well capitalized" institution
(under federal regulations) 5.00 5.00 6.00 6.00 10.00 10.00
Allaire's actual capital ratios at December 31, 2003 and 2002 are
presented in the following table:
Tier 1 Tier 1
Capital to Average Assets Capital to Risk Weighted Total Capital to Risk
Ratio (Leverage Ratio) Asset Ratio Weighted Asset Ratio
---------------------------- ---------------------------- --------------------------
December 31, December 31, December 31, December 31, December 31, December 31,
2003 2002 2003 2002 2003 2002
---- ---- ---- ---- ---- ----
Allaire 7.81% 8.39% 11.02% 11.95% 11.88% 12.83%
"Adequately capitalized"
institution (under federal
regulations) 4.00 4.00 4.00 4.00 8.00 8.00
"Well capitalized" institution
(under federal regulations) 5.00 5.00 6.00 6.00 10.00 10.00
The prompt corrective action regulations define specific capital
categories based on an institution's capital ratios. The capital categories, in
declining order, are "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized," and "critically
undercapitalized." Institutions categorized as "undercapitalized" or worse are
subject to certain restrictions, prohibitions on the payment of dividends and
management fees, restrictions on asset growth and executive compensation, and
increased supervisory monitoring, among other things. Other restrictions may be
imposed on the institution. Once an institution becomes "critically
undercapitalized" it must generally be placed in receivership or conservatorship
within 90 days. To be considered "adequately capitalized," an institution must
generally have a Tier 1 Capital to total assets ratio of at least 4% a Tier
risk-based capital ratio of at least 4%, and a total risk-based
156
capital ratio of at least 8%. An institution is deemed to be "critically
undercapitalized" if it has a tangible equity ratio (Tier 1 Capital, net of all
intangibles, to tangible capital) of 2% or less.
Under the risk-based capital guidelines rules, a banking organization's
assets and certain off-balance sheet activities are classified into categories,
with the least capital required for the category deemed to have the least risk,
and the most capital required for the category deemed to have most risk. Under
the currently effective regulations, banking organizations are required to
maintain total capital of 8.00% of risk-weighted assets, of which half must be
"core" or "Tier 1" Capital.
Interest Rate Sensitivity
Interest rate sensitivity is a measure of the relationship between earning
assets and supporting funds, which tend to be sensitive to changes in interest
rates during comparable time periods.
The asset-liability committee of Allaire is charged with managing
Allaire's rate sensitivity to attempt to optimize net interest income while
maintaining an asset/liability mix which balances liquidity needs and interest
rate risk. Interest rate risk arises when an asset matures, or its interest rate
changes, during a time period difference from that of the supporting liability
and vice versa.
Historically, the most common method of estimating interest rate risk was
to measure the maturity and repricing relationships between interest-earning
assets and interest-bearing liabilities at specific points in time, typically
one year. Under this method, an asset-sensitive gap means an excess of
interest-sensitive assets over interest-sensitive liabilities, whereas a
liability-sensitive gap means an excess of interest-sensitive liabilities over
interest-sensitive assets.
The asset-liability committee of Allaire monitors and manages interest
rate sensitivity through simulation and market value of equity analyses in order
to avoid unacceptable earnings fluctuations due to interest rate changes.
Allaire's model using generally accepted accounting principals includes certain
management assumptions based upon past experience and the expected behavior of
customers during various interest rate scenarios. The assumptions include
principal prepayments for various loan and security products and classifying the
non-maturity deposit balances by degree of interest rate sensitivity.
However, assets and liabilities with similar repricing characteristics may
not reprice at the same time or to the same degree. As a result, Allaire's model
using generally accepted accounting principals does not necessarily predict the
impact of changes in general levels of interest rates on net interest income.
Management believes that the simulation of net interest income in
different interest rate environments provides a more meaningful and dynamic
measure of interest rate risk. Income simulation analysis captures not only the
potential of all assets and liabilities to mature or reprice, but the
probability that such would occur. Income simulation also permits management to
assess the probable effects on the balance sheet not only of changes in interest
rates, but also of proposed strategies for responding to them.
157
Allaire's income simulation model analyzes interest rate sensitivity by
projecting net interest income over the next 24 months in a flat rate scenario
versus net interest income in alternative interest rate scenarios. Management
reviewed and refines its interest rate risk management process in response to
the changing economic climate. The model incorporates management assumptions
regarding the level of interest rate or balance changes on non-maturity deposit
products, such as NOW, savings, money market and demand deposits, for a given
level of market rate changes. These assumptions incorporate historical analysis
and future expected customer behavior patterns. Interest rate caps and floors
are included, if applicable. Changes in prepayment behaviors of mortgage based
products for both loans and securities in each rate environment are also
captured. Additionally, the impact of planned growth and anticipated new
business activities are factored into the model.
Federal agency securities and other borrowings with call options, which
Allaire believed would be called, were reported at the earlier of the next call
date or contractual maturity date. Non-maturity deposits of savings, money
market accounts and interest-bearing transaction accounts were reported with an
average duration of 3.4 years. Non-interest bearing deposits were based on the
most recent regulatory valuation price tables. Rate shocks, prepayment
assumptions and call dates are all instantaneous and held constant.
Allaire's The asset-liability committee of Allaire policy has established
that interest income sensitivity will be considered acceptable if the change in
net interest income in the above interest rate scenario is within 10% of net
interest income from the flat rate scenario in the first year.
At June 30, 2004, Allaire's income simulation model indicates an
acceptable level of interest rate risk as presented below (dollars in
thousands):
Gradual Change in Rate
-------------------------------------------------------
+200 Basis Points -200 Basis Points
---------------------- ------------------------
Twelve Month Horizon:
June 30, 2004:
Net Interest Income $ 323 3.65% $ -389 -4.40%
At December 31, 2003 and 2002, Allaire's income simulation model indicates
an acceptable level of interest rate risk as presented below (dollars in
thousands):
Gradual Change in Rate
-------------------------------------------------------
+200 Basis Points -200 Basis Points
---------------------- ------------------------
Twelve Month Horizon:
2003:
Net Interest Income $ -129 -1.62% $ -96 -1.20%
2002:
Net Interest Income $ 27 0.4% $ -76 -1.11%
158
Commitments and Contingencies
In the normal course of operations, Allaire engages in a variety of
financial transactions that, in accordance with generally accepted accounting
principles, are not recorded in the financial statements. These transactions
involve, to varying degrees, elements of credit, interest rate and liquidity
risk. Such transactions are used for general corporate purposes.
The following table sets forth the contractual obligations of Allaire by
expected payment period as of June 30, 2004 and December 31, 2003, respectively.
June 30, 2004
-------------
Less Than More Than
Contractual obligation One Year 1-3 years 3-5 years Five Years
---------------------- -------- --------- --------- ----------
Long-term debt
obligations (1) $1,500 -- $1,500 --
Operating lease
obligations(2) $1,238 $ 144 $ 471 $ 623
------ ------ ------ ------
Total $2,738 $ 144 $1,971 $ 623
December 31, 2003
-----------------
Less Than More Than
Contractual obligation One Year 1-3 years 3-5 years Five Years
---------------------- -------- --------- --------- ----------
Long-term debt
obligations (1) $1,500 -- $1,500 --
Operating lease
obligations (2) $1,584 $ 366 $ 594 $ 624
------ ------ ------ ------
Total $3,084 $ 366 $2,094 $ 624
(1) Long-term debt obligations include borrowings from the Federal Home
Loan Bank of New York.
(2) Operating leases represent obligations entered into by Allaire for
the use of premises. The leases have escalation terms based upon
certain defined indexes.
159
ALLAIRE QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations of Allaire - Interest Rate Sensitivity" on page 157.
160
BUSINESS OF BANCORP
Bancorp is a single-bank holding company headquartered in Long Branch, New
Jersey. Bancorp was incorporated in New Jersey on March 7, 2000, and became an
active bank holding company on August 31, 2000 through the acquisition of
Monmouth Community Bank, National Association. Monmouth Community Bank provides
a full range of banking services to individual and business customers located
primarily in coastal Monmouth County, New Jersey. Monmouth Community Bank has
six (6) full-service branch facilities located in Long Branch, Spring Lake
Heights, Little Silver, Neptune, Neptune City and Ocean Grove, New Jersey.
Monmouth Community Bank has entered into a land lease agreement and received the
required regulatory approvals to open a seventh branch in the Ursula Plaza
Shopping Center, 444 Ocean Boulevard, Long Branch, New Jersey. Monmouth
Community Bank anticipates commencing operations at this branch in the autumn of
2004.
Monmouth Community Bank offers a full range of retail and commercial
banking services to its customers, including checking accounts, savings
accounts, money market accounts, certificates of deposit, installment loans,
real estate mortgage loans, commercial loans, wire transfers, money orders,
traveler's checks, safe deposit boxes, night depository, federal payroll tax
deposits, bond coupon redemption, bank by mail, direct deposit and automated
teller services, telephone and internet banking. Monmouth Community Bank has
debit card, merchant card and international services available to its customers
through correspondent institutions.
Monmouth Community Bank is a national association chartered by the Office
of the Comptroller of the Currency, and its deposits are insured by the Federal
Deposit Insurance Corporation. As a community bank, Monmouth Community Bank's
emphasis is on providing a broad range of financial products and services to
individual consumers, small businesses and professionals in its market area.
When a customer's loan requirements exceed Monmouth Community Bank's lending
limit, Monmouth Community Bank seeks to arrange such loans on a participation
basis with other financial institutions. In addition, Monmouth Community Bank
participates in loans originated by other financial institutions.
In 2001, Monmouth Community Bank converted from a state-chartered bank to
a national association chartered by the Office of the Comptroller of the
Currency. The activities permitted by the national association charter and the
Office of the Comptroller of the Currency's regulatory parameters and oversight
are believed by our board of directors to be more consistent with the strategic
initiatives of Monmouth Community Bank.
Business Strategy
Monmouth Community Bank's strategy is to provide a competitive range of
community banking services to its market area, in a professional environment, at
fair and reasonable prices, at convenient operating hours, with a commitment to
prompt, quality and highly personalized service, which is both efficient and
responsive to local needs. Service to customers and a commitment to the
community are the basic and distinguishing features Monmouth Community Bank
offers. Management believes there is a need for a local bank to provide
personalized service that is responsive to local community needs and managed by
experienced personnel.
161
Market Area
At December 31, 2003, Monmouth Community Bank had six (6) full-service
branch facilities located in Long Branch, Spring Lake Heights, Neptune City,
Little Silver, Ocean Grove and Neptune, New Jersey. It is anticipated that
Monmouth Community Bank's seventh branch to be located in Long Branch, New
Jersey, will commence operations in the autumn of 2004. Each branch is within
Monmouth County, New Jersey, the sixth largest county in the State of New
Jersey. 627 Second Avenue, the address of the Long Branch location, is highly
visible and situated in the established West End business district of the City
of Long Branch. Similarly, the other five locations provide a great deal of
exposure and are well-situated to provide convenient services to businesses,
professionals and individuals throughout Monmouth Community Bank's market area.
The current market area of Monmouth Community Bank is comprised of the
municipalities of Allenhurst, Deal, Eatontown, Interlaken, Loch Arbour, Long
Branch, Monmouth Beach, Ocean Grove, Ocean Township, Oceanport, West Long
Branch, Asbury Park, Bradley Beach, Avon-by-the-Sea, Belmar, Spring Lake, Spring
Lake Heights, Sea Girt, Manasquan, Wall, Brielle, Neptune, Neptune City, Little
Silver, Sea Bright, Fair Haven, Rumson, Red Bank and Shrewsbury Borough and
Township, New Jersey.
Monmouth Community Bank's market area is well-served by an established
network of arterial roadways including New Jersey Routes 33, 35, 36 and 71. The
Garden State Parkway is located just to the west of Monmouth Community Bank's
market area, with direct access to the market area provided by Routes 33 and 36.
Direct access from the New Jersey Turnpike to the market area is provided by
I-195. Overall, the regional road system is considered to be excellent in terms
of long-range access to the market area; and the local road network offers good
access and circulation to and about the branch locations.
Commercial activity within Monmouth Community Bank's market area includes
small and medium sized businesses, corporate offices, professional offices,
major retail centers, resort and recreational businesses along the nearby
oceanfront, as well as numerous industrial establishments specializing in light
manufacturing, baking products, rubber and plastic products, surgical and
medical devices, electronics and telecommunications. In addition, the market
area contains a variety of major employers, including Monmouth Medical Center,
Jersey Shore University Medical Center, Monmouth University and Fort Monmouth.
Services Offered
Monmouth Community Bank is community oriented and offers services and
products designed to meet the needs of local individuals, businesses and
professionals. Business people and professionals are offered a broad spectrum of
deposit and loan products designed to satisfy their occupational and personal
financial needs. In addition, Monmouth Community Bank provides a broad array of
consumer banking services to the general public residing or working in the
market area to which it serves.
Deposits. In order to attract and retain stable deposit relationships with small
businesses, Monmouth Community Bank offers competitive small business cash
management services. Monmouth Community Bank believes that the expertise and
experience of its management
162
coupled with the latest technology enables Monmouth Community Bank to maximize
the growth of business related deposits. As for consumers, the primary deposit
services of Monmouth Community Bank are comprised of demand deposits, savings
deposits (including money markets), time deposits and individual retirement
accounts.
Loans. Monmouth Community Bank's loan portfolio consists primarily of
variable-rate and short-term fixed rate loans, with a significant concentration
in commercial purpose transactions. Monmouth Community Bank believes that the
familiarity of its management and the members of its board of directors
appointed to Monmouth Community Bank's loan committee with prospective local
borrowers enables Monmouth Community Bank to better evaluate the character,
integrity and creditworthiness of prospective borrowers.
Residential Mortgage Loans. In order to effectively penetrate the mortgage
market, Monmouth Community Bank offers through one or more third parties a range
of residential mortgage products at competitive rates. Management believes that
Monmouth Community Bank's policy of closing loans in a time frame that meets the
needs of its borrowers is important to Monmouth Community Bank's business.
Commercial Mortgage/Construction Loans. Monmouth Community Bank originates
various types of loans secured with real estate, including construction loans.
Monmouth Community Bank's loan officers work closely with real estate
developers, individual builders and attorneys to offer construction loans and
services to the residential real estate market as well as to owner-occupied
commercial properties and investment properties. Construction lending
constitutes a minor portion of the loan portfolio. In some cases, Monmouth
Community Bank originates loans larger than its lending or policy limits and
participates these loans with other financial institutions.
Consumer Lending. Monmouth Community Bank offers retail customers consumer loan
services including secured and unsecured personal loans, home equity loans,
lines of credit and auto loans.
Small Business Loans. Monmouth Community Bank targets businesses with annual
revenues of less than $25,000,000. Often, these businesses are ignored by the
larger lending institutions and have experienced the most negative effects of
recent bank consolidations. Monmouth Community Bank offers responsiveness,
flexibility and local decision-making for loan applications of small business
owners, thereby eliminating the delays generally associated with non-local
management. Monmouth Community Bank may participate in the future in Small
Business Administration (SBA) programs, and currently participates in programs
offered through the New Jersey Economic Development Authority. As an independent
community bank, Monmouth Community Bank serves the special needs of
professionals in the legal, medical, accounting, insurance and real estate
industries. Lines of credit, term loans and time loans are tailored to meet the
needs of Monmouth Community Bank's customers in the professional community.
Other Services. To further attract and retain customer relationships, Monmouth
Community Bank provides the standard array of financial services expected of a
community bank including: the issuance of money orders, treasurer checks,
certified checks and gift checks, wire transfers, U.S. Savings Bonds sales and
redemptions, debit cards, U.S. Treasury Bills, notes and bonds,
163
MAC card memberships, federal payroll tax deposits, safe deposit boxes,
traveler's checks, a night depository, bond coupon redemptions, bank-by-mail,
direct deposit, business sweep accounts, automated teller machines and telephone
and internet banking. Effective January 2004, Monmouth Community Bank also
offers a variety of personal and business credit cards. These credit cards are
underwritten and managed by a third party unaffiliated banking organization.
Monmouth Community Bank also maintains coin counting machines, for the
convenience of its customers, in each of its branch offices.
Competition
The banking business in New Jersey is very competitive. Monmouth Community
Bank competes for deposits and loans with existing New Jersey and out-of-state
financial institutions which have longer operating histories, larger capital
reserves and more established customer bases. Monmouth Community Bank's
competition includes large financial service companies and other entities, in
addition to traditional banking institutions such as savings and loan
associations, savings banks, commercial banks, internet banks and credit unions.
Such competition includes community banks, with banking philosophies similar to
those of Monmouth Community Bank, which are located within or near the market
area served by Monmouth Community Bank.
Monmouth Community Bank's larger competitors have a greater ability than
Monmouth Community Bank to finance wide ranging advertising campaigns through
their greater capital resources. Marketing efforts to introduce prospective
customers to Monmouth Community Bank depend heavily upon referrals from its
board of directors, advisory boards, management and shareholders, selective
advertising in local media and direct mail solicitations. Monmouth Community
Bank competes for business principally on the basis of high quality, personal
service to customers, customer access to Monmouth Community Bank decision makers
and competitive interest rates and fees.
In the financial services industry in recent years, intense market
demands, technological and regulatory changes and economic pressures have eroded
once clearly defined financial service industry classifications. Existing banks
have been forced to diversify their services, increase rates paid on deposits,
provide competitive pricing on loans and become more cost effective, as a result
of competition with one another and with new types of financial service
companies, including non-banking competitors. Corresponding changes in the
regulatory framework have resulted in increasing homogeneity in the financial
services offered by financial institutions. Some of the results of these market
dynamics in the financial services industry have been a number of new bank and
non-bank competitors, increased merger activity, and increased customer
awareness of product and service differences among competitors. These factors
may be expected to affect Monmouth Community Bank's business prospects.
Employees
As of the date of this joint proxy statement/prospectus, James S. Vaccaro
(Chairman and Chief Executive Officer), Richard O. Lindsey (President) and
Anthony Giordano, III (Executive Vice President, Chief Financial Officer,
Treasurer and Secretary) are the executive officers of Bancorp. Mr. Vaccaro, Mr.
Lindsey and Mr. Giordano, together with Kevin W. Hunt, Nancy Malinconico and
David A. O'Connor, are the executive officers of Monmouth Community
164
Bank. None of Mr. Vaccaro, Mr. Lindsey, Mr. Giordano or any other executive
officer of Monmouth Community Bank have employment agreements. Including the
aforementioned executive officers, Monmouth Community Bank had eighty (80)
employees at September 10, 2004, 67 of whom are full-time.
Bancorp Operations
Bancorp serves as a holding company for Monmouth Community Bank. Bancorp
has no assets or liabilities other than its investment in Monmouth Community
Bank. Bancorp does not conduct, nor does management believe that it will
conduct, any business. All banking products and services are, and will be,
provided by Bancorp's subsidiary, Monmouth Community Bank. In addition, in March
2004, Bancorp formed MCBK Capital Trust I, a Delaware statutory business trust
and a wholly-owned, unconsolidated subsidiary of Bancorp. Further, on March 9,
2004, Monmouth Community Bank formed MCB Investment Company, a New Jersey
corporation and wholly-owned subsidiary of Monmouth Community Bank. It is the
intention of Monmouth Community Bank that MCB Investment Company qualify, and
remain qualified, as a New Jersey Investment Company and hold and invest in
securities in support of Monmouth Community Bank, which will result in a state
tax savings for Monmouth Community Bank.
Impact of Monetary Policies
The earnings of Monmouth Community Bank will be affected by domestic
economic conditions and the monetary and fiscal policies of the United States
government and its agencies. The monetary policies of the Federal Reserve Board
have had, and will likely continue to have, an important impact on the operating
results of banks through the Federal Reserve Board's power to implement national
monetary policy in order, among other things, to curb inflation or combat a
recession. The Federal Reserve Board has a major effect upon the levels of bank
loans, investments and deposits through its open market operations in United
States government securities and through its regulation of, among other things,
the discount rate on borrowing of member banks and the reserve requirements
against member bank deposits. It is not possible to predict the nature and
impact of future changes in monetary and fiscal policies.
Description of Property
The main office and the original branch of Monmouth Community Bank is
located in the City of Long Branch, New Jersey at 627 Second Avenue. On August
1, 2003, Monmouth Community Bank exercised its option to purchase its main
office and branch (land and building) located at 627 Second Avenue, Long Branch,
New Jersey, pursuant to the terms of its lease with KFC Associates, dated June
26, 1997. The purchase price paid for the land and building was $550,000. See
"Certain Relationships and Related Party Transactions with Respect to Bancorp"
on page 176.
On July 8, 1999, a second branch of Monmouth Community Bank was opened at
700 Allaire Road, Spring Lake Heights, New Jersey. Monmouth Community Bank's
Spring Lake Height's building is leased on terms and conditions set forth in a
lease dated December 22, 1998. The Spring Lake Heights lease has an initial term
of five (5) years which commenced on May 1, 1999, with Monmouth Community Bank
having the option to renew the lease for two
165
(2) successive five (5) year terms, provided Monmouth Community Bank is not in
default on the lease at the end of any such term. The rent for the first and
second years of the lease was $5,600 per month. Thereafter, the monthly payment
for each additional year, including the individual years of each renewal term,
shall be equal to the greater of (a) 104% of the monthly payment for the
preceding year, or (b) $5,600 plus the percentage increase in the Consumer Price
Index between May 1 and April 30 of the prior lease year. The current monthly
rent is $6,335.
On July 10, 2001, a third branch of Monmouth Community Bank was opened at
Route 35 and 3rd Avenue, Neptune City, New Jersey. Monmouth Community Bank's
Neptune City office is leased on terms and conditions set forth in a lease dated
September 29, 2000. The Neptune City lease had an initial term of three (3)
years which commenced on October 1, 2000. Monmouth Community Bank renewed the
Neptune City lease for an additional five (5) years commencing January 1, 2004.
Monmouth Community Bank has the option to renew the Neptune City lease for an
additional five (5) year term provided that: (a) the lease is in full force and
effect; and (b) Monmouth Community Bank is current with all of its rental
obligations and is not and has not been in default of any of the provisions or
conditions of the Neptune City lease. The current monthly rent is $2,500 which
will increase for each additional year of the Neptune City lease up to $3,262
per month in the thirteenth and final year of the Neptune City lease, assuming
that Monmouth Community Bank elects to exercise its five (5) year option after
the current term expires.
On December 17, 2001, a fourth branch of Monmouth Community Bank was
opened at 700 Branch Avenue, Little Silver, New Jersey. Monmouth Community
Bank's Little Silver office is leased on terms and conditions set forth in a
lease dated June 22, 2001. The Little Silver lease has an initial term of five
(5) years which commenced on September 1, 2001, with Monmouth Community Bank
having the option to renew the Little Silver lease for three (3) consecutive
five (5) year terms, provided that Monmouth Community Bank is not in default of
the Little Silver lease at the end of any such term. The rent for the first and
second years of the Little Silver lease was $6,000 per month, with increases for
all years thereafter driven by the percentage increase in the Consumer Price
Index between September 1 and August 31 of the prior lease year. The current
monthly rent is $6,130.
On October 12, 2002, a fifth branch of Monmouth Community Bank was opened
at 61 Main Avenue in Ocean Grove, New Jersey. Monmouth Community Bank's Ocean
Grove office is leased on terms and conditions set forth in a lease dated July
1, 2002. The Ocean Grove lease has an initial term of five (5) years which
commenced on July 1, 2002, with Monmouth Community Bank having the option to
renew the Ocean Grove lease for two (2) consecutive five (5) year terms,
provided that Monmouth Community Bank is not in default of the provisions or
conditions of the Ocean Grove lease. The basic rent is fixed at the base rate of
$36,000 per annum, or $3,000 per month. At the end of the third year of the
Ocean Grove lease, the base rate shall be increased to $48,000 per annum, or
$4,000 per month. At the end of the fourth year of the Ocean Grove lease the
base rent shall be increased to $60,000 per annum, or $5,000 per month.
Thereafter, the base rent shall be increased by the percentage increase on the
Consumer Price Index between July 1 and June 30 of the prior lease year.
On February 27, 2003, a sixth branch of Monmouth Community Bank was opened
at 3636 Highway 33 in Neptune, New Jersey. Monmouth Community Bank's Neptune
office is
166
leased on terms and conditions set forth in a lease dated June 15, 2002. The
Neptune lease has an initial term of seven (7) years which commenced on July 15,
2002, with Monmouth Community Bank having the option to renew the Neptune lease
for three (3) consecutive five (5) year terms, provided that Monmouth Community
Bank is not in default of the provisions or conditions of the Neptune lease. The
base rent is fixed at $4,500 per month for year one, $5,000 per month for year
two and for each year thereafter the base rent of $5,000 per month shall be
increased by the difference in the Consumer Price Index for the month ending May
2004 and the month ending prior to the commencement of the applicable lease
year.
On March 1, 2004, Monmouth Community Bank entered into a ground lease for
space located at Ursula Plaza, 444 Ocean Boulevard in the City of Long Branch,
New Jersey. The initial term of the ground lease commenced May 1, 2004 and
continues for a period of ten (10) years. The ground lease contains the option
to extend the initial term for two (2) additional, consecutive periods of five
(5) years each. The base rent is fixed at $2,500 per month for year one and
increases by the greater of (a) one hundred three percent (103%) of the monthly
payment for the immediately preceding lease year, or (b) the percentage of
increase in the Consumer Price Index between May 2004 and May of the applicable
lease year.
In addition, to alleviate the need for an additional conference room at
Monmouth Community Bank's Long Branch location, on April 1, 1999, Monmouth
Community Bank entered into a five (5) year lease to rent a 420 square foot
conference room located at 6 West End Court, Long Branch, New Jersey. Monmouth
Community Bank pays rent in the amount of $10 per square foot annually, or $350
per month. Subsequently, the need for office and storage space resulted in the
leasing at 6 West End Court of an office suite of 549 square feet, storage space
of 88 square feet and two offices of 210 square feet and 285 square feet,
respectively. The additional space at 6 West End Court is subject to the
identical terms and conditions as the original space and has been documented by
addendum to the original lease. The landlord of the space leased at 6 West End
Court is MCB Associates, L.L.C. The following directors of Bancorp have an
interest in MCB Associates, L.L.C.: James G. Aaron, Mark R. Aikins, Nicholas A.
Alexander, John A. Brockreide, Richard O. Lindsey, John F. McCann, Harold M.
Miller, Jr., Carmen M. Penta, Mark G. Solow and James S. Vaccaro. The
negotiations with respect to the leased conference room and office and storage
space at 6 West End Court were conducted at arms-length and the lease amount
being paid by Monmouth Community Bank was determined by an independent appraiser
to be at fair market value. This lease terminated on March 31, 2004, and
Monmouth Community Bank fully anticipates entering into a new lease with MCB
Associates, L.L.C. with terms and conditions to be negotiated. The lease amount
to be paid will be at fair market value as determined by an independent
appraiser. In the interim, Monmouth Community Bank rents space on a month to
month basis on terms consistent with the prior lease.
Legal Proceedings
There are no material legal, governmental, administrative or other
proceedings pending against Bancorp or Monmouth Community Bank, or to which
Bancorp or Monmouth Community Bank is a party, and to the knowledge of
management no such material proceedings are threatened or contemplated.
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BUSINESS OF ALLAIRE
Allaire engages in the business of commercial and retail banking. As a
community bank, Allaire offers a wide range of services including demand,
savings and time deposits and commercial and consumer/installment loans to
individuals, small businesses and not-for-profit organizations principally in
Monmouth County and Ocean County, New Jersey. Allaire also offers its customers
numerous banking products such as safety deposit boxes, a night depository, wire
transfers, money orders, travelers checks, automated teller machines, direct
deposit, federal payroll tax deposits, telephone and internet banking as well as
merchant card and international services through its correspondent institutions.
Allaire conducts its operations through its main office located in Wall Township
(Sea Girt Post Office), New Jersey, a branch office in Manasquan, New Jersey,
which opened in April, 1998, a branch office in Neptune City, New Jersey, which
opened in November, 2000, a branch office in Point Pleasant, New Jersey, which
opened in January, 2001, a branch office in Bradley Beach, New Jersey, which
opened in August, 2001, a branch office in Belmar, New Jersey, which opened in
November 2002, and its newest branch office in the Shop Rite in Wall Township
(Manasquan Post Office), New Jersey, which opened in July, 2004. Allaire also is
currently seeking municipal approvals for another branch location at the
intersection of Route 34 and Hurley Pond Road, Wall, New Jersey. Allaire is a
commercial bank organized under the laws of the State of New Jersey, and the
Federal Deposit Insurance Corporation insures its deposits up to applicable
legal limits.
Allaire commenced operations in May, 1997. The board of directors and
management of Allaire are focused on positioning Allaire to be the dominant bank
in the market surrounding its initial primary location. Staff training and
superior customer service level guidelines have been established by Allaire,
with progress and results continuously monitored by its management. Marketing
efforts are focused on product structure and pricing, with delivery coordinated
with enhanced components of personal service and responsiveness. Attention to
customer service in a growing market is the center point of all activities at a
time when competitors are diverted by internal changes generated by the
heightened level of merger and acquisition activity being experienced by the
larger and older banking organizations.
The banking industry trends, present in Allaire's immediate market,
continue to be characterized by the purchase of long standing local banks by
organizations with distant management control. This trend generally includes
branch location closures and staffing cutbacks, which have enhanced the market's
acceptance of the local focus of Allaire in the Sea Girt and surrounding
markets. This led to the opening of its branch locations in Manasquan, New
Jersey in April, 1998, Neptune City, New Jersey in November, 2000, Point
Pleasant, New Jersey in January, 2001, Bradley Beach, New Jersey in August,
2001, Belmar, New Jersey in November, 2002, and its newest location at Shop Rite
in Wall Township, New Jersey, which opened in July, 2004. In addition, Allaire
is considering additional new branch locations. However, there can be no
assurances that Allaire will be successful in opening future branches.
Allaire is guided by certain important principles--maintaining a community
focus in a growing market, vigorous control of asset quality, capitalizing on
current market dynamics, maximizing the utilization of advances in available
technology, emphasizing local transaction account and loan generation, building
a sales and service culture to fit the growing environment and attracting highly
experienced personnel with proven professional capabilities.
168
Lending
Allaire engages in a variety of lending activities which are primarily
categorized as commercial, residential real estate and consumer/installment
lending. Allaire's strategy is to focus its lending activities on small business
customers and retain consumers by offering them a wide range of products and
personalized service. Commercial and real estate mortgage lending (consisting of
commercial real estate, commercial business, construction and other commercial
lending) are currently Allaire's main lending focus. Sources to fund Allaire's
loans are derived primarily from deposits, although Allaire does occasionally
borrow on a short-term basis to fund loan growth or meet deposit outflows. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operation of Allaire" on page 134.
Allaire presently generates all of its loans in the State of New Jersey,
with a significant portion in Monmouth and Ocean Counties. Loans are generated
through Allaire's marketing efforts, its present customers, walk-in customers,
referrals, the directors and advisory board of Allaire and Allaire's staff.
Allaire has been able to maintain a high overall credit quality through the
establishment and adherence to prudent lending policies and practices and sound
management. Allaire has established a written loan policy for each of its
categories of loans. These loan policies have been adopted by the Allaire board
of directors and are reviewed annually. Any loan to directors or their
affiliates must be approved by the Allaire board of directors in accordance with
Allaire's policy for such loans as well as applicable state and federal law.
In managing the growth of its loan portfolio, Allaire has focused on: (i)
the application of prudent underwriting criteria; (ii) the active involvement by
senior management and the board of directors in the loan approval process; (iii)
the active monitoring of loans to ensure that repayments are made in a timely
manner and to identify potential problem loans; and (iv) the review of select
aspects of Allaire's loan portfolio by its independent consultants.
Commercial and Construction Loans
Allaire's commercial loan portfolio consists primarily of commercial
business loans to small and medium sized businesses and individuals for business
purposes and commercial real estate loans.
Commercial business loans are usually made to finance the purchase of
inventory and new or used equipment or for short-term working capital.
Generally, these loans are secured, but these loans are sometimes granted on an
unsecured basis. To further enhance its security position, Allaire generally
requires personal guarantees of principal owners. These loans are made on both a
line of credit basis and on a fixed-term basis ranging from one to five years in
duration.
Commercial real estate loans are made for the acquisition of new property
or the refinancing of existing property. These loans are typically related to
commercial businesses and secured by the underlying real estate used in these
businesses or real property of the principals. These loans are offered by
Allaire generally on a fixed or variable rate basis with a 5 to 20 year
maturity, subject to rate re-adjustments every five years, and a 10 to 20 year
amortization schedule.
169
Construction loans are made by Allaire on a short-term basis for both
residential and non-residential properties and are secured by land and property.
Construction loans are usually for a term of 6 to 12 months. Funds for
construction loans are disbursed as phases of construction are completed.
Commercial loans that exceed established lending limits are accomplished
through participation with other commercial banks.
Allaire has established written underwriting guidelines for commercial
loans. In granting commercial loans, Allaire looks primarily to the borrower's
cash flow as the principal source of loan repayment. Collateral and personal
guarantees of the principals of the entities to which Allaire lends is
consistent with its loan policy.
Commercial loans are often larger and may involve greater risks than other
types of lending. Since payments on such loans are often dependent on the
successful operation of the business involved, repayment of such loans may be
more sensitive than other types of loans to adverse conditions in the real
estate market or the economy. Construction loans involve additional risks
because loan funds are advanced based on the security of the project under
construction. Allaire also is involved with off-balance sheet financial
instruments which include commercial and standby letters of credit meeting the
financial needs of their customers. Allaire seeks to minimize these risks
through its underwriting and monitoring guidelines. There can be no assurances,
however, that Allaire will be successful in its efforts to minimize these risks.
Installment and Consumer Loans
Allaire offers a full range of consumer/installment loans. Consumer loans
consist of automobile loans, residential mortgages, personal loans, home equity
lines of credit and loans, and overdraft protection. Allaire offers home equity
revolving lines of credit at a floating interest rate tied to the prime rate
with a maximum ratio of loan to value of 80%. Lines of credit are available to
qualified applicants in amounts up to $250,000 for up to 5 years. Allaire also
offers fixed rate home equity loans in amounts up to $250,000 for a term of up
to 20 years.
Investment Portfolio
Allaire's investment portfolio consists primarily of obligations of U.S.
Government sponsored agencies, with high grade corporate bonds accounting for
less than 5% of the portfolio. Government regulations limit the type and quality
of instruments in which Allaire may invest its funds.
Allaire has established a written investment policy which is reviewed
annually. The investment policy identifies investment criteria and states
specific objectives in terms of risk, interest rate sensitivity and liquidity.
Allaire emphasizes the quality, term and marketability of the securities
acquired for its investment portfolio.
Allaire conducts its asset/liability management through consultation with
members of the board of directors, senior management and outside financial
advisors. Allaire has an investment committee, which is comprised of Allaire's
president, chief financial officer and certain members of the board of
directors. This investment committee, in consultation with the board of
directors
170
is responsible for the review of interest rate risk and evaluates future
liquidity needs over various time periods. In this capacity, the asset liability
committee and investment committee are responsible for monitoring Allaire's
investment portfolio and ensuring that investments comply with Allaire's
investment policy. The investment committee may from time to time consult with
investment advisors. Allaire's president and the chief financial officer may
purchase or sell securities in accordance with the guidelines of the investment
committee. The board of directors reviews Allaire's investment portfolio on a
monthly basis.
Deposits and Other Sources of Funds
Deposits are the primary source of funds used by Allaire in lending and
other general business purposes. In addition to deposits, Allaire may derive
additional funds from principal repayments on loans, the sale of loans and
investment securities and borrowing from other financial institutions. Loan
amortization payments have historically been a relatively predictable source of
funds. The level of deposit liabilities can vary significantly and is influenced
by prevailing interest rates, money market conditions, general economic
conditions and competition.
Allaire's deposits consist of checking accounts, regular savings accounts,
money market accounts and certificates of deposit. Allaire also offers
Individual Retirement Accounts. Deposits are obtained from individuals,
partnerships, corporations and unincorporated businesses in Allaire's market
area. Allaire attempts to control the flow of deposits primarily by pricing its
accounts to remain generally competitive with other financial institutions in
its market area.
Competition
Allaire experiences substantial competition in attracting and retaining
deposits and in making loans. In attracting deposits and borrowers, Allaire
competes with commercial banks, savings banks, and savings and loan
associations, as well as regional and national insurance companies, regulated
small loan companies and local credit unions, regional and national issuers of
mutual funds and corporate and government borrowers. The principal market
presently served by Allaire has many other financial institutions located in it.
In New Jersey generally, and in Allaire's Monmouth County market specifically,
large commercial banks, as well as savings banks and savings and loan
associations, hold a dominant market share. By virtue of their larger capital,
asset size or reserves, many such institutions are empowered to offer a wider
range of services than Allaire, including trust services which Allaire does not
currently offer.
In addition to having established deposit bases and loan portfolios, these
institutions, particularly the large regional commercial and savings banks, have
the ability to finance extensive advertising campaigns and to allocate
considerable resources to locations and products perceived as profitable.
Although Allaire faces competition for deposits from other financial
institutions, management believes that Allaire has been able to compete
effectively for deposits because of its image as a community-oriented bank,
providing a high level of personal service as well as an attractive array of
deposit programs. Allaire has emphasized personalized banking services,
attentive employees and the advantage of local decision-making in its banking
business.
171
Management believes that this emphasis has been well received by consumers and
businesses in Allaire's market area.
In addition, Allaire is a provider of loans in its market area. Although
Allaire faces competition for loans from mortgage banking companies, savings
banks, savings and loan associations, other commercial banks, insurance
companies and other institutional lenders, Allaire's management believes that
Allaire's image in the community as a local community-oriented bank that
provides a high level of personal service and direct access to senior management
gives it a competitive advantage. Factors that affect competition include the
general availability of lendable funds and credit, general and local economic
conditions, current interest rate levels and the quality of service
Employees
As of September 10, 2004, Allaire had 80 full time equivalent employees.
The employees are not represented by a collective bargaining agent. Allaire
believes its relationship with its employees to be satisfactory.
Properties
For its principal office, Allaire purchased approximately 4,350 square
feet at 2200 Route 35, Sea Girt, New Jersey on September 27, 2001 for the
purchase option price of $700,000.
Allaire leases approximately 3,000 square feet for its branch office in
Manasquan, New Jersey. The lease expires on December 31, 2007, and Allaire may
renew for two five-year periods. The monthly rent is $4,758, with yearly
escalations.
Allaire also leases approximately 3,000 square feet for its branch office
in Neptune City, New Jersey. The lease expires December 31, 2009, and Allaire
may renew for two five-year periods. The monthly rent is $6,970 with yearly
escalations.
Allaire also leases approximately 3,500 square feet for its branch office
in Point Pleasant, New Jersey. The lease expires on September 30, 2010, and
Allaire may renew for one ten-year period. The monthly rent is $7,000 with
escalations every five years.
Allaire also leases approximately 3,500 square feet for its branch office
in Bradley Beach, New Jersey. The lease expires on August 15, 2006, and Allaire
may renew for three five-year periods. The monthly rent is $6,500 with
escalations in year two, year five and every five years thereafter.
Allaire also leases approximately 3,165 square feet for its branch office
in Belmar, New Jersey. The lease expires on May 1, 2005, and Allaire may renew
for two five year periods. The monthly rent is $5,275 with escalations in year
six and yearly thereafter.
172
Allaire also leases approximately 570 square feet at the Shop Rite in Wall
Township (Manasquan Post Office), New Jersey. This lease commenced on July 15,
2004. The lease expires July 15, 2014 and has a five year renewal option. The
monthly rent is $5,225 and is subject to annual increases.
Legal Proceedings
Allaire may from time to time be a party in lawsuits in the normal course
of its business. However, as of the date of this joint proxy
statement/prospectus, Allaire has no lawsuits pending against it.
173
EXECUTIVE COMPENSATION OF MANAGEMENT OF CENTRAL JERSEY BANCORP
Executive Compensation of Current Bancorp Executive Officers who will be
Executive Officers of Central Jersey Bancorp
The following table sets forth information concerning the annual and
long-term compensation for services in all capacities to Bancorp and Monmouth
Community Bank for the years ended December 31, 2003, 2002 and 2001 of James S.
Vaccaro, the current Chairman and Chief Executive Officer of Bancorp, who will
serve as the President and Chief Executive Officer of Central Jersey Bancorp,
and Richard O. Lindsey, the current President of Bancorp, who will serve as the
Executive Vice President and Senior Lending Officer of Central Jersey Bancorp.
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
------------------------------------ --------------------------------------
Awards Payouts
------------------------ ------------
Other Restricted Securities
Annual Stock Underlying All Other
Compensa- Award(s) Options LTIP Payouts Compensa-
Name and Position Year Salary ($) Bonus ($) tion ($) ($) (#)(1)(2) ($) tion ($)(3)
- ----------------- ---- ---------- --------- --------- ---------- ---------- ------------ -----------
James S. Vaccaro 2003 $199,192 $ 20,000 $ -- $ -- 26,250 $ -- $ 6,000
Chairman and 2002 170,000 20,000 -- -- 5,250 -- 5,700
Chief Executive Office 2001 160,385 15,000 -- -- 23,152 -- 5,290
Richard O. Lindsey 2003 $121,325 $ 7,500 $ 14,904(4) $ -- 8,925 $ -- $ 4,312
President 2002 114,785 7,500 14,830(4) -- 2,625 -- 4,113
2001 110,000 7,500 17,494(4) -- 8,681 -- 3,525
- ----------
(1) Represents shares of common stock underlying options granted under the
Bancorp Stock Option Plan.
(2) The shares of common stock underlying options have been adjusted, as
appropriate, to account for the 5% stock distributions made to the
shareholders of Bancorp on December 31, 2003, 2002 and 2001, respectively.
The shares have not been adjusted to account for the 6 for 5 stock split
effected July 15, 2004.
(3) Represents amounts contributed by Monmouth Community Bank pursuant to its
401(k) plan.
(4) Represents amounts received in transportation allowances and healthcare
benefits.
174
Option Grants by Bancorp in the Last Fiscal Year
Shown below is information with respect to grants by Bancorp of stock
options in the year ended December 31, 2003 to James S. Vaccaro and Richard O.
Lindsey which are reflected in the Bancorp Summary Compensation Table under the
caption "Executive Compensation of Current Bancorp Executive Officers who will
be Executive Officers of Central Jersey Bancorp."
Individual Grants
- ----------------------------------------------------------------------------------------------------------------------------------
Number of Securities Percent of Total
Underlying Options Options Granted to
Name Granted (#)(1) Employees in Fiscal Year Exercise Price (2) Expiration Date
- ---------------------- -------------------- ------------------------ ------------------ ---------------
James S. Vaccaro 31,500 34.97% $19.84 December 1, 2013
Richard O. Lindsey 10,710 11.89% $19.84 December 1, 2013
- ----------
(1) Represents shares of common stock underlying options granted under the
Bancorp Stock Option Plan, as adjusted to account for the 5% stock
distribution made to the shareholders of Bancorp on December 31, 2003 and
to account for the 6 for 5 stock split effected July 15, 2004.
(2) The exercise price was based on the fair market value of a share of common
stock on the date of grant, as adjusted to account for the 5% stock
distribution made to the shareholders of Bancorp on December 31, 2003 and
to account for the 6 for 5 stock split effected July 15, 2004.
Year End Bancorp Option Values
The following table provides certain information with respect to options
to purchase Bancorp common stock held by James S. Vaccaro and Richard O. Lindsey
at December 31, 2003.
Number of Shares of Common Stock
Underlying Unexercised Options at Value of Unexercised In-the-Money
December 31, 2003 (1)(2) Options at December 31, 2003 ($)(3)
------------------------------------- -----------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- --------------------- ----------- ------------- ----------- -------------
James S. Vaccaro 12,888 41,763 $ 333,155 $ 1,079,574
Richard O. Lindsey 17,150 15,233 $ 443,328 $ 393,773
- ----------
(1) The shares of common stock underlying stock options presented in this
table have been adjusted, as appropriate, to account for the 5% stock
distributions made to the shareholders of Bancorp on December 31, 2003,
2002, 2001 and 2000, respectively. The shares of common stock underlying
stock options have not been adjusted to account for the 6 for 5 stock
split effected July 15, 2004.
(2) Includes both non-qualified and incentive stock options available for
grant under the Bancorp Stock Option Plan.
(3) Based on a per share market price of $25.85 at December 31, 2003. The
values presented in this table have been adjusted as appropriate, to
account for the 5% stock distributions made to the shareholders of Bancorp
on December 31, 2003, 2002, 2001 and 2000, respectively. The values have
not been adjusted to account for the 6 for 5 stock split effected July 15,
2004.
No options were exercised by James S. Vaccaro or Richard O. Lindsey during
the year ended December 31, 2003 or the six months ended June 30, 2004.
175
Bancorp Directors' Compensation
Commencing April 1, 2001, Bancorp implemented a policy of compensating
directors who are not employees of Bancorp or Monmouth Community Bank for their
attendance at meetings of the Bancorp board of directors ($200 per meeting) and
committee members for their participation at committee meetings ($100 per
meeting). Effective May 1, 2003, the compensation for outside directors (i.e.,
all directors other than James S. Vaccaro and Richard O. Lindsey) for their
attendance at meetings of the Bancorp board was increased to $500 per meeting
and the compensation for committee members for their participation at committee
meetings was increased to $250 per meeting. On February 28, 2003, each outside
director was granted non-qualified stock options under Bancorp's Stock Option
Plan. Each outside director was granted non-qualified options to purchase 3,000
shares of Bancorp common stock at a purchase price of $15.50 per share (number
of shares and price not adjusted to account for the 5% stock distribution made
to the shareholders of Bancorp on December 31, 2003 and the 6 for 5 stock split
effected July 15, 2004), which was equal to the last trading price of the
Bancorp common stock on the NASDAQ SmallCap Market on the date of grant of the
non-qualified options. 25% of the options vested on February 28, 2004 with the
remaining options vesting 25% on consecutive anniversary dates of the grant. On
February 28, 2004, each outside director was granted non-qualified options to
purchase 6,000 shares of Bancorp common stock at a purchase price of $27.50 per
share (number of shares and price not adjusted to account for the 6 for 5 stock
split effected July 15, 2004), which was equal to the last trading price of the
Bancorp common stock on the NASDAQ SmallCap Market on the date of grant of the
non-qualified options. The options granted on February 28, 2004 vest 25% on
consecutive anniversary dates of the grant. James G. Aaron, Nicholas A.
Alexander, John A. Brockriede and Mark G. Solow, outside directors of Bancorp
and nominees for director of Central Jersey Bancorp, all participate in
Bancorp's board compensation program.
Certain Relationships and Related Party Transactions with Respect to Bancorp
It is anticipated that certain directors of Bancorp, and the businesses
and organizations with which they are associated, may have banking and
non-banking transactions with Monmouth Community Bank in the ordinary course of
business. Officers and other employees of Monmouth Community Bank also may have
banking transactions with Monmouth Community Bank. The terms and conditions of
any loan or commitment to loan, and of any other transaction, will be in
accordance with applicable laws and on substantially the same terms as those
prevailing at the time for comparable transactions with other persons or
organizations with similar creditworthiness.
Monmouth Community Bank's lease agreement, dated June 26, 1997, for its
main office and branch located at 627 Second Avenue, Long Branch, New Jersey was
with a general partnership, KFC Associates, of which John Brockriede, a director
of Bancorp, has a 30% interest. The initial term of the lease, which commenced
on July 28, 1998, was for ten (10) years. The negotiations with respect to the
Long Branch lease were conducted at arms-length and the board of directors of
Bancorp believed that the terms and conditions of the Long Branch lease were
comparable to terms that would have been available from an unaffiliated third
party to Monmouth Community Bank. On August 1, 2003, Monmouth Community Bank
exercised its option to purchase its main office and branch (land and building),
pursuant to the terms of its lease with KFC Associates. The purchase price paid
for the land and building was $550,000.
176
In addition, to alleviate the need for additional conference rooms at
Monmouth Community Bank's Long Branch location, on April 1, 1999, Monmouth
Community Bank entered into a five (5) year lease to rent a 420 square foot
conference room located at 6 West End Court, Long Branch, New Jersey. Monmouth
Community Bank pays rent in the amount of $10 per square foot annually, or $350
per month. Subsequently, the need for office and storage space resulted in the
leasing at 6 West End Court of an office suite of 549 square feet, storage space
of 88 square feet and two offices of 210 square feet and 285 square feet,
respectively. The additional space at 6 West End Court is subject to the
identical terms and conditions as the original space and has been documented by
addendum to the original lease. The landlord of the space leased at 6 West End
Court is MCB Associates, L.L.C. The following directors of Bancorp have an
interest in MCB Associates, L.L.C.: James G. Aaron, Mark R. Aikins, Nicholas A.
Alexander, John A. Brockreide, Richard O. Lindsey, John F. McCann, Harold M.
Miller, Jr., Carmen M. Penta, Mark G. Solow and James S. Vaccaro. The
negotiations with respect to the leased conference room and office and storage
space at 6 West End Court were conducted at arms-length and the lease amount to
be paid by Monmouth Community Bank was determined by an independent appraiser to
be at fair market value. This lease terminated on March 31, 2004, and Monmouth
Community Bank fully anticipates entering into a new lease with MCB Associates,
L.L.C. with terms and conditions to be negotiated. The lease amount to be paid
will be at fair market value as determined by an independent appraiser. In the
interim, Monmouth Community Bank rents space on a month to month basis on terms
consistent with the prior lease.
In 2003, Monmouth Community Bank's lending staff, from time to time,
retained the services of the law firm of Ansell, Zaro, Grimm & Aaron, P.C., of
which James G. Aaron, a director of Bancorp and Monmouth Community Bank, is a
shareholder.
In 2003 and 2002, Bancorp purchased from Elite Forms, Inc. certain
business forms and other related products for an aggregate purchase price of
$39,297 and $54,749, respectively. Elite Forms, Inc. is owned by Ken and Barbara
LePosa, the father and mother-in-law of Anthony Giordano, III, Executive Vice
President, Chief Financial Officer, Treasurer and Secretary of Bancorp and
Monmouth Community Bank. The purchases were made on an arms-length basis by the
purchasing officer of Monmouth Community Bank who is responsible for ensuring
that products purchased by Monmouth Community Bank are made on the best
available terms and rates.
177
Executive Compensation of Current Allaire Executive Officers who will be
Executive Officers of Central Jersey Bancorp
The following tables contain information with respect to the Carl F.
Chirico, the current President and Chief Executive Officer of Allaire, who will
serve as Vice Chairman of Central Jersey Bancorp, and Robert S. Vuono, the
current Senior Executive Vice President, Chief Operating Officer, Chief
Financial Officer and Secretary of Allaire, who will serve as the Senior
Executive Vice President, Chief Operating Officer and Secretary of Central
Jersey Bancorp.
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
------------------------------------- -------------------------------------
Awards Payouts
-------------------------- -------
Other Restricted Securities
Annual Stock Underlying LTIP All Other
Compensa- Award(s) Options Payouts Compensation
Name and Position Year Salary ($) Bonus ($) tion ($) ($) (#)(1) ($) ($)
- ----------------- ---- ---------- --------- --------- ---------- ---------- ------- ------------
Carl F. Chirico, 2003 $178,017 $ 29,855 $ 2,100 $ -- 752 $ -- $ --
President & CEO 2002 167,400 17,650 8,400 -- 1,804 -- --
2001 150,500 5,050 7,600 -- 18,400 -- --
Robert S. Vuono, Sr 2003 $118,789 $ 25,258 $ -- $ -- 751 $ -- $ --
Exec. Vice President, 2002 112,260 11,000 -- -- 1,000 -- --
COO, CFO & Secretary 2001 100,855 1,550 -- -- 13,400 -- --
- ----------
(1) The securities underlying options presented in this table have not been
adjusted to account for any stock distributions made to the stockholders
of Allaire.
OPTION GRANTS BY ALLAIRE IN LAST FISCAL YEAR
Percent of total
Number of Securities options granted to Exercise or
Underlying Options employees in fiscal base price Expiration
Position Nuame Granted (1) year ($/Sh) Date
- ---------------------- ------------------ -------------------- ------------------- ----------- ----------
President & CEO Carl F. Chirico 752 25.85% $ 18.37 February 26, 2013
Sr. Exec. Vice Robert S. Vuono 751 23.82% $ 18.37 February 26, 2013
President, COO,
CFO & Secretary
- ----------
(1) The securities underlying options presented in this table have not been
adjusted to account for any stock distributions made to the stockholders
of Allaire.
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AGGREGATED ALLAIRE OPTION EXERCISED IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
Number of Value of
Securities unexercised
underlying in-the-money
Shares unexercised options at
Acquired on Value options at fiscal fiscal
Position Name Exercise Realized year-end (1)(2) year-end
- -------------------------- ----------------- ----------- -------- ----------------- ------------
President & CEO Carl F. Chirico 2,200 0 47,956 $ 612,859
Sr. Exec. Vice President, Robert S. Vuono 0 0 25,651 $ 307,883
COO, CFO & Secretary
- ----------
(1) Original shares granted.
(2) All option shares are currently exercisable.
Compensation of Allaire Directors
Non-employee Directors receive a fee of $16,000 per year, the Vice
Chairman of the Board of Directors receives $22,000 per year and the Chairman of
the Board of Directors receives $30,000 per year.
The compensation committee of the board of directors of Allaire reviews
and evaluates the Bank's management recommendations for modifications in
employee compensation and approves all of the changes in the compensation
packages of the senior management of Allaire. This committee is also responsible
for adopting any and all compensation policies of Allaire. The compensation
committee is composed of M. Claire French, George S. Callas, William H. Jewett
and Paul A. Larson, Jr.
George S. Callas, Carl F. Chirico, M. Claire French, William H. Jewett and
Paul A. Larson, Jr. currently serve as directors of Allaire and have been
nominated to serve as directors of Central Jersey Bancorp. George S. Callas,
currently serves as the Chairman of the Board of Allaire, William H. Jewett
currently serves as Vice Chairman of the Board of Allaire, and M. Claire French
and Paul A. Larson, Jr. currently serve as non-employee directors of Allaire.
Certain Relationships and Related Party Transactions of Allaire
The Securities Exchange Act of 1934, as amended, requires the disclosure
of any transaction between a director and Allaire that has a value of $60,000 or
more, including any loans by Allaire to a director of Allaire. The following
directors currently are involved in such transactions:
Director Transaction Value of Transaction
George S. Callas Personal Loan Secured by CD $60,000
George S. Callas Home Equity Loan $125,000
Carl F. Chirico Residential Mortgage $184,955
William H. Jewett Residential Mortgage $146,688
Paul A. Larson, Jr. Home Equity Loan $130,000
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GOVERNMENT REGULATION
Each of Bancorp, Monmouth Community Bank and Allaire operate within a
system of banking laws and regulations intended to protect bank customers and
depositors. These laws and regulations govern the permissible operations and
management, activities, reserves, loans and investments of Bancorp, Monmouth
Community Bank and Allaire. In addition, Bancorp is subject to general federal
laws and regulations and the corporate laws and regulations of the state of its
incorporation, New Jersey. Allaire, a New Jersey state chartered bank, is also
subject to The New Jersey Banking Act of 1948, as amended. The following
descriptions summarize the key banking and other laws and regulations to which
Bancorp, Monmouth Community Bank and Allaire are subject. These descriptions are
not intended to be complete and are qualified in their entirety by reference to
the full text of the statutes and regulations. Future changes in these laws and
regulations, or in the interpretation and application thereof by their
administering agencies, cannot be predicted, but could have a material effect on
the business and results of Bancorp, Monmouth Community Bank and Allaire.
Bancorp is a bank holding company under the Federal Bank Holding Company
Act of 1956, as amended by the 1999 financial modernization legislation known as
the Gramm-Leach-Bliley Act, and is subject to the supervision of the Board of
Governors of the Federal Reserve System. In general, the Bank Holding Company
Act limits the business of bank holding companies to banking, managing or
controlling banks, and performing certain servicing activities for subsidiaries
and, as a result of the Gramm-Leach-Bliley Act amendments to the Bank Holding
Company Act, would permit bank holding companies that are also financial holding
companies to engage in any activity, or acquire and retain the shares of any
company engaged in any activity, that is either (1) financial in nature or
incidental to such financial activity (as determined by the Federal Reserve
Board in consultation with the Office of the Comptroller of the Currency) or (2)
complementary to a financial activity and does not pose a substantial risk to
the safety and soundness of depository institutions or the financial system
generally (as determined by the Federal Reserve Board). In order for a bank
holding company to engage in the broader range of activities that are permitted
by the Bank Holding Company Act for bank holding companies that are also
financial holding companies, upon satisfaction of certain regulatory criteria,
the bank holding company must file a declaration with the Federal Reserve Board
that it elects to be a "financial holding company." Bancorp does not intend to
seek a "financial holding company" designation at this time, and does not
believe that the current decision not to seek a financial holding company
designation will adversely affect its ability to compete in its chosen markets.
Bancorp does not believe that seeking such a designation would position it to
compete more effectively in the offering of its current products and services.
Monmouth Community Bank, the banking subsidiary of Bancorp, is a national
association, and is subject to the regulation, supervision and examination of
the Office of the Comptroller of the Currency. In addition, as a national bank,
Monmouth Community Bank was required to become a member bank of the Federal
Reserve Bank of New York, and is subject to examination and regulation by the
Board of Governors of the Federal Reserve System. Allaire is a commercial bank
chartered under the laws of the State of New Jersey. It is subject to
regulation, supervision and examination by the New Jersey Department of Banking
and Insurance and by the Federal Deposit Insurance Corporation. Each of these
agencies regulates
180
aspects of activities conducted by Bancorp, Monmouth Community Bank and Allaire,
as discussed below.
Dividend Restrictions
Bancorp and Monmouth Community Bank are separate legal entities whose
finances are in some ways interconnected. Bancorp's principal source of funds to
pay cash dividends on its common stock is from cash dividends paid to it by
Monmouth Community Bank. As a national bank, Monmouth Community Bank must obtain
prior approval from the Office of the Comptroller of the Currency to pay a cash
dividend if the total of all cash dividends declared by Monmouth Community Bank
in any calendar year would exceed Monmouth Community Bank's net profits for that
year, combined with its retained net profits for the preceding two calendar
years, less any required transfers to surplus. Additionally, Monmouth Community
Bank may not declare dividends in excess of net profits on hand, after deducting
the amount by which the principal amount of all loans on which interest is past
due for a period of six months or more exceeds the reserve for credit losses.
The Federal Reserve Board and the Office of the Comptroller of the
Currency have issued additional guidelines and policy statements, applicable to
Bancorp and Monmouth Community Bank, requiring bank holding companies and
national banks to continually evaluate the level of cash dividends in relation
to their respective operating income, capital needs, asset quality and overall
financial condition, and limiting dividends to payments out of current operating
earnings.
Dividend payments by Allaire to its stockholders are subject to The New
Jersey Banking Act of 1948, as amended, and the Federal Deposit Insurance Act,
as amended. Under the Banking Act, no dividends may be paid if after such
payment Allaire's surplus (generally, additional paid-in capital less the
accumulated deficit) would be less than 50% of its capital stock.
As insured depository institutions, Monmouth Community Bank and Allaire
are each subject to the Federal Deposit Insurance Act, as amended, pursuant to
which no dividends may be paid by an insured depository institution if it is in
arrears in the payment of any insurance assessment due to the Federal Deposit
Insurance Corporation. In addition, under the Federal Deposit Insurance Act, an
insured depository institution may not pay any dividend if the institution is
undercapitalized or if the payment of the dividend would cause the institution
to become undercapitalized, as further discussed below. A payment of dividends
that would have the effect of depleting a depository institution's capital base
to an inadequate level could constitute an unsafe and unsound practice subject
to a cease and desist order.
Neither Monmouth Community Bank nor Allaire has ever declared any cash
dividends and neither entity contemplates the payment of such dividends in 2004.
Transactions with Affiliates
Banking laws and regulations impose certain restrictions on the ability of
bank holding companies to borrow from and engage in other transactions with
their subsidiary banks. Generally, these restrictions require that any
extensions of credit must be secured by designated amounts of specified
collateral and are limited to (i) 10% of the bank's capital stock and surplus
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per non-bank affiliated borrower, and (ii) 20% of the bank's capital stock and
surplus aggregated as to all non-bank affiliated borrowers. In addition, certain
transactions with affiliates must be on terms and conditions, including credit
standards, at least as favorable to the institution as those prevailing for
arms-length transactions. As a Federal Reserve member bank, Monmouth Community
Bank must comply with regulations which restrict loans made to Bancorp and
Monmouth Community Bank's directors and executive officers.
Liability of Commonly Controlled Institutions and "Source of Strength" Doctrine
The Federal Deposit Insurance Act, as amended, contains a
"cross-guarantee" provision that could result in any insured depository
institution owned by Bancorp being assessed for losses incurred by the Federal
Deposit Insurance Corporation in connection with assistance provided to, or the
failure of, any other insured depository institution owned by Bancorp. Also,
under the Bank Holding Company Act and Federal Reserve Board policy, bank
holding companies are expected to represent a source of financial and managerial
strength to their bank subsidiaries, and to commit resources to support bank
subsidiaries in circumstances where banks may not be in a financial position to
support themselves. Capital loans by a bank holding company to a bank subsidiary
are subordinate in right of repayment to deposits and other bank indebtedness.
If a bank holding company declares bankruptcy, its bankruptcy trustee must
fulfill any commitment made by the bank holding company to sustain the capital
of its subsidiary banks.
In addition, under the National Bank Act, if the capital stock of a
national bank is impaired, by losses or otherwise, the Office of the Comptroller
of the Currency is authorized to require payment of the deficiency by assessment
upon the bank's parent company, and to sell the stock of the bank if such
assessment is not satisfied within three months to the extent necessary to
eliminate the deficiency.
Deposit Insurance
The Bank Insurance Fund of the Federal Deposit Insurance Corporation
insures substantially all of the deposits of Monmouth Community Bank and
Allaire, respectively, subject to limits of $100,000 for each insured depositor.
Insurance of deposits by the Federal Deposit Insurance Corporation subjects
Monmouth Community Bank and Allaire to comprehensive regulation, supervision and
examination by the Federal Deposit Insurance Corporation. Monmouth Community
Bank and Allaire are required, among other things, to pay premium charges to the
Federal Deposit Insurance Corporation for insurance and maintain a reserve
account and liquid assets at levels fixed, from time to time, by the Federal
Deposit Insurance Corporation.
The Federal Deposit Insurance Corporation utilizes a risk-based assessment
system (discussed below) which imposes premiums based on a bank's capital level
and supervisory rating. Depository institutions that the Federal Deposit
Insurance Corporation regards as healthier will pay lower premiums than
relatively weaker institutions. The Federal Deposit Insurance Corporation
periodically examines insured depository institutions to determine whether
premium increases or other measures are appropriate. Under the Federal Deposit
Insurance Act, as amended, the Federal Deposit Insurance Corporation may
terminate deposit insurance upon a finding that the institution has engaged in
unsafe and unsound practices, is in
182
an unsafe or unsound condition, or has violated any applicable banking law,
rule, order or regulatory condition imposed by a bank's federal regulatory
agency.
Capital Adequacy
The Federal Reserve Board, the Office of the Comptroller of the Currency
and the Federal Deposit Insurance Corporation have substantially similar
risk-based capital and leverage ratio guidelines for banking organizations.
These guidelines are intended to ensure that banking organizations have adequate
capital given the risk levels of their assets and off-balance sheet financial
instruments. Under the risk-based capital and leverage ratio guidelines, assets
and off-balance sheet items are assigned to broad risk categories, each with
appropriate weights. The resulting capital ratios represent capital as a
percentage of total risk-weighted assets and off-balance sheet items. These
risk-based capital requirements identify concentration of credit risk, and
facilitate management of those risks.
To derive total risk-weighted assets, bank assets are given risk-weights
of 0%, 20%, 50% and 100%. In addition, certain off-balance sheet items are
converted to asset equivalent amounts to which an appropriate risk-weight will
apply. Most loans are assigned to the 100% risk category, except for performing
first mortgage loans fully secured by residential property, which carry a 50%
risk-weighting. Most investment securities (including, primarily, general
obligation claims of states or other political subdivisions of the United
States) are assigned to the 20% category, except for municipal or state revenue
bonds, which have a 50% risk-weight, and direct obligations of the U.S. Treasury
or obligations backed by the full faith and credit of the United States
government, which have a 0% risk-weight. In converting off-balance sheet items,
direct credit substitutes, including general guarantees and standby letters of
credit backing financial obligations, are given a 100% risk-weighting.
Transaction-related contingencies such as bid bonds, standby letters of credit
backing nonfinancial obligations, and undrawn commitments (including commercial
credit lines with an initial maturity or more than one year) have a 50%
risk-weighting. Short-term commercial letters of credit have a 20%
risk-weighting, and certain short-term unconditionally cancelable commitments
have a 0% risk-weighting.
Under the capital guidelines, a banking organization's total capital is
divided into tiers. "Tier I Capital" consists of common shareholders' equity and
qualifying preferred stock, less certain goodwill items and other intangible
assets. Not more than 25% of qualifying Tier I capital may consist of trust
preferred securities. "Tier II Capital" consists of hybrid capital instruments,
perpetual debt, mandatory convertible debt securities, a limited amount of
subordinated debt, and preferred stock that does not qualify as Tier I Capital,
plus a limited amount of loan and lease loss allowances and a limited amount of
unrealized holding gains on equity securities. "Tier III Capital" consists of
qualifying unsecured subordinated debt. "Total Capital" is the sum of Tier I,
Tier II and Tier III Capital. The sum of Tier II and Tier III Capital may not
exceed the amount of Tier I Capital.
Under the Federal Reserve Board's risk-based capital guidelines for bank
holding companies, the required minimum ratio of Total Capital (the sum of Tier
I, Tier II and Tier III capital) to risk-weighted assets (including certain
off-balance sheet activities, such as standby letters of credit) is 8%. The
required minimum ratio of Tier I Capital to risk-weighted assets is
183
4%. At June 30, 2004, Bancorp's ratios of Total Capital and Tier 1 Capital to
risk-weighted assets were 13.39% and 12.44%, respectively.
The Federal Reserve Board also requires bank holding companies to comply
with minimum leverage ratio guidelines. The leverage ratio is the ratio of a
bank holding company's Tier I Capital (excluding intangibles) to its total
assets (excluding intangibles). Bank holding companies normally must maintain a
minimum leverage ratio of 4%, unless the bank holding company has the highest
supervisory rating or has implemented the Federal Reserve Board's risk-adjusted
measure for market risk, in which case its minimum leverage ratio must be 3%.
Banking organizations undergoing significant growth or undertaking acquisitions
must maintain even higher capital positions. At June 30, 2004, Bancorp's
leverage ratio was 8.29%. Monmouth Community Bank is subject to similar
risk-based and leverage capital guidelines, as adopted by the Office of the
Comptroller of the Currency.
Allaire's primary Federal regulator, the Federal Deposit Insurance
Corporation, also has implemented risk-based capital guidelines for insured
depository institutions. Like the Federal Reserve Board's requirements, the
Federal Deposit Insurance Corporation's required minimum ratio of total capital
to risk-weighted assets is 8.0%. At least half of the total capital is required
to be Tier I Capital. The required minimum ratio of Tier I Capital to
risk-weighted assets is 4%. At June 30, 2004, Allaire's ratios of Total Capital
and Tier 1 Capital to risk-weighted assets were 11.51% and 10.68%, respectively.
Prompt Corrective Action
The Federal Deposit Insurance Act requires federal banking regulators to
take prompt corrective action with respect to depository institutions that do
not meet minimum capital requirements. Failure to meet minimum requirements can
initiate certain mandatory and possibly additional discretionary actions by
regulators that, if undertaken, could have an adverse material effect on
Bancorp's financial condition. Under the Prompt Corrective Action Regulations,
Monmouth Community Bank and Allaire must meet specific capital guidelines that
involve quantitative measures of their respective assets, liabilities and
certain off-balance sheet items as calculated under regulatory accounting
practices.
The Prompt Corrective Action Regulations define specific capital
categories based on an institution's capital ratios. The capital categories, in
declining order, are "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized," and "critically
undercapitalized." The Federal Deposit Insurance Act imposes progressively more
restrictive constraints on operations, management and capital distributions,
depending on the capital category by which the institution is classified.
Institutions categorized as "undercapitalized" or worse may be subject to
requirements to file a capital plan with their primary federal regulator,
prohibitions on the payment of dividends and management fees, restrictions on
asset growth and executive compensation, and increased supervisory monitoring,
among other things. Other restrictions may be imposed on the institution by the
regulatory agencies, including requirements to raise additional capital, sell
assets or sell the entire institution. Once an institution becomes "critically
undercapitalized," it generally must be placed in receivership or
conservatorship within ninety (90) days.
184
The Prompt Corrective Action Regulations provide that an institution is
"well capitalized" if the institution has a total risk-based capital ratio of
10.0% or greater, a Tier I risk-based capital ratio of 6.0% or greater, and a
leverage ratio of 5.0% or greater. The institution also may not be subject to an
order, written agreement, capital directive or prompt corrective action
directive to meet and maintain a specific level for any capital measure. An
institution is "adequately capitalized" if it has a total risk-based capital
ratio of 8.0% or greater, a Tier I risk-based capital ratio of 4.0% or greater,
and a leverage ratio of 4.0% or greater (or a leverage ratio of 3.0% or greater
if the institution is rated composite 1 in its most recent report of
examination, subject to appropriate federal banking agency guidelines), and the
institution does not meet the definition of a well-capitalized institution. An
institution is deemed "undercapitalized" if it has a total risk-based capital
ratio that is less than 8.0%, a Tier I risk-based capital ratio of less than
4.0%, or a leverage ratio of less than 4.0% (or a leverage ratio of 3.0% or
greater if the institution is rated composite 1 in its most recent report of
examination, subject to appropriate federal banking agency guidelines), and the
institution does not meet the definition of a significantly undercapitalized or
critically undercapitalized institution. An institution is "significantly
undercapitalized" if the institution has a total risk-based capital ratio that
is less than 6.0%, a Tier I risk-based capital ratio of less than 3.0%, or a
leverage ratio less than 3.0% and the institution does not meet the definition
of a critically undercapitalized institution, and is "critically
undercapitalized" if the institution has a ratio of tangible equity to total
assets that is equal to or less than 2.0%.
The appropriate federal banking agency may, under certain circumstances,
reclassify a well capitalized insured depository institution as adequately
capitalized. The appropriate agency is also permitted to require an adequately
capitalized or undercapitalized institution to comply with the supervisory
provisions as if the institution were in the next lower category (but not to
treat a significantly undercapitalized institution as critically
undercapitalized) based on supervisory information other than an institution's
capital levels.
At June 30, 2004, Monmouth Community Bank and Allaire were each "well
capitalized" based on the ratios and guidelines noted above. However, the
capital categories of these banks are determined solely for the purpose of
applying the Prompt Corrective Action Regulations and may not constitute an
accurate representation of their overall financial condition or prospects.
Unsafe and Unsound Practices
Notwithstanding its Prompt Corrective Action category dictated by
risk-based capital ratios, the Federal Deposit Insurance Act permits the
appropriate bank regulatory agency to reclassify an institution if it
determines, after notice and a hearing, that the condition of the institution is
unsafe or unsound, or if it deems the institution to be engaging in an unsafe or
unsound practice. Also, if a federal regulatory agency with jurisdiction over a
depository institution believes that the depository institution will engage, is
engaging, or has engaged in an unsafe or unsound practice, the regulator may
require that the bank cease and desist from such practice, following notice and
a hearing on the matter.
The USA PATRIOT Act
On October 26, 2001, the President signed into law certain comprehensive
anti-terrorism legislation known as the USA PATRIOT Act of 2001. Title III of
the USA PATRIOT Act
185
substantially broadened the scope of the U.S. anti-money-laundering laws and
regulations by imposing significant new compliance and due diligence
obligations, creating new crimes and penalties and expanding the
extra-territorial jurisdiction of the United States. The U.S. Treasury
Department has issued a number of implementing regulations which apply various
requirements of the USA PATRIOT Act to financial institutions such as Monmouth
Community Bank and Allaire. Those regulations impose new obligations on
financial institutions to maintain appropriate policies, procedures and controls
to detect, prevent and report money laundering and terrorist financing.
Failure of a financial institution to comply with the USA PATRIOT Act's
requirements could have serious legal consequences for an institution and
adversely affect its reputation. Bancorp has adopted appropriate policies,
procedures and controls to address compliance with the requirements of the USA
PATRIOT Act under the existing regulations and will continue to revise and
update its policies, procedures and controls to reflect changes required by the
Act and by the Treasury Department regulations.
Community Reinvestment Act
The Federal Community Reinvestment Act requires banks to respond to the
full range of credit and banking needs within their communities, including the
needs of low and moderate-income individuals and areas. A bank's failure to
address the credit and banking needs of all socio-economic levels within its
markets may result in restrictions on growth and expansion opportunities for the
bank, including restrictions on new branch openings, relocation, formation of
subsidiaries, mergers and acquisitions. In the latest CRA examination report
with respect to Monmouth Community Bank, dated November 10, 2003, Monmouth
Community Bank received a rating of satisfactory. In the latest CRA examination
report with respect to Allaire Community Bank, dated June 15, 2004, Allaire
received a rating of satisfactory.
186
Consumer Privacy
In addition to fostering the development of "financial holding companies,"
the Gramm-Leach-Bliley Act modified laws relating to financial privacy. The new
financial privacy provisions generally prohibit financial institutions,
including Bancorp, Monmouth Community Bank and Allaire, from disclosing or
sharing nonpublic personal financial information to third parties for marketing
or other purposes not related to transactions, unless customers have an
opportunity to "opt out" of authorizing such disclosure, and have not elected to
do so. It has never been the policy of Bancorp to release such information
except as may be required by law.
Loans to One Borrower
Federal banking laws limit the amount a bank may lend to a single borrower
to 15% of the bank's capital base, unless the entire amount of the loan is
secured by adequate amounts of readily marketable capital. However, no loan to
one borrower may exceed 25% of a bank's statutory capital, notwithstanding
collateral pledged to secure it.
Depositor Preference Statute
Under federal law, depositors, certain claims for administrative expenses
and employee compensation against an insured depository institution are afforded
a priority over other general unsecured claims against the institution, in the
event of a "liquidation or other resolution" of the institution by a receiver.
Sarbanes-Oxley Act of 2002
On July 30, 2002, the President of the United State signed into law the
Sarbanes-Oxley Act of 2002. The stated goals of Sarbanes-Oxley Act are to
increase corporate responsibility, to provide for enhanced penalties for
accounting and auditing improprieties at publicly traded companies and to
protect investors by improving the accuracy and reliability of corporate
disclosures pursuant to the securities laws. The Sarbanes-Oxley Act generally
applies to all companies, both domestic and foreign, that file or are required
to file periodic reports with the Securities and Exchange Commission or, in
Allaire's case, with the Federal Deposit Insurance Corporation, under the
Securities Exchange Act of 1934, as amended.
The Sarbanes-Oxley Act of 2002 includes very specific disclosure
requirements and corporate governance rules, requires the Securities and
Exchange Commission and self regulatory organizations to adopt extensive
additional disclosure, corporate governance and other related rules and mandates
further studies of certain issues by the Securities and Exchange Commission and
the Comptroller General. The Sarbanes-Oxley Act of 2002 represents significant
federal involvement in matters traditionally left to state regulatory systems,
such as the regulation of the accounting profession, and to state corporate law,
such as the relationship between a board of directors and management and between
a board of directors and its committees.
187
The Sarbanes-Oxley Act of 2002 addresses, among other matters:
o audit committees for all reporting companies;
o certification of financial statements by the chief executive officer
and the chief financial officer;
o the forfeiture of bonuses or other incentive-based compensation and
profits from the sale of an issuer's securities by directors and
senior officers under certain circumstances;
o a prohibition on insider trading during pension plan black out
periods;
o disclosure of off-balance sheet transactions;
o expedited filing requirements for certain periodic and current
reports;
o disclosure of a code of ethics;
o "real time" filing of periodic reports;
o the formation of a public accounting oversight board;
o auditor independence; and
o various increased criminal penalties for violations of securities
laws.
Overall Impact of New Legislation and Regulations
Various legislative initiatives are from time to time introduced in
Congress. It cannot be predicted whether or to what extent the business and
condition of Bancorp, Monmouth Community Bank and Allaire will be affected by
new legislation or regulations, and legislation or regulations as yet to be
proposed or enacted.
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PRINCIPAL SHAREHOLDERS OF BANCORP
Security Ownership of Management of Bancorp
The following table sets forth information as of September 10, 2004, with
respect to the beneficial ownership (as defined in Rule 13d-3 of the Securities
Exchange Act of 1934, as amended) of Bancorp's common stock, which is the only
class of Bancorp capital stock with shares issued and outstanding, by (i) each
Bancorp director, (ii) each Bancorp executive officer whose total annual salary
and bonus for the year ended December 31, 2003 exceeded $100,000, and (iii) all
directors and executive officers of Bancorp and Monmouth Community Bank as a
group. As of September 10, 2004, Bancorp had 1,860,725 shares of common stock
issued and outstanding.
Beneficial Ownership of Bancorp's
Common Stock
-------------------------------------
Percent of
Name of Beneficial Owner - Directors and Officers (1) No. of Shares (2) Class
- ----------------------------------------------------- ----------------- ----------
James G. Aaron, Esq. (3)(4)......................................... 90,924 4.87%
Mark R. Aikins, Esq. (3)(5)......................................... 38,724 2.07%
Nicholas A. Alexander, C.P.A. (3)(6)................................ 30,930 1.66%
John A. Brockriede (3)(7)........................................... 162,222 8.69%
Kevin W. Hunt (8)(9)................................................ 15,552 0.83%
Richard O. Lindsey (3)(10)(11)...................................... 37,764 2.00%
John F. McCann (3)(12).............................................. 77,304 4.14%
Harold M. Miller, Jr. (3)(13)....................................... 80,046 4.29%
Carmen M. Penta, C.P.A. (3)(14)..................................... 34,386 1.84%
Mark G. Solow (3)(15)............................................... 70,686 3.78%
James S. Vaccaro (3)(16)(17)........................................ 52,926 2.81%
All Executive Officers and
Directors as a Group (13 persons) (4)(5)(6)(7)(8)
(10)(12)(13)(14)(15)(16)(18)(19).................................... 711,192 35.67%
(1) All directors and officers listed in this table maintain a mailing address
at 627 Second Avenue, Long Branch, New Jersey 07740.
(2) In accordance with Rule 13d-3 of the Securities Exchange act of 1934, as
amended, a person is deemed to be the beneficial owner, for purposes of
this table, of any shares of Bancorp's common stock if he or she has
voting or investment power with respect to
189
such security. This includes shares (i) subject to options exercisable
within sixty (60) days, and (ii)(a) owned by a spouse, (b) owned by other
immediate family members, or (c) held in trust or held in retirement
accounts or funds for the benefit of the named individuals, over which
shares the person named in the table may possess voting and/or investment
power.
(3) Such person serves as a director of Bancorp.
(4) Includes 7,092 shares subject to currently exercisable stock options;
11,466 shares held in an Individual Retirement Account with Bear Stearns
for the benefit of Mr. Aaron; and 7,920 shares registered in the name of
Mr. Aaron as trustee for the Trust Under the Will of Leslie B. Aaron, Mr.
Aaron's father. Mr. Aaron disclaims any beneficial ownership to the shares
held in the aforementioned trust. Also includes 14,370 shares registered
in the name of ERBA Co., Inc., in which Mr. Aaron has an ownership
interest and serves as vice president. Mr. Aaron disclaims beneficial
ownership of these securities except to the extent of his ownership
interest in ERBA Co., Inc. Also includes 19,002 shares registered in the
name of the Aaron Family Limited Partnership, of which Mr. Aaron is a
partner. Mr. Aaron disclaims beneficial ownership of these securities
except to the extent of his partnership interest in the Aaron Family
Limited Partnership. Also includes 3,318 shares registered in the name of
the David Ritter Trust and 3,318 shares registered in the name of the
Randy Ritter Trust, of which Mr. Aaron is a trustee. Mr. Aaron disclaims
any beneficial ownership to the shares held in these trusts. Also includes
9,738 shares held in trusts for the benefit of Mr. Aaron's family members
of which Mr. Aaron's spouse is trustee; 1,452 shares registered in the
name of Mr. Aaron's spouse; and 4,170 shares held in an Individual
Retirement Account with Bear Stearns for the benefit of Mr. Aaron's
spouse. Mr. Aaron disclaims any beneficial ownership to the shares held in
these trusts, the shares held by his spouse and the shares held for the
benefit of his spouse.
(5) Includes 7,092 shares subject to currently exercisable stock options;
31,056 shares held in a Simplified Employee Pension/Individual Retirement
Account by Merrill Lynch as custodian for the benefit of Mr. Aikins; and
576 shares held by Mr. Aikins for the benefit of his children under the
Uniform Transfers to Minors Act, as to which shares he disclaims any
beneficial interest.
(6) Includes 7,092 shares subject to currently exercisable stock options; and
2,646 shares held in an Individual Retirement Account with Smith Barney
for the benefit of Mr. Alexander. Also includes 624 shares held by Mr.
Alexander for the benefit of his grandchildren under the Uniform Transfers
to Minors Act. Mr. Alexander disclaims beneficial ownership of the
securities held by his grandchildren.
(7) Includes 7,092 shares subject to currently exercisable stock options. Also
includes 11,802 shares held in an Individual Retirement Account and 1,518
shares held in a Simplified Employee Pension Plan both by PaineWebber as
custodian for the benefit of Mr. Brockriede. Includes 42,672 shares held
by CJM Management, L.L.C., of which Mr. Brockriede is an Administrative
Member. Mr. Brockriede disclaims beneficial ownership of these securities
except to the extent of his ownership interest in CJM Management, L.L.C.
Also includes 89,970 shares held jointly with Mr. Brockriede's spouse and
8,700
190
shares held in trusts for the benefit of Mr. Brockriede's family members
of which Mr. Brockriede's spouse is trustee; and 468 shares held in an
Individual Retirement Account by PaineWebber for the benefit of Mr.
Brockriede's spouse. Mr. Brockriede disclaims beneficial ownership of the
shares held in these trusts and the shares held by PaineWebber on behalf
of Mr. Brockriede's spouse.
(8) Includes 13,284 shares subject to currently exercisable stock options; and
948 shares held as joint tenants with right of survivorship with Mr.
Hunt's father, Bruce S. Hunt.
(9) Mr. Hunt serves as a Executive Vice President and the Senior Lending
Officer of Monmouth Community Bank.
(10) Includes 23,184 shares subject to currently exercisable stock options;
4,374 shares held jointly with Donna A. Lindsey, Mr. Lindsey's wife; and
2,916 shares held by Wheat First Butcher Singer as custodian for Richard
O. Lindsey's Individual Retirement Account.
(11) Mr. Lindsey serves as the President of Bancorp and Monmouth Community
Bank.
(12) Includes 7,092 shares subject to currently exercisable stock options; and
6,612 shares held in an Individual Retirement Account with Charles Schwab
for the benefit of Mr. McCann. Also includes 7,290 shares held by Mary
Ellen McCann, Mr. McCann's wife, as to which shares he disclaims any
beneficial interest.
(13) Includes 7,092 shares subject to currently exercisable stock options; and
11,664 shares held equally by Mr. Miller's two sons. Mr. Miller disclaims
any beneficial interest to the shares held by his two sons.
(14) Includes 7,092 shares subject to currently exercisable stock options.
(15) Includes 7,092 shares subject to currently exercisable stock options; and
8,748 shares held jointly with Susan S. Solow, Mr. Solow's wife.
(16) Includes 22,410 shares subject to currently exercisable stock options;
18,616 shares held by Merrill Lynch Pierce Fenner & Smith as custodian for
the benefit of James S. Vaccaro Simplified Employee Pension; 873 shares
held by Mr. Vaccaro's son; and 1,166 shares held by Mr. Vaccaro as
custodian for his daughters under the Uniform Transfers to Minors Act. Mr.
Vaccaro disclaims any beneficial interest to the shares held by him as
custodian for his children.
(17) Mr. Vaccaro serves as the Chairman of the Board and Chief Executive
Officer of Bancorp and Monmouth Community Bank.
(18) Includes 10,782 shares subject to currently exercisable stock options held
by Anthony Giordano, III, Executive Vice President, Chief Financial
Officer, Treasurer and Secretary of Bancorp and Monmouth Community Bank;
936 shares held by Charles Schwab & Co. in an Individual Retirement
Account for the benefit of Mr. Giordano; 930 shares held by Charles Schwab
& Co. in an Individual Retirement Account for the benefit of Mr.
Giordano's spouse, as to which shares he disclaims any beneficial
interest, and 252
191
shares held by Mr. Giordano as custodian for his son under the Uniform
Transfers to Minors Act, as to which shares he disclaims any beneficial
interest.
(19) Includes 6,828 shares subject to currently exercisable stock options held
by David A. O'Connor, a Senior Vice President of Monmouth Community Bank.
5% Shareholders of Bancorp
The following table sets forth information as of September 10, 2004, with
respect to the beneficial ownership (as defined in Rule 13d-3 of the Securities
Exchange act of 1934, as amended) of Bancorp's common stock by each person or
group of persons known by Bancorp to be the beneficial owner of more than 5% of
Bancorp's outstanding common stock.
Beneficial Ownership of
Bancorp's Common Stock
--------------------------------------
Percent of
Name of Beneficial Owner - 5% Shareholders No. of Shares (1) Class
- ------------------------------------------ ----------------- ----------
John A. Brockriede (2)(3)............................ 162,222 8.69%
Linda J. Brockriede (3)(4) .......................... 162,222 8.69%
Solomon Dwek (5)(6).................................. 127,914 6.87%
(1) In accordance with Rule 13d-3 of the Securities Exchange Act of 1934, as
amended, a person is deemed to be the beneficial owner, for purposes of
this table, of any shares of Bancorp common stock if he or she has voting
or investment power with respect to such security. This includes shares
(i) subject to options exercisable within sixty (60) days, and (ii)(a)
owned by a spouse, (b) owned by other immediate family members, or (c)
held in trust or held in retirement accounts or funds for the benefit of
the named individuals, over which shares the person named in the table may
possess voting and/or investment power.
(2) See footnotes (1), (3) and (7) of the table set forth under the caption
"Name of Beneficial Owner - Directors and Officers" on page 189.
(3) John A. Brockriede and Linda J. Brockriede together beneficially own a
total of 162,222 shares of Bancorp's common stock which represents 8.69%
of Bancorp's outstanding common stock.
(4) Includes (i) 89,970 shares held jointly with Mrs. Brockriede's husband,
John A. Brockriede; (ii) 8,700 shares held in trusts for the benefit of
Mrs. Brockriede's family members of which Mrs. Brockriede is trustee;
(iii) 468 shares held in an Individual Retirement Account by PaineWebber
for the benefit of Mrs. Brockriede; (iv) 7,092 shares subject to currently
exercisable stock options previously granted to John A. Brockriede; (v)
11,802 shares held in an Individual Retirement Account and 1,518 shares
held in a Simplified Employee Pension Plan both by PaineWebber as
custodian for the benefit of John A. Brockriede; and (vi) 42,672 shares
held by CJM Management, L.L.C., of which
192
John A. Brockriede is an Administrative Member. Mrs. Brockriede disclaims
beneficial ownership to all of the aforementioned securities with the
exception of those held jointly with her husband and the securities held
in an Individual Retirement Account for her benefit. Mrs. Brockriede's
mailing address is 2 Van Court Avenue, Long Branch, New Jersey 07740.
(5) Mr. Dwek, a former director of Bancorp, maintains a mailing address at 200
Wall Street, P.O. Box 98, West Long Branch, New Jersey 07764.
(6) Includes 13,200 shares held in the name of Isaac Dwek and Pearl Pamela
Dwek, as trustees for the Isaac Dwek Irrevocable Trust for the benefit of
Isaac Dwek; 12,000 shares held in the name of the Raizel Dwek Irrevocable
Trust with Pearl Pamela Dwek and Isaac Dwek as trustees; and 13,200 shares
held in the name of Milo Dwek 1998 Irrevocable Trust, Solomon Dwek
grantor, Pearl Pamela Dwek & Isaac Dwek trustees. Mr. Dwek disclaims
beneficial ownership to the shares held in these trusts. Also includes (i)
396 shares held in an individual retirement account with Solomon Smith
Barney for the benefit of Mr. Dwek; (ii) 396 shares held in an individual
retirement account with Solomon Smith Barney for the benefit of Mr. Dwek's
spouse; and (iii) 1,122 shares held in other individual retirement
accounts for the benefit of Mr. Dwek's family members. Mr. Dwek disclaims
any beneficial ownership to the shares held in these individual retirement
accounts with the exception of the individual retirement account with
Solomon Smith Barney for his benefit.
193
PRINCIPAL STOCKHOLDERS OF ALLAIRE
The following table sets forth information as of September 10, 2004, with
respect to the beneficial ownership (as defined in Rule 13d-3 of the Securities
Exchange Act of 1934, as amended) of Allaire's common stock, which is the only
class of Allaire capital stock with shares issued and outstanding, by (i) each
Allaire director, (ii) each Allaire executive officer whose total annual salary
and bonus for the year ended December 31, 2003 exceeded $100,000, and (iii) all
directors and executive officers of Allaire as a group. As of September 10,
2004, Allaire had 1,973,361 shares of common stock issued and outstanding.
Beneficial Ownership of Allaire's
Common Stock
-------------------------------------
Percent of
Name of Beneficial Owner - Directors and Officers (1) No. of Shares (2) Class
- ----------------------------------------------------- ----------------- ----------
George S. Callas (3)(4)(5).............................. 81,941 4.09%
William H. Jewett (3)(6)(7)............................. 46,963 2.35%
Carl F. Chirico (3)(8)(9)............................... 95,885 4.68%
Benjamin H. Danskin (3)(10)............................. 64,353 3.22%
Thomas S. Birckhead, Jr. (3)(11)........................ 47,389 2.37%
James P. Dugan, Esq. (3)(12)............................ 46,191 2.31%
M. Claire French (3)(13)................................ 32,429 1.63%
Paul A. Larson, Jr. (3)(14)............................. 37,197 1.86%
Robert S. Vuono (3)(15)(16)............................. 49,396 2.45%
Robert K. Wallace (17)(18).............................. 25,618 1.29%
All Executive Officers and
Directors as a Group (10 persons)
(4)(6)(8)(10)(11)(12)(13)(14)(15)(17)................... 527,362 23.10%
(1) All directors and officers listed in this table maintain a mailing address
at 2200 Highway 35, P.O. Box 440, Sea Girt, New Jersey 08750.
(2) In accordance with Rule 13d-3 of the Securities Exchange act of 1934, as
amended, a person is deemed to be the beneficial owner, for purposes of
this table, of any shares of Allaire's common stock if he or she has
voting or investment power with respect to such security. This includes
shares (i) subject to options exercisable within sixty (60) days, and
(ii)(a) owned by a spouse, (b) owned by other immediate family members, or
(c) held in trust or held in retirement accounts or funds for the benefit
of the named individuals, over which shares the person named in the table
may possess voting and/or investment power.
194
(3) Such person serves as a director of Allaire.
(4) Includes 29,832 shares subject to currently exercisable stock options.
Also includes 2,916 shares of common stock owned by Mr. Callas' wife.
(5) Mr. Callas serves as Chairman of the Board of Directors of Allaire.
(6) Includes 29,078 shares subject to currently exercisable options.
(7) Mr. Jewett serves as Vice Chairman of the Board of Directors of Allaire.
(8) Includes 75,267 shares subject to currently exercisable stock options.
Also includes 4,310 shares of common stock owned by Mr. Chirico's wife.
(9) Mr. Chirico serves as President and Chief Executive Officer of Allaire.
(10) Includes 23,550 shares subject to currently exercisable stock options.
Also includes 2,299 shares of common stock owned by Mr. Danskin's wife.
(11) Includes 22,179 shares subject to current exercisable options.
(12) Includes 22,179 shares subject to current exercisable options.
(13) Includes 22,179 shares subject to current exercisable options.
(14) Includes 22,179 shares subject to current exercisable options.
(15) Includes 43,747 shares subject to current exercisable options.
(16) Serves as Senior Executive Vice President, Chief Operating Officer, Chief
Financial Officer and Secretary of Allaire.
(17) Includes 19,682 shares subject to current exercisable options.
(18) Serves as Executive Vice President and Senior Lending Officer of Allaire.
195
LEGAL MATTERS
The legality of the Bancorp common stock to be issued in the combination
will be passed upon for Bancorp by Giordano, Halleran & Ciesla, P.C., Red Bank,
New Jersey.
EXPERTS
The consolidated financial statements of Bancorp and subsidiary as of
December 31, 2003 and 2002, and for the years then ended, have been included
herein and in the registration statement of which this joint proxy
statement/prospectus forms a part in reliance upon the report of KPMG LLP,
independent registered public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing.
The consolidated financial statements of Allaire as of December 31, 2003
and 2002, and for each of the years in the three-year period ended December 31,
2003, have been included herein and in the registration statement of which this
joint proxy statement/prospectus forms a part in reliance upon the report of
KPMG LLP, independent registered public accountants, appearing elsewhere herein,
and upon the authority of said firm as experts in accounting and auditing.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
Bancorp has filed with the Securities and Exchange Commission a
registration statement on Form S-4 under the Securities Act of 1933, as amended,
with respect to the offered common stock included in this joint proxy
statement/prospectus. Additional information is contained in the registration
statement and you should refer to the registration statement and its exhibits
and schedules for further information. The registration statement and exhibits
and schedules filed as a part thereof, may be inspected, without charge, at the
Public Reference Room of the Securities and Exchange Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549 You may obtain information on the operation
of the SEC's Public Reference Room by calling the SEC at 1-800-SEC-0330. The
Securities and Exchange Commission also maintains a worldwide web site on the
Internet at http://www.sec.gov that contains reports, proxy statements and other
information regarding registrants that file electronically with the Securities
and Exchange Commission. We have included the web address of the Securities and
Exchange Commission as an inactive textual reference only, and information on
such web site is not part of this joint proxy statement/prospectus.
In addition, Allaire files reports, proxy statements and other information
with the Federal Deposit Insurance Corporation under the Securities Exchange Act
of 1934, as amended. You may read and copy this information at the public
reference facilities maintained by the Federal Deposit Insurance Corporation at
550 17th Street, N.W., Accounting and Securities Disclosure Section, Room F6043,
Washington D.C. 20429.
196
INDEX TO FINANCIAL STATEMENTS
MONMOUTH COMMUNITY BANCORP
AND SUBSIDIARY
Consolidated Financial Statements
December 31, 2003
Report of Independent Registered Public Accounting Firm................................................... F-2
Consolidated Balance Sheets at December 31, 2003 and 2002................................................. F-3
Consolidated Statements of Income for the years ended December 31, 2003 and 2002.......................... F-4
Consolidated Statements of Changes in Shareholders' Equity for the years ended
December 31, 2003 and 2002............................................................................. F-5
Consolidated Statements of Cash Flows for the years ended December 31, 2003 and 2002...................... F-6
Notes to Consolidated Financial Statements................................................................ F-7
June 30, 2004
Consolidated Balance Sheets at June 30, 2004 (unaudited) and December 31, 2003............................ F-25
Consolidated Statements of Income (unaudited) for the six months ended
June 30, 2004 and 2003................................................................................. F-26
Consolidated Statements of Changes in Shareholders' Equity (unaudited) for the
six months ended June 30, 2004 and 2003................................................................ F-27
Consolidated Statements of Cash Flows (unaudited) for the six months ended
June 30, 2004 and 2003................................................................................. F-28
Notes to Unaudited Consolidated Financial Statements...................................................... F-29
ALLAIRE COMMUNITY BANK
Consolidated Financial Statements
December 31, 2003
Report of Independent Registered Public Accounting Firm................................................... F-34
Consolidated Balance Sheets at December 31, 2003 and 2002................................................. F-35
Consolidated Statements of Income for the years ended December 31, 2003, 2002 and 2001.................... F-36
Consolidated Statements of Changes in Stockholders' Equity for the years ended
December 31, 2003, 2002 and 2001....................................................................... F-37
Consolidated Statements of Cash Flows for the years ended December 31, 2003, 2002 and 2001................ F-38
Notes to Consolidated Financial Statements................................................................ F-39
June 30, 2004
Consolidated Balance Sheets at June 30, 2004 (unaudited) and December 31, 2003............................ F-58
Consolidated Statements of Income (unaudited) for the six months ended
June 30, 2004 and 2003................................................................................. F-59
Consolidated Statements of Changes in Stockholders' Equity (unaudited) for the six months
ended June 30, 2004 and 2003........................................................................... F-60
Consolidated Statements of Cash Flows (unaudited) for the six months ended
June 30, 2004 and 2003................................................................................. F-61
Notes to Unaudited Consolidated Financial Statements...................................................... F-62
F-1
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
Monmouth Community Bancorp:
We have audited the accompanying consolidated balance sheets of Monmouth
Community Bancorp and subsidiary as of December 31, 2003 and 2002, and the
related consolidated statements of income, changes in shareholders' equity, and
cash flows for the years then ended. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Monmouth Community
Bancorp and subsidiary as of December 31, 2003 and 2002, and the results of
their operations and their cash flows for the years then ended in conformity
with U.S. generally accepted accounting principals.
/s/ KPMG LLP
Short Hills, New Jersey
February 2, 2004, except as to Note 14,
which is as of July 15, 2004
F-2
MONMOUTH COMMUNITY BANCORP AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2003 AND 2002
(dollars in thousands, except per share amounts)
ASSETS 2003 2002
- ------ --------- ---------
Cash and due from banks $ 9,689 $ 8,880
Federal funds sold 4,675 7,500
Investment securities available for sale, at market value 68,196 44,791
Investment securities held to maturity (market value of $15,278 and
$25,973 at December 31, 2003 and 2002, respectively) 15,079 25,539
Loans held for sale -- 302
Loans, net 115,805 89,328
Premises and equipment 2,171 1,638
Other assets 2,037 1,559
Due from broker 4,961 --
--------- ---------
Total assets $ 222,613 $ 179,537
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Deposits:
Non-interest bearing $ 26,818 $ 22,581
Interest bearing 180,416 141,426
--------- ---------
207,234 164,007
Accrued expenses and other liabilities 480 599
--------- ---------
Total liabilities 207,714 164,606
--------- ---------
Commitments and contingencies (Notes 4 and 8)
Shareholders' equity:
Common stock, par value $0.01 per share. Authorized
100,000,000 shares and issued and outstanding
1,860,403 and 1,860,343 shares at December 31, 2003 and
2002, respectively 19 18
Additional paid-in capital 15,238 14,764
Accumulated other comprehensive (loss) income (358) 149
--------- ---------
Total shareholders' equity 14,899 14,931
--------- ---------
Total liabilities and shareholders' equity $ 222,613 $ 179,537
========= =========
See accompanying notes to consolidated financial statements.
F-3
MONMOUTH COMMUNITY BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
(dollars in thousands, except per share amounts)
2003 2002
---------- ----------
Interest and dividend income:
Interest and fees on loans $ 6,438 $ 5,568
Interest on securities available for sale 1,791 895
Interest on securities held to maturity 742 1,558
Interest on federal funds sold and due from banks 140 254
---------- ----------
Total interest income 9,111 8,275
Interest expense - interest on deposits 2,612 2,789
---------- ----------
Net interest income 6,499 5,486
Provision for loan losses 150 373
---------- ----------
Net interest income after provision for loan losses 6,349 5,113
---------- ----------
Other income:
Service charges on deposit accounts 656 438
Gain on the sale of available for sale securities 76 159
Gain on the sale of loans held for sale 13 64
Other service charges, commissions and fees 35 --
---------- ----------
Total other income 780 661
---------- ----------
Operating expenses:
Salaries and employee benefits 3,185 2,473
Occupancy expenses 792 563
Outside service fees 500 404
Data processing fees 485 418
Professional and application fees 301 236
Furniture, fixtures and equipment 273 198
Advertising and public relations 182 125
Stationery, supplies and printing 172 173
Telephone and postage 126 113
Insurance 77 68
Other expenses 232 149
---------- ----------
Total other expenses 6,325 4,920
---------- ----------
Income before provision for income taxes 804 854
Income taxes 322 70
---------- ----------
Net income $ 482 $ 784
========== ==========
Basic earnings per share $ .26 $ .54
========== ==========
Diluted earnings per share $ .25 $ .53
========== ==========
Average basic shares outstanding 1,860,588 1,450,236
========== ==========
Average diluted shares outstanding 1,916,981 1,476,445
========== ==========
See accompanying notes to consolidated financial statements.
F-4
MONMOUTH COMMUNITY BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
(dollars in thousands)
Accumulated
Additional other
Common paid-in comprehensive Accumulated
stock capital income (loss) deficit Total
- -----------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2001 $ 13 $ 9,516 $ 70 $ (707) $ 8,892
- -----------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net income -- -- -- 784 784
Unrealized gain on securities
available for sale, net of tax of
$163 -- -- 174 -- 174
Less reclassification adjustment for
gains included in income, net of
tax of $64 (95) (95)
--------
Total comprehensive income -- -- -- -- 863
Issuance of 5% stock distribution -
84,206 shares 1 76 -- (77) --
Fractional shares paid in cash -- (2) -- -- (2)
Issuance of 483,008 shares of
common stock, net of $188 in
stock issuance costs 4 5,174 -- -- 5,178
- -----------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2002 $ 18 $ 14,764 $ 149 $ -- $ 14,931
- -----------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net income -- -- -- 482 482
Unrealized loss on securities
available for sale, net of tax of
$213 -- -- (461) -- (461)
Less reclassification adjustment for
gains included in income, net of
tax of $30 -- -- (46) -- (46)
--------
Total comprehensive (loss) -- -- -- -- (25)
Issuance of 5% stock distribution -
88,254 shares 1 481 -- (482) --
Fractional shares paid in cash -- (8) -- -- (8)
Exercise of stock options - 72 shares -- 1 -- -- 1
- -----------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2003 $ 19 $ 15,238 $ (358) $ -- $ 14,899
=======================================================================================================================
See accompanying notes to consolidated financial statements.
F-5
MONMOUTH COMMUNITY BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
(dollars in thousands)
2003 2002
---------- ----------
Cash flows from operating activities:
Net income $ 482 $ 784
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred taxes (50) (121)
Provision for loan losses 150 373
Depreciation and amortization 417 268
Gain on the sale of available for sale securities (76) (159)
Increase in due from broker (4,961) --
Gain on the sale of loans held for sale (13) (64)
Origination of loans held for sale (1,605) (8,767)
Proceeds from sale of loans held for sale 1,920 8,798
Net premium amortization on held to maturity securities 108 119
Net premium amortization on available for sale securities 864 145
Increase in other assets (185) (261)
(Decrease) increase in accrued expenses and other liabilities (19) 259
---------- ----------
Net cash used in operating activities (2,968) 1,374
---------- ----------
Cash flows from investing activities:
Purchase of investment securities held to maturity (9,963) (17,325)
Purchase of investment securities available for sale (85,995) (39,212)
Maturities of and paydowns on investment securities held to maturity 20,315 18,956
Maturities of and paydowns on investment securities available for sale 43,082 1,188
Proceeds from sale of investment securities available for sale 17,870 6,105
Net increase in loans (26,627) (28,089)
Purchases of premises and equipment, net (950) (606)
---------- ----------
Net cash used in investment activities (42,268) (58,983)
---------- ----------
Cash flows from financing activities:
Net increase in non-interest bearing deposits 4,237 5,366
Net increase in interest bearing deposits 38,990 49,749
Issuance of common stock, net 1 5,178
Cash paid for fractional shares (8) (2)
---------- ----------
Net cash provided by financing activities 43,220 60,291
---------- ----------
(Decrease) increase in cash and cash equivalents (2,016) 2,682
Cash and cash equivalents at beginning of period 16,380 13,698
---------- ----------
Cash and cash equivalents at end of period $ 14,364 $ 16,380
========== ==========
Cash paid during the period for:
Interest $ 2,616 $ 2,803
========== ==========
Income taxes $ 361 $ 1
========== ==========
See accompanying notes to consolidated financial statements
F-6
Monmouth Community Bancorp and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
Business
Effective August 31, 2000, Monmouth Community Bancorp ("Bancorp"), a newly
formed corporation, acquired all of the shares of Monmouth Community Bank, N.A.
(the "Bank"). Bancorp and the Bank are collectively referred to herein as the
"Company." Each share of $5 par value common stock of the Bank was exchanged for
one share of $0.01 par value common stock of Bancorp. The reorganization was
accounted for as if it were a pooling of interests.
The Company provides a full range of banking services to customers located
primarily in the greater Monmouth County, New Jersey area. Bancorp and the Bank
are subject, as applicable, to Federal statutes applicable to banks and bank
holding companies. In 2001, the Bank converted from a state chartered
institution to a nationally chartered institution regulated by the Office of
Comptroller of the Currency (OCC). The Bank's deposits are insured by the
Federal Deposit Insurance Corporation (FDIC). Bancorp is subject to regulation,
supervision and examination by the Federal Reserve Bank of New York.
In 2002, in conjunction with a stock offering that commenced on July 23, 2002,
507,158 shares of Bancorp common stock were issued at $10.58 per share (these
amounts have been adjusted to give effect to the subsequent December 31, 2003
and 2002 stock distributions). The offering closed on November 29, 2002.
Bancorp effected a 5% stock distribution to the shareholders of record as of
December 15, 2003, which resulted in 1,860,403 authorized and outstanding shares
of Bancorp common stock as of December 31, 2003. Bancorp effected a 5% stock
distribution to the shareholders of record as of December 6, 2002, which
resulted in 1,772,312 authorized and outstanding shares of Bancorp common stock
as of December 31, 2002.
The number of shares outstanding and earnings per share amounts set forth herein
for all periods presented have been adjusted to reflect the six-for-five stock
split for shareholders of record on July 15, 2004.
Basis of Financial Statement Presentation
The accompanying consolidated financial statements include the accounts of
Bancorp and its wholly-owned subsidiary, the Bank. All significant inter-company
accounts and transactions have been eliminated in consolidation. Certain prior
year amounts have been reclassified to conform to the current year presentation.
In preparing the financial statements, management is required to make estimates
and assumptions that affect the reported amounts of assets and liabilities as of
the date of the balance sheet and results of operations for the periods
indicated. Actual results could differ significantly from those estimates.
Material estimates that are particularly susceptible to significant change in
the near term relate to the determination of the allowance for loan losses.
While management uses available information to recognize estimated losses on
loans, such estimates may be adjusted to account for changes in economic
conditions. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the Company's allowances for loan
losses. Such agencies may require the Company to increase such allowance based,
in their judgment, on the information available to them at the time of their
examination.
F-7
Monmouth Community Bancorp and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Reclassifications
Certain reclassifications have been made to the prior period amounts to conform
with the current period presentation.
Investment Securities
Investment securities held to maturity are comprised of debt securities that the
Company has the positive intent and ability to hold to maturity. Such securities
are stated at cost, adjusted for amortization of premiums and accretion of
discounts using a method that approximates a level yield.
Securities to be held for indefinite periods of time and not intended to be held
to maturity, including all equity securities, are classified as available for
sale. Securities available for sale include securities that management intends
to use as part of its asset/liability management strategy and that may be sold
in response to changes in interest rates, resultant prepayment risk and other
factors related to interest rate and resultant prepayment risk changes.
Securities available for sale are carried at estimated fair value and unrealized
holding gains and losses on such securities are excluded from earnings and
reported as a separate component of shareholders' equity. Gains and losses on
sales of securities are based on the specific identification method and are
accounted for on a trade date basis.
Loans and Loans Held for Sale
Loans are stated at unpaid principal balances, less unearned income and deferred
loan fees and costs. Loans held for sale are carried at the lower of aggregate
cost or fair value.
Interest on loans is credited to operations based upon the principal amount
outstanding.
Loan origination and commitment fees and certain direct loan origination costs
are deferred, and the net amount is amortized over the estimated life of the
loan on a basis that approximates a level yield.
A loan is considered impaired when, based on current information and events, it
is probable that the Company will be unable to collect all amounts due according
to the contractual terms of the loan agreement. Impaired loans are measured
based on the present value of expected future cash flows, or, as a practical
expedient, at the loan's observable market price, or the fair value of the
underlying collateral, if the loan is collateral dependent. Conforming
residential mortgage loans, home equity and second mortgages, and loans to
individuals are excluded from the definition of impaired loans as they are
characterized as smaller balance, homogeneous loans and are collectively
evaluated.
The accrual of income on loans, including impaired loans, is generally
discontinued when a loan becomes more than ninety (90) days delinquent as to
principal or interest or when other circumstances indicate that collection is
questionable, unless the loan is well secured and in the process of collection.
Income on non-accrual loans, including impaired loans, is recognized only in the
period in which it is collected, and only if management determines that the loan
principal is fully collectible. Loans are returned to an accrual status when a
loan is brought current as to principal and interest and reasons indicating
doubtful collection no longer exist.
F-8
Monmouth Community Bancorp and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The allowance for loan losses is based on management's evaluation of the
adequacy of the allowance based on known and inherent risks in the portfolio,
adverse situations that may affect the borrowers' ability to repay, estimated
value of any underlying collateral, and current economic conditions. Increases
in the allowance arise from charges to operations through the provision for loan
losses or from the recovery of amounts previously charged off. The allowance is
reduced by charge-offs. Management believes that the allowance for loan losses
is adequate.
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation is charged to operations on a straight-line basis
over the estimated useful lives of the assets or, in the case of leasehold
improvements, the lease period, if shorter. Depreciable lives range from three
to ten years for furniture, fixtures and equipment and five to fifteen years for
leasehold improvements. Gains or losses on dispositions are reflected in current
operations. Maintenance and repairs are charged to expense as incurred.
Income Taxes
Income taxes are accounted for under the asset and liability method. Current
income taxes are provided for based upon amounts estimated to be currently
payable, for both Federal and state income taxes. Deferred Federal and state tax
assets and liabilities are recognized for the expected future tax consequences
of existing differences between financial statement and tax bases of existing
assets and liabilities. Deferred tax assets are recognized for future deductible
temporary differences and tax loss carryforwards if their realization is "more
likely than not." The effect of a change in the tax rate on deferred taxes is
recognized in the period of the enactment date.
Net Income Per Share
Basic and diluted net income per share for 2003 was calculated by dividing the
net income of $482,000 by the weighted average number of shares outstanding of
1,860,588 and 1,916,981, respectively. Stock options to purchase 90,083 shares
of Bancorp's common stock at an average exercise price of $19.84 were excluded
from the diluted net income per share calculation because they were
anti-dilutive. Basic and diluted net income per share for 2002 was calculated by
dividing the net income of $784,000 by the weighted average number of shares
outstanding of 1,450,236 and 1,476,445, respectively. Stock options to purchase
32,599 shares of Bancorp's common stock at an average exercise price of $11.68
were excluded from the diluted net income per share calculation because they
were anti-dilutive.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include cash on
hand, amounts due from banks and Federal funds sold. Federal funds sold are
generally sold for one-day periods.
Stock Based Compensation
The Company has elected to account for stock-based compensation under APB
Opinion No. 25, "Accounting for Stock Issued to Employees" and to provide pro
forma disclosures of net loss and loss per share as if the Company had adopted
the fair value based method of accounting in accordance with Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" as amended by Statement of Financial
F-9
Monmouth Community Bancorp and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Accounting Standards No. 148, "Accounting for Stock-Based Compensation," which
assumes the fair value based method of accounting had been adopted.
Had compensation cost for the Company's stock options been determined in
accordance with SFAS No. 123, the Company's net income and related per share
amounts for 2003 and 2002 would have decreased to the following pro forma
amounts:
2003 2002
- -------------------------------------------------------------------------------------
Net Income:
As reported $ 482,000 $ 784,000
Deduct: Total stock-based employee compensation
expense determined under the fair value
based method for all awards, net of related
tax effects 111,000 108,000
----------------------------
Pro forma $ 371,000 $ 676,000
Net income per share - basic:
As reported $ 0.26 $ 0.54
Pro forma $ 0.20 $ 0.47
Net income per share - diluted:
As reported $ 0.25 $ 0.53
Pro forma $ 0.19 $ 0.46
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions used for 2003 grants: dividend yield of 0%, expected volatility of
28.12%; risk free interest rate of 3.28% and 2.91% for employee and director
grants, respectively; and expected lives of four years. The following
weighted-average assumptions were used for 2002 grants: dividend yield of 0%,
expected volatility of 23.17%; risk free interest rate of 3.05% and 4.30% for
employee and director grants, respectively; and expected lives of four years.
(2) Cash and Due from Banks
The Company is required to maintain reserve balances with the Federal Reserve
Bank. As of December 31, 2003, the Company had a reserve balance of
approximately $3.0 million. The Company was not required to maintain any other
reserve balances.
F-10
Monmouth Community Bancorp and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(3) Securities
The amortized cost, gross unrealized gains and losses, and estimated market
value of investment securities held to maturity and securities available for
sale at December 31, 2003 and 2002 are as follows (in thousands):
- ----------------------------------------------------------------------------------------------------------------------
2003
- ----------------------------------------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized market
cost gains losses value
- ----------------------------------------------------------------------------------------------------------------------
Investment securities held to maturity:
U.S. Treasury securities and obligations of U.S.
Government sponsored agencies $ 4,510 $ 8 $ 8 $ 4,510
Mortgage-backed securities of U.S. Government
sponsored agencies 10,569 199 -- 10,768
- ----------------------------------------------------------------------------------------------------------------------
Total $15,079 $ 207 $ 8 $15,278
======================================================================================================================
Investment securities available for sale:
U.S. Treasury securities and obligations of U.S.
Government sponsored agencies $25,064 $ 2 $ 288 $24,778
Mortgage-backed securities of U.S. Government
sponsored agencies 43,733 48 363 43,418
- ----------------------------------------------------------------------------------------------------------------------
Total $68,797 $ 50 $ 651 $68,196
======================================================================================================================
- ----------------------------------------------------------------------------------------------------------------------
2002
- ----------------------------------------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized market
cost gains losses value
- ----------------------------------------------------------------------------------------------------------------------
Investment securities held to maturity:
U.S. Treasury securities and obligations of U.S.
Government sponsored agencies $14,293 $ 125 $ -- $14,418
Mortgage-backed securities of U.S. Government
sponsored agencies 11,246 309 -- 11,555
- ----------------------------------------------------------------------------------------------------------------------
Total $25,539 $ 434 $ -- $25,973
======================================================================================================================
Investment securities available for sale:
U.S. Treasury securities and obligations of U.S.
Government sponsored agencies $ 2,000 $ 2 $ -- $ 2,002
Mortgage-backed securities of U.S. Government
sponsored agencies 42,542 253 6 42,789
- ----------------------------------------------------------------------------------------------------------------------
Total $44,542 $ 255 $ 6 $44,791
======================================================================================================================
The amortized cost and estimated market value of investment securities held to
maturity and debt securities available for sale at December 31, 2003 by
contractual maturity are shown below (in thousands). Expected maturities will
differ from contractual maturities because issuers may have the right to call or
prepay obligations with or without call or prepayment penalties.
F-11
Monmouth Community Bancorp and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During 2003, securities available for sale with a carrying value of $17.9
million were sold realizing gains totaling $76 thousand. During 2002, securities
available for sale with a carrying value of $5.9 million were sold realizing
gains totaling $159 thousand.
Estimated
Amortized market
cost value
- --------------------------------------------------------------------------------
Investment securities held to maturity:
Due after one year through five years $ 4,592 $ 4,595
Due after fifth year through tenth year 6,863 6,929
Due after tenth year 3,624 3,754
- --------------------------------------------------------------------------------
Total $ 15,079 $ 15,278
================================================================================
Investment securities available for sale:
Due after one year through five years $ 31,398 $ 31,074
Due after fifth year through tenth year 37,399 37,122
Due after tenth year -- --
- --------------------------------------------------------------------------------
Total $ 68,797 $ 68,196
================================================================================
At December 31, 2003 and 2002, there were $56,917,000 and $51,760,000,
respectively, of investment securities pledged to secure public funds or for any
other purposes required by law.
Gross unrealized losses on both securities held to maturity and securities
available for sale and their related estimated fair values, aggregated by
security category and length of time that individual securities have been in a
continuous unrealized loss position, at December 31, 2003, were as follows:
- ----------------------------------------------------------------------------------------------------------------------------------
Less than 12 months 12 months or more Total
--------------------------- -------------------------- --------------------------
Investment securities Unrealized Estimated Unrealized Estimated Unrealized Estimated
held to maturity losses market value losses market value losses market value
- ----------------------------------------------------------------------------------------------------------------------------------
U.S. Government agencies $ 8 $ 1,992 $ -- $ -- $ 8 $ 1,992
- ----------------------------------------------------------------------------------------------------------------------------------
Total $ 8 $ 1,992 $ -- $ -- $ 8 $ 1,992
==================================================================================================================================
- ---------------------------------------------------------------------------------------------------------------------------------
Less than 12 months 12 months or more Total
--------------------------- -------------------------- --------------------------
Investment securities Unrealized Estimated Unrealized Estimated Unrealized Estimated
available for sale losses market value losses market value losses market value
- ----------------------------------------------------------------------------------------------------------------------------------
U.S. Government agencies $ 288 $ 24,778 $ -- $ -- $ 288 $ 24,778
Mortgage-backed securities $ 363 $ 33,379 -- -- $ 363 $ 33,379
- ----------------------------------------------------------------------------------------------------------------------------------
Total $ 651 $ 58,157 $ -- $ -- $ 651 $ 58,157
==================================================================================================================================
U.S. Government agencies - The unrealized losses in U.S. Government agencies
were caused by interest rate increases. Since the Company has the ability and
intent to hold these securities until a market price recovery or maturity, these
securities are not considered other-than-temporarily impaired.
Mortgage-backed securities - The unrealized losses on mortgage-backed securities
were caused by interest rate increases. Fannie Mae and Freddie Mac guarantee the
contractual cash flows of these securities. Since the decline in estimated
market value is attributable to changes in interest rates and not credit
quality, and because the Bank has
F-12
Monmouth Community Bancorp and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
the ability and intent to hold these securities until a market price recovery or
maturity, these securities are not considered other-than-temporarily impaired.
(4) Loans
Loans at December 31, 2003 and 2002 are summarized as follows (in thousands):
2003 2002
- -----------------------------------------------------------------------------------------------
Commercial and industrial loans $ 20,380 $ 17,060
Real estate loans - commercial 77,799 57,079
Home equity and second mortgages 17,734 14,816
Consumer loans 1,270 1,601
- -----------------------------------------------------------------------------------------------
117,183 90,556
Less allowance for loan losses 1,378 1,228
- -----------------------------------------------------------------------------------------------
Net loans $ 115,805 $ 89,328
===============================================================================================
Loans held for sale $ -- $ 302
===============================================================================================
A substantial portion of the Company's loans are secured by real estate and made
to borrowers located in New Jersey, primarily in Monmouth County. Accordingly,
as with most financial institutions in the Company's market area, the ultimate
collectibility of a substantial portion of the Company's loan portfolio is
susceptible to changes in market conditions in the market area.
Activity in the allowance for loan losses for the years ended December 31, 2003
and 2002 is summarized as follows (in thousands):
2003 2002
- -----------------------------------------------------------------------------------------------
Balance, beginning of year $ 1,228 $ 855
Provision charged to expense 150 373
Charge-offs -- (1)
Recoveries -- 1
- -----------------------------------------------------------------------------------------------
Balance, end of year $ 1,378 $ 1,228
===============================================================================================
Ratio of allowance for loan losses to total loans 1.18% 1.36%
===============================================================================================
Ratio of net charge-offs to average loans outstanding 0.00% 0.00%
===============================================================================================
At December 31, 2003 and 2002, the Company had non-accrual loans totaling
$40,000 and $43,000, respectively, and no impaired loans.
In the ordinary course of business to meet the financial needs of the Company's
customers, the Company is party to financial instruments with off-balance sheet
risk. These financial instruments include unused lines of credit and involve, to
varying degrees, elements of credit risk in excess of the amount recognized in
the financial statements. The contract or notional amounts of these instruments
express the extent of involvement the Company has in each category of financial
instruments.
The Company's exposure to credit loss from nonperformance by the other party to
the above-mentioned financial instruments is represented by the contractual
amount of those instruments. The Company uses the same credit policies in making
commitments and conditional obligations as it does for on-balance sheet
instruments.
F-13
Monmouth Community Bancorp and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The contract or notional amount of financial instruments which represent credit
risk at December 31, 2003 and 2002 is as follows (in thousands):
2003 2002
- --------------------------------------------------------------------------------
Standby letters of credit $ 590 $ 570
Outstanding loan and credit line commitments $16,202 $16,046
- --------------------------------------------------------------------------------
Standby letters of credit are conditional commitments issued by the Company
which guarantee performance by a customer to a third party. The credit risk and
underwriting procedures involved in issuing letters of credit are essentially
the same as that involved in extending loan facilities to customers. All of the
Bank's outstanding standby letters of credit are performance standby letters
within the scope of FASB Interpretation No. 45. These are irrevocable
undertakings by the Bank, as guarantor, to make payments in the event a
specified third party fails to perform under a non-financial contractual
obligation. Most of the Bank's performance standby letters of credit arise in
connection with lending relationships and have terms of one year or less. The
maximum potential future payments the Bank could be required to make equals the
face amount of the letters of credit shown above. The Bank's recognized
liability for performance standby letters of credit was insignificant at
December 31, 2003.
Outstanding loan commitments represent the unused portion of loan commitments
available to individuals and companies as long as there is no violation of any
condition established in the contract. Outstanding loan commitments generally
have a fixed expiration date of one year or less, except for home equity loan
commitments which generally have an expiration date of up to 15 years. The
Company evaluates each customer's creditworthiness on a case-by-case basis. The
amount of collateral obtained, if any, upon extension of credit is based upon
management's credit evaluation of the customer. Various types of collateral may
be held, including property and marketable securities. The credit risk involved
in these financial instruments is essentially the same as that involved in
extending loan facilities to customers.
F-14
Monmouth Community Bancorp and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(5) Premises and Equipment
Premises and equipment at December 31, 2003 and 2002 is summarized as follows
(in thousands):
2003 2002
- -----------------------------------------------------------------------------------------------
Land $ 176 $ --
Buildings and improvements 377 --
Leasehold improvements 1,407 1,225
Equipment 1,320 1,105
- -----------------------------------------------------------------------------------------------
3,280 2,330
Accumulated depreciation and amortization (1,109) (692)
- -----------------------------------------------------------------------------------------------
$ 2,171 $ 1,638
===============================================================================================
Depreciation and amortization expense amounted to $417,000 and $268,000 in 2003
and 2002, respectively.
(6) Deposits
Interest-bearing deposits at December 31, 2003 and 2002 consist of the following
(in thousands):
2003 2002
- -----------------------------------------------------------------------------------------------
Savings and N.O.W. accounts $ 118,265 $ 98,328
Certificates of deposit less than $100,000 17,449 16,863
Certificates of deposit of $100,000 or more 44,702 26,235
- -----------------------------------------------------------------------------------------------
Total $ 180,416 $ 141,426
===============================================================================================
At December 31, 2003, certificates of deposit mature as follows: 2004-
$54,304,000; 2005- $4,399,000; 2006- $2,086,000 and 2007- $1,362,000.
(7) Income Taxes
Components of income tax expense for the years ended December 31, 2003 and 2002
are as follows (in thousands):
2003 2002
- -----------------------------------------------------------------------------------------------
Current income tax expense:
Federal $ 278 $ 104
State 94 87
- -----------------------------------------------------------------------------------------------
372 191
- -----------------------------------------------------------------------------------------------
Deferred income tax expense (benefit)
Federal (30) (51)
State (20) (70)
- -----------------------------------------------------------------------------------------------
(50) (121)
- -----------------------------------------------------------------------------------------------
$ 322 $ 70
===============================================================================================
F-15
Monmouth Community Bancorp and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A reconciliation between the reported income taxes and income taxes which would
be computed by applying the normal Federal income tax rate of 34% to income
before taxes follows (in thousands):
2003 2002
- --------------------------------------------------------------------------------
Federal income tax $ 273 $ 290
State income tax effect, net of Federal tax effect 48 51
Meals and entertainment 3 2
Other (2) 1
- --------------------------------------------------------------------------------
322 344
Change in valuation reserve -- (274)
- --------------------------------------------------------------------------------
Provision charged to expense $ 322 $ 70
================================================================================
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 2003 and
2002 are as follows (in thousands):
2003 2002
- --------------------------------------------------------------------------------
Deferred tax assets:
Allowance for loan losses $ 501 $ 440
Organizational and start-up costs 3 20
Allowance for uncollected interest 16 13
Unrealized loss - securities available for sale 243 --
Net operating loss carryforwards 38 39
- --------------------------------------------------------------------------------
Gross deferred tax asset 801 512
Less: valuation reserve (1) (1)
- --------------------------------------------------------------------------------
Deferred tax assets, net 800 511
- --------------------------------------------------------------------------------
Deferred tax liabilities:
Deferred loan costs 38 34
Depreciation 116 56
Unrealized gain - securities available for sale -- 99
Accrual to cash adjustment 204 272
- --------------------------------------------------------------------------------
Gross deferred tax liabilities 358 461
- --------------------------------------------------------------------------------
Net deferred tax assets $ 442 $ 50
================================================================================
Based upon current facts concerning taxes paid in the carryback period and
projections of future taxable income, management has determined that it is more
likely than not that the deferred tax asset will be realized. However, there can
be no assurances about the level of future earnings.
F-16
Monmouth Community Bancorp and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(8) Commitments and Contingencies
At December 31, 2003, the Company was obligated under non-cancelable lease
agreements for six (6) premises. The leases provide for increased rentals based
upon increases in real estate taxes and the cost of living index. Minimum rental
payments under the terms of these leases are as follows (in thousands):
2004 $ 318
2005 334
2006 323
2007 245
2008 222
2009 and thereafter 251
- ------------------------------------------
Total $1,693
==========================================
Total rent expense was $316,000 and $282,000 in 2003 and 2002, respectively.
Litigation
The Bank may, in the ordinary course of business, become a party to litigation
involving collection matters, contract claims and other legal proceedings
relating to the conduct of its business. The Bank may also have various
commitments and contingent liabilities which are not reflected in the
accompanying consolidated statement of condition. Management is not aware of any
present legal proceedings or contingent liabilities and commitments that would
have a material impact on the Bank's financial position or results of
operations.
Related Party Transactions
The Company leases administrative office space at 6 West End Court, Long Branch,
New Jersey. Certain members of the board of directors of the Company hold an
ownership interest in the leased property. The negotiations with respect to the
leased space were conducted at arms-length and the lease amount to be paid by
the Bank was determined by an independent appraiser to be at fair market value.
Total lease payments for 2003 and 2002 were $24,000 and $20,000, respectively.
On August 1, 2003, the Bank exercised its option to purchase its main office and
branch (land and building) located at 627 Second Avenue, Long Branch, New
Jersey, pursuant to the terms of its lease with KFC Associates, dated June 26,
1997. The purchase price was $550,000.
(9) Regulatory Matters
Subject to applicable law, the board of directors of the Bank may provide for
the payment of cash dividends. Prior approval of the OCC is required to the
extent that the total of all cash dividends to be declared by the Bank in any
calendar year exceeds net profits, as defined, for that year combined with its
retained net profits from the preceding two calendar years less any transfers to
capital surplus.
The Bank and Bancorp are subject to various regulatory capital requirements
administered by Federal banking agencies. Failure to meet minimum requirements
can initiate certain mandatory and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on the
Company's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank and Bancorp must
meet specific capital guidelines that involve quantitative measures of the Bank
and Bancorp's assets, liabilities and certain off-balance sheet items as
calculated under regulatory accounting practices.
F-17
Monmouth Community Bancorp and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The capital amounts and classification are also subject to qualitative judgments
by the regulators about components, risk weightings and other factors.
The prompt corrective action regulations define specific capital categories
based on an institution's capital ratios. The capital categories, in declining
order, are "well capitalized," "adequately capitalized," "undercapitalized,"
"significantly undercapitalized" and "critically undercapitalized." An
institution categorized as "undercapitalized" or worse are subject to certain
restrictions, including the requirement to file a capital plan with its primary
Federal regulator, prohibitions on the payment of dividends and management fees,
restrictions on asset growth and executive compensation and increased
supervisory monitoring, among other things. Other restrictions may be imposed on
the institution by the applicable regulatory agencies, including requirements to
raise additional capital, sell assets or sell the entire institution. Once an
institution becomes "critically undercapitalized," it must generally be placed
in receivership or conservatorship within ninety (90) days. An institution is
deemed to be "critically undercapitalized" if it has a tangible equity ratio, as
defined, of 2% or less.
To be considered "well capitalized," an institution must generally have a
leverage ratio (Tier 1 capital to total assets) of at least 5%, a Tier 1
risk-based capital ratio of at least 6%, and a total risk-based capital ratio of
at least 10%. Management believes that, as of December 31, 2003, the Bank and
Bancorp meet all capital adequacy requirements of their regulators. Further, the
most recent regulatory notification categorized the Bank and Bancorp as
well-capitalized under the prompt corrective action regulations.
The following is a summary of the Bank and Bancorp's actual capital amounts and
ratios as of December 31, 2003 and 2002, compared to the minimum capital
adequacy requirements and the requirements for classification as a
"well-capitalized" institution (dollars in thousands):
Minimum Classification
December 31, 2003 capital as well
Capital Ratios Actual adequacy capitalized
- ----------------------------- ------------------------ ----------------------- ------------------------
Amount Ratio Amount Ratio Amount Ratio
--------- ------- --------- ------- --------- --------
Leverage (Tier 1) capital $ 15,107 6.86% $ 8,810 4.00% $ 11,013 5.00%
Risk-based capital:
Tier 1 15,107 11.01 5,489 4.00 8,233 6.00
Total 16,485 12.01 10,977 8.00 13,722 10.00
Minimum Classification
December 31, 2003 capital as well
Capital Ratios Actual adequacy capitalized
- ----------------------------- ------------------------ ----------------------- ------------------------
Amount Ratio Amount Ratio Amount Ratio
--------- ------- --------- ------- --------- --------
Leverage (Tier 1) capital $ 14,782 8.12% $ 7,282 4.00% $ 9,102 5.00%
Risk-based capital:
Tier 1 14,782 14.19 4,167 4.00 6,250 6.00
Total 16,010 15.37 8,333 8.00 10,416 10.00
F-18
Monmouth Community Bancorp and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(10) Stock Option Plan
In 2000, the Company established an Employee and Director Stock Option Plan (the
"Plan"). The Plan currently provides for the granting of stock options to
purchase in aggregate up to 694,574 shares of the Company's common stock,
subject to adjustment for certain dilutive events such as stock distributions.
As of December 31, 2003 and 2002, 120,321 and 64,954 options, respectively, have
been granted to employees and directors which vest over a period of four years.
A summary of the status of the Company's stock options as of and for the years
ended December 31, 2003 and 2002 is presented below:
2003 2002
- ---------------------------------------------------------------------------------------------------------
Weighted Weighted
average average
exercise exercise
Shares price Shares price
- ---------------------------------------------------------------------------------------------------------
Outstanding at beginning of year 214,237 $ 8.78 162,100 $ 7.66
Granted 120,321 17.95 64,954 11.51
Forfeited (1,137) 9.73 (12,817) 8.33
Exercised (72) 7.37 -- --
=========================================================================================================
Outstanding at end of year 333,349 12.09 214,237 8.78
=========================================================================================================
Options exercisable at year end 127,262 8.08 88,982 7.75
Weighted average fair value of options
granted during the year $ 4.90 $ 2.83
=========================================================================================================
The following table summarizes information about stock options outstanding at
December 31, 2003:
Options Outstanding and Exercisable
December 31, 2003
- ---------------------------------------------------------------------------------------------------------
Weighted Weighted
average average
Number remaining exercise
outstanding Exercisable contractual life price
- ---------------------------------------------------------------------------------------------------------
41,935 41,136 80 Months $ 7.19
69,235 34,617 92 Months $ 7.63
33,339 33,339 85 Months $ 7.92
4,167 2,083 96 Months $ 8.64
31,752 7,938 98 Months $ 11.34
32,599 8,149 108 Months $ 11.68
30,240 -- 110 Months $ 12.30
90,082 -- 119 Months $ 19.84
=========================================================================================================
F-19
Monmouth Community Bancorp and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(11) Fair Value of Financial Instruments
The following fair value estimates, methods and assumptions were used to measure
the fair value of each class of financial instruments for which it is practical
to estimate such value:
Cash and Cash Equivalents
As cash and cash equivalents are short-term in nature, the carrying amount was
considered to be a reasonable estimate of fair value.
Securities
Securities were valued based upon quoted market prices, if available, to
determine fair value. If a quoted market price was not available, fair values
were estimated using quoted market prices for similar securities.
Loans and Loans Held for Sale
Fair values were estimated for portfolios of performing loans with similar
characteristics. For certain similar types of loans, such as residential
mortgages, fair value was estimated using the quoted market prices for
securities backed by similar loans, adjusted for differences in loan
characteristics. The fair value of other performing loan types was estimated by
discounting total future cash flows using market discount rates that reflect the
credit and interest rate risk inherent in the loan. Fair values of loans held
for sale are based upon quoted market prices.
Commitments to Extend Credit
The majority of the Bank's commitments to extend credit carry current market
rates if converted to loans. Therefore, the estimated fair value is approximated
by the recorded deferred fee amounts. Such amounts are immaterial to the
financial statements of the Company and, therefore, are not separately
disclosed.
Deposit Liabilities
The fair value of demand, savings, N.O.W. and money market deposits is the
amount payable on demand at December 31, 2003. The fair value of certificates of
deposit was based on the discounted value of contractual cash flows. The
discount rate was estimated utilizing the rates currently offered for deposits
of similar remaining maturities.
Limitations
Fair value estimates were made at December 31, 2003 and 2002, based upon
pertinent market data and relevant information on each financial instrument.
These estimates do not include any premium or discount that could result from an
offer to sell the Company's entire holdings of a particular financial instrument
or category thereof at one time. Since no market exists for a substantial
portion of the Company's financial instruments, fair value estimates were
necessarily based on judgments with respect to future loss experience, current
economic conditions, risk assessments of various financial instruments involving
a myriad of individual borrowers, and other factors. Given the subjective nature
of these estimates, the uncertainties surrounding them and other matters of
significant judgment that must be applied, these fair value estimations cannot
be calculated with precision. Modifications in such assumptions could
meaningfully alter these estimates. Since these fair value approximations were
made solely
F-20
Monmouth Community Bancorp and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the balance sheet financial instruments at December 31, 2003 and 2002, no
attempt was made to estimate the value of anticipated future business or the
value of non-financial statement assets or liabilities. Furthermore, certain tax
implications related to the realization of the unrealized gains and losses could
have a substantial impact on these fair value estimates and have not been
incorporated into the estimates.
The estimated fair values of the Company's financial instruments at December 31,
2003 and 2002 are as follows (in thousands):
2003 2002
---- ----
Book Fair Book Fair
value value value value
----- ----- ----- -----
Financial assets:
Cash and cash equivalents $ 14,364 $ 14,364 $ 16,380 $ 16,380
Investment securities available for sale 68,196 68,196 44,791 44,791
Investment securities held to maturity 15,079 15,278 25,539 25,973
Loans, net 115,805 115,279 89,630 90,448
Financial liabilities:
Deposits $207,234 $206,940 $164,007 $163,927
==========================================================================================================================
F-21
Monmouth Community Bancorp and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(12) Condensed Financial Statements of Monmouth Community Bancorp (Bancorp only)
The following information with respect to Bancorp is as of and for the years
ended December 31, 2003 and 2002, and should be read in conjunction with the
notes to the consolidated financial statements (in thousands):
Balance Sheets 2003 2002
------------------------------------------------------------------------------------------------
Assets:
Investment in subsidiary $ 14,899 $ 14,931
------------------------------------------------------------------------------------------------
Total assets 14,899 14,931
------------------------------------------------------------------------------------------------
Shareholders' equity:
Common stock 16 15
Additional paid-in capital 15,241 14,767
Retained earnings -- --
Accumulated other comprehensive income (358) 149
------------------------------------------------------------------------------------------------
Total shareholders' equity $ 14,899 $ 14,931
================================================================================================
Statements of Income 2003 2002
------------------------------------------------------------------------------------------------
Equity in undistributed earnings of bank $ 482 $ 784
------------------------------------------------------------------------------------------------
Net income $ 482 $ 784
================================================================================================
Statements of Cash Flows 2003 2002
------------------------------------------------------------------------------------------------
Cash flow from operating activities
------------------------------------------------------------------------------------------------
Net income $ 482 $ 784
Less equity in undistributed earnings of the bank (482) (784)
------------------------------------------------------------------------------------------------
Net cash provided by operating activities -- --
------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
Cash flow from financing activities
------------------------------------------------------------------------------------------------
Proceeds from issuance of common stock, net 1 5,178
------------------------------------------------------------------------------------------------
Fractional shares paid in cash (8) (2)
------------------------------------------------------------------------------------------------
Capital contribution (to)/from subsidiary 7 (5,176)
------------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of period -- --
------------------------------------------------------------------------------------------------
Cash and cash equivalents at the end of period $ -- $ --
================================================================================================
F-22
Monmouth Community Bancorp and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(13) Selected Quarterly Financial Data (Unaudited)
The following tables are a summary of certain quarterly financial data for the
years ended December 31, 2003 and 2002.
2003 Quarter Ended
----------------------------------------------------------
March 31 June 30 September 30 December 31
---------- ---------- ------------ -----------
(dollars in thousands, except per share data)
Interest income $ 2,224 $ 2,253 $ 2,041 $ 2,593
Interest expense 703 688 604 617
---------- ---------- ---------- ----------
Net interest income 1,521 1,565 1,437 1,976
Provision for loan losses 18 5 16 111
---------- ---------- ---------- ----------
Net interest income after
provision for loan losses 1,503 1,560 1,421 1,865
Non-interest income 208 182 180 210
Non-interest expense 1,530 1,563 1,595 1,637
---------- ---------- ---------- ----------
Income before income taxes 181 179 6 438
Income taxes 72 72 2 176
---------- ---------- ---------- ----------
Net income $ 109 $ 107 $ 4 $ 262
========== ========== ========== ==========
Earnings per share:
Basic $ 0.06 $ 0.06 $ 0.00 $ 0.14
========== ========== ========== ==========
Diluted $ 0.06 $ 0.06 $ 0.00 $ 0.14
========== ========== ========== ==========
Weighted average shares
outstanding:
Basic 1,860,514 1,860,514 1,860,516 1,860,588
========== ========== ========== ==========
Diluted 1,895,948 1,908,901 1,918,048 1,927,965
========== ========== ========== ==========
F-23
Monmouth Community Bancorp and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2002 Quarter Ended
----------------------------------------------------------
March 31 June 30 September 30 December 31
---------- ---------- ------------ -----------
(dollars in thousands, except per share data)
Interest income $ 1,785 $ 1,987 $ 2,175 $ 2,328
Interest expense 620 628 745 796
---------- ---------- ---------- ----------
Net interest income 1,165 1,359 1,430 1,532
Provision for loan losses 112 107 56 98
---------- ---------- ---------- ----------
Net interest income after
provision for loan losses 1,053 1,252 1,374 1,434
Non-interest income 135 107 158 261
Non-interest expense 1,085 1,188 1,249 1,398
---------- ---------- ---------- ----------
Income before income taxes 103 171 283 297
Income taxes -- -- 7 63
---------- ---------- ---------- ----------
Net income $ 103 $ 171 $ 276 $ 234
========== ========== ========== ==========
Earnings per share:
Basic $ .08 $ .13 $ .20 $ .14
========== ========== ========== ==========
Diluted $ .07 $ .12 $ .20 $ .13
========== ========== ========== ==========
Weighted average shares
outstanding:
Basic 1,353,978 1,353,978 1,359,758 1,731,201
========== ========== ========== ==========
Diluted 1,378,528 1,378,688 1,383,840 1,760,492
========== ========== ========== ==========
(14) Subsequent Events
On June 30, 2004, the Company and Allaire Community Bank ("Allaire") entered
into an Agreement and Plan of Acquisition to combine, as equals, in a strategic
business combination transaction. The agreement provides for the Company to
change its name to Central Jersey Bancorp, effect a six-for-five stock split to
shareholders of record as of July 15, 2004, and exchange one share of Central
Jersey Bancorp common stock for each outstanding share of Allaire common stock.
It is anticipated that subsequent to the consummation of the combination,
Allaire and the Bank will combine and thereafter be referred to as Central
Jersey Bank, National Association. The proposed combination is subject to
certain customary conditions including the Company and Allaire receiving
shareholder and regulatory approvals. The combination is anticipated to close by
the end of 2004.
The number of shares outstanding and earnings per share amounts set forth herein
for all periods presented have been adjusted to reflect the six-for-five stock
split for shareholders of record on July 15, 2004.
F-24
MONMOUTH COMMUNITY BANCORP AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2004 (UNAUDITED) AND DECEMBER 31, 2003
(dollars in thousands, except per share amounts)
June 30, December 31,
2004 2003
--------- ------------
ASSETS (unaudited)
- ------
Cash and due from banks $ 10,264 $ 9,689
Federal funds sold 11,080 4,675
Investment securities available for sale, at market value 77,785 68,196
Investment securities held to maturity (market value of
$17,701 and $15,278 at June 30, 2004 and
December 31, 2003, respectively) 17,928 15,079
Loans, net 133,004 115,805
Premises and equipment 2,021 2,171
Other assets 3,362 2,037
Due from broker -- 4,961
--------- ---------
Total assets $ 255,444 $ 222,613
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Deposits:
Non-interest bearing $ 31,191 $ 26,818
Interest bearing 190,358 180,416
--------- ---------
221,549 207,234
Accrued expenses and other liabilities 294 480
Borrowings 14,000 --
Subordinated debentures 5,155 --
--------- ---------
Total liabilities 240,998 207,714
--------- ---------
Shareholders' equity:
Common stock, par value $0.01 per share. Authorized
100,000,000 shares and issued and outstanding
1,860,599 shares at June 30, 2004 and
1,860,403 shares at December 31, 2003 19 19
Additional paid-in capital 15,239 15,238
Accumulated other comprehensive loss (1,422) (358)
Retained earnings 610 --
--------- ---------
Total shareholders' equity 14,446 14,899
--------- ---------
Total liabilities and shareholders' equity $ 255,444 $ 222,613
========= =========
See accompanying notes to consolidated financial statements.
F-25
MONMOUTH COMMUNITY BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 2004 AND 2003
(dollars in thousands, except per share amounts)
Six months ended
June 30,
2004 2003
-------- --------
(unaudited)
Interest and dividend income:
Interest and fees on loans $ 3,836 $ 3,073
Interest on securities available for sale 1,238 840
Interest on securities held to maturity 343 480
Interest on federal funds sold and due from banks 31 84
-------- --------
Total interest income 5,448 4,477
Interest expense:
Interest expense on deposits 1,238 1,391
Interest expense on subordinated debentures 61 --
Interest expense on other borrowings 11 --
-------- --------
Total interest expense 1,310 1,391
-------- --------
Net interest income 4,138 3,086
-------- --------
Provision for loan losses: 128 23
-------- --------
Net interest income after provision for loan losses 4,010 3,063
-------- --------
Other income:
Service charges on deposit accounts 394 310
Gain on the sale of available for sale securities -- 50
Other service charges, commissions and fees 18 30
-------- --------
Total other income 412 390
-------- --------
Operating expenses:
Salaries and employee benefits 1,746 1,569
Net occupancy expenses 400 401
Data processing fees 270 242
Other operating expenses 1,015 881
-------- --------
Total other expenses 3,431 3,093
-------- --------
Income before provision for income taxes 991 360
Income taxes 381 144
-------- --------
Net income $ 610 $ 216
======== ========
Basic earnings per share $ .33 $ .12
======== ========
Diluted earnings per share $ .31 $ .11
======== ========
Average basic shares outstanding 1,861 1,860
======== ========
Average diluted shares outstanding 1,952 1,903
======== ========
See accompanying notes to consolidated financial statements.
F-26
MONMOUTH COMMUNITY BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2004 AND 2003
(dollars in thousands)
Accumulated Retained
Additional other earnings
Common paid-in comprehensive (accumulated
stock capital income (loss) deficit) Total
- -----------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2002 $ 18 $ 14,764 $ 149 $ -- $ 14,931
- -----------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net income -- -- -- 216 216
Unrealized loss on securities
available for sale, net of tax of $16 -- -- (24) -- (24)
Less reclassification adjustment for
gains included in income, net of tax
of $20 -- -- (30) -- (30)
--------
Total comprehensive income -- -- -- -- 162
- -----------------------------------------------------------------------------------------------------------------------
Balance at June 30, 2003 $ 18 $ 14,764 $ 95 $ 216 $ 15,093
=======================================================================================================================
- -----------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2003 $ 19 $ 15,238 $ (358) $ -- $ 14,899
- -----------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net income -- -- -- 610 610
Unrealized loss on securities
available for sale, net of tax of $945 -- -- (1,064) -- (1,064)
--------
Total comprehensive (loss) -- -- -- -- (454)
Exercise of stock options - 196 shares -- 1 -- -- 1
- -----------------------------------------------------------------------------------------------------------------------
Balance at June 30, 2004 $ 19 $ 15,239 $ (1,422) $ 610 $ 14,446
=======================================================================================================================
See accompanying notes to consolidated financial statements.
F-27
MONMOUTH COMMUNITY BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2004 AND 2003
(dollars in thousands)
Six months ended
June 30,
2004 2003
---------- ----------
(unaudited) (unaudited)
Cash flows from operating activities:
Net income $ 610 $ 216
Adjustments to reconcile net income to net cash provided by operating activities
Deferred taxes (190) --
Provision for loan losses 128 23
Depreciation and amortization 213 203
Gain on the sale of available for sale securities -- (50)
Decrease in due from broker 4,961 --
Gain on the sale of loans held for sale -- (13)
Origination of loans held for sale -- (1,605)
Proceeds from sale of loans held for sale -- 1,920
Net premium amortization on held to maturity securities 18 65
Net premium amortization on available for sale securities 210 333
Increase in other assets (1,325) (138)
Decrease in accrued expenses and other liabilities (186) (210)
---------- ----------
Net cash provided by operating activities 4,439 744
---------- ----------
Cash flows from investing activities:
Purchase of investment securities held to maturity (4,992) --
Purchase of investment securities available for sale (20,782) (53,081)
Maturities of and paydowns on investment securities held to maturity 2,125 3,947
Maturities of and paydowns on investment securities available for sale 10,110 25,844
Net increase in loans (17,327) (790)
Purchases of premises and equipment, net (63) (343)
---------- ----------
Net cash used in investment activities (30,929) (24,386)
---------- ----------
Cash flows from financing activities:
Net increase in non-interest bearing deposits 4,373 5,945
Net increase in interest bearing deposits 9,942 18,428
Net increase in subordinated debentures 5,155 --
Net increase in borrowings 14,000 --
---------- ----------
Net cash provided by financing activities 33,470 24,373
---------- ----------
Increase in cash and cash equivalents 6,980 694
Cash and cash equivalents at beginning of period 14,364 16,380
---------- ----------
Cash and cash equivalents at end of period $ 21,344 $ 17,074
========== ==========
Cash paid during the period for:
Interest $ 1,229 $ 1,373
========== ==========
Income taxes $ 753 $ 353
========== ==========
See accompanying notes to consolidated financial statements.
F-28
Monmouth Community Bancorp and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation
The accompanying unaudited consolidated financial statements include the
accounts of Monmouth Community Bancorp (the "Company") and its wholly-owned
subsidiary, Monmouth Community Bank, N.A. (the "Bank").
The interim consolidated financial statements reflect all normal and recurring
adjustments that are, in the opinion of management, considered necessary for a
fair presentation of the financial condition and results of operations for the
periods presented. The results of operations for the three and six months ended
June 30, 2004 are not necessarily indicative of the results of operations that
may be expected for all of 2004.
Certain information and note disclosures normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America have been condensed or omitted, pursuant to the
rules and regulations of the Securities and Exchange Commission.
The number of shares outstanding and earnings per share amounts set forth herein
for all periods presented have been adjusted to reflect the six-for-five stock
split for shareholders of record on July 15, 2004.
These unaudited consolidated financial statements should be read in conjunction
with the audited consolidated financial statements and notes thereto included in
the Company's Annual Report on Form 10-KSB for the year ended December 31, 2003.
(2) Earnings per Share
The following table reconciles shares outstanding for basic and diluted earnings
per share, adjusted for the six-for-five stock split for shareholders of record
on July 15, 2004, for the six months ended June 30, 2004 and 2003 (in
thousands):
Six months ended
June 30,
----------------
2004 2003
---- ----
Average basic shares outstanding 1,861 1,860
Add: Effect of dilutive securities:
Stock options 91 43
----- -----
Average diluted shares outstanding 1,952 1,903
===== =====
F-29
Monmouth Community Bancorp and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock Based Compensation
The Company has elected to account for stock-based compensation under APB
Opinion No. 25, Accounting for Stock Issued to Employees, and to provide pro
forma disclosures of net income and earnings per share as if the Company had
adopted the fair value based method of accounting in accordance with Statement
of Financial Accounting Standards ("SFAS") No. 123, Accounting for Stock-Based
Compensation, as amended by SFAS No. 148, Accounting for Stock-Based
Compensation.
Had compensation cost for the Company's stock options been determined in
accordance with SFAS No. 123, the Company's net income and related earnings per
share amounts, adjusted for the six-for-five stock split for shareholders of
record on July 15, 2004, for the six months ended June 30, 2004 and 2003 would
have decreased to the following pro forma amounts:
Six months ended
June 30,
----------------------------
2004 2003
---- ----
Net Income :
As reported $ 610,000 $ 216,000
Deduct: Total stock-based employee compensation
expense determined under the fair value-based
method for all awards, net of related tax effects $ 153,000 $ 60,000
----------------------------
Pro forma $ 457,000 $ 156,000
============================
Net income per share - basic:
As reported $ 0.33 $ 0.12
Pro forma $ 0.25 $ 0.08
============================
Net income per share - diluted:
As reported $ 0.31 $ 0.11
Pro forma $ 0.23 $ 0.08
============================
F-30
Monmouth Community Bancorp and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(3) Loans Receivable, Net
Loans receivable, net at June 30, 2004 and December 31, 2003 consisted of the
following (in thousands):
June 30, December 31,
Loan Type 2004 2003
- ---------------------------------------------- -------- ------------
Commercial and industrial loans $ 22,560 $ 20,380
Real estate loans - commercial 90,585 77,799
Home equity and second mortgages 20,660 17,734
Consumer loans 705 1,270
-------- --------
Total $134,510 $117,183
Less:
Allowance for loan losses 1,506 1,378
-------- --------
Net loans $133,004 $115,805
======== ========
Non-Performing Loans
Loans are considered to be non-performing if they (i) are on a non-accrual
basis, (ii) are past due ninety (90) days or more and still accruing interest,
or (iii) have been renegotiated to provide a reduction or deferral of interest
because of a weakening in the financial position of the borrowers. A loan which
is past due ninety (90) days or more, and still accruing interest, remains on
accrual status only where it is both adequately secured as to principal and is
in the process of collection. The Bank had non-accrual loans totaling $310,000
at June 30, 2004 and $40,000 at December 31, 2003. The increase is due to two
loans to a single borrower. Those loans are well secured by real estate and full
payment is expected.
(4) Deposits
The major types of deposits at June 30, 2004 and December 31, 2003 were as
follows (in thousands):
June 30, December 31,
Deposit Type 2004 2003
- ---------------------------------------------- -------- ------------
Non-interest bearing $ 31,191 $ 26,818
Checking 57,158 55,178
Savings 19,632 20,284
Money market 39,199 42,803
Certificates of deposit of less than $100,000 26,845 17,449
Certificates of deposit of $100,000 or more 47,524 44,702
-------- --------
Total $221,549 $207,234
======== ========
(5) Subordinated Debentures
In March 2004, MCBK Capital Trust I, a newly formed Delaware statutory business
trust and a wholly-owned, unconsolidated subsidiary of the Company, issued an
aggregate of $5.0 million
F-31
Monmouth Community Bancorp and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
of trust preferred securities to ALESCO Preferred Funding III, a pooled
investment vehicle. Sandler O'Neill & Partners, L.P. acted as placement agent in
connection with the offering of the trust preferred securities. The securities
issued by MCBK Capital Trust I are fully guaranteed by the Company with respect
to distributions and amounts payable upon liquidation, redemption or repayment.
These securities have a floating interest rate equal to the three-month LIBOR
plus 285 basis points, which resets quarterly, with an initial interest rate of
3.96%. The securities mature on April 7, 2034 and may be called at par by the
Company any time after April 7, 2009. These securities were placed in a private
transaction exempted from registration under the Securities Act of 1933, as
amended.
The entire proceeds to MCBK Capital Trust I from the sale of the trust preferred
securities were used by MCBK Capital Trust I in order to purchase $5.1 million
of floating rate junior subordinated debt securities (the "Subordinated
Debentures") from the Company. The Subordinated Debentures bear a variable
interest rate equal to LIBOR plus 2.85% (1.60% + 2.85% = 4.45% at July 7, 2004).
Although the Subordinated Debentures are treated as debt of the Company, they
currently qualify as Tier I Capital investments, subject to the 25% limitation
under risk-based capital guidelines of the Federal Reserve. The portion of the
trust preferred securities that exceeds this limitation qualifies as Tier II
Capital of the Company. At June 30, 2004, the $5.0 million of the trust
preferred securities qualified for treatment as Tier I Capital. The Company is
using the proceeds it received from the Subordinated Debentures to support the
general balance sheet growth of the Bank and to help ensure that the Bank
maintains the required regulatory capital ratios.
In July 2003, the Board of Governors of the Federal Reserve System instructed
bank holding companies to continue to include the trust preferred securities in
their Tier I Capital for regulatory capital purposes until notice is given to
the contrary. There can be no assurance that the Federal Reserve will continue
to allow institutions to include trust preferred securities in Tier I Capital
for regulatory capital purposes. Assuming the Company would not be allowed to
include the $5.0 million in trust preferred securities issued by the subsidiary
trust in Tier I Capital, the Bank, due to its capital structure, would remain
"well capitalized" at June 30, 2004.
Financial Accounting Standards Board ("FASB") Interpretation No. 46,
Consolidation of Variable Interest Entities ("FIN 46"), was issued in January
2003. FIN 46 applies to enterprises that hold a variable interest in variable
interest entities created after January 31, 2003. Under FIN 46, the Company is
not permitted to consolidate MCBK Capital Trust I, the subsidiary trust created
in connection with the offering of trust preferred securities. The
deconsolidation of a subsidiary trust results in the Company reporting on its
statements of condition the Subordinated Debentures that have been issued from
the Company to the subsidiary trust.
(6) Short-term Borrowings
At June 30, 2004, the Bank had $14 million in overnight borrowings as compared
to no borrowings at December 31, 2003. The increase in borrowings was necessary
in order to fund the increased demand for loans that occurred during the second
quarter of 2004. All $14 million of these borrowings were repaid during July,
2004.
F-32
Monmouth Community Bancorp and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(7) Comprehensive Income (Loss)
Comprehensive income (loss) is comprised of net income and other comprehensive
income (loss). Other comprehensive income (loss) includes unrealized gains and
losses on securities available for sale, net of tax. Total comprehensive income
(loss) for the six months ended June 30, 2004 and 2003 was as follows (in
thousands):
Six months ended
June 30,
--------------------------
Comprehensive Income 2004 2003
- ----------------------------------------------- -------- ---------
Net income $ 610 $ 216
Unrealized gain (loss) on securities available
for sale, net of tax (1,064) (21)
Less: Reclassification adjustment for gains
included in net income, net of tax -- (33)
--------------------------
Total comprehensive (loss) income $ (454) $ 162
==========================
(8) Material Transaction
On June 30, 2004, the Company and Allaire Community Bank ("Allaire") entered
into an Agreement and Plan of Acquisition to combine, as equals, in a strategic
business combination transaction. The agreement provides for the Company to
change its name to Central Jersey Bancorp, effect a six-for-five stock split to
shareholders of record as of July 15, 2004, and exchange one share of Central
Jersey Bancorp common stock for each outstanding share of Allaire common stock.
It is anticipated that subsequent to the consummation of the combination,
Allaire and the Bank will combine and thereafter be referred to as Central
Jersey Bank, National Association. The proposed combination is subject to
certain customary conditions including the Company and Allaire receiving
shareholder and regulatory approvals. The combination is anticipated to close by
the end of 2004.
F-33
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of
Allaire Community Bank:
We have audited the accompanying consolidated balance sheets of Allaire
Community Bank and subsidiary as of December 31, 2003 and 2002, and the related
consolidated statements of income, changes in stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 2003.
These consolidated financial statements are the responsibility of Allaire's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Allaire Community
Bank and subsidiary as of December 31, 2003 and 2002 and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2003 in conformity with U.S. generally accepted accounting
principles.
/s/ KPMG LLP
Short Hills, New Jersey
February 5, 2004, except as to Note 13,
which is as of June 30, 2004
F-34
ALLAIRE COMMUNITY BANK
Consolidated Balance Sheets
December 31, 2003 and 2002
(in thousands, except share amounts)
2003 2002
--------- ---------
Assets
Cash and due from banks $ 7,149 $ 5,547
Federal funds sold 100 8,920
Securities available for sale, at market value 46,609 36,930
Securities held to maturity (market value of $12,362 in 2003
and $8,075 in 2002) 12,550 8,056
Loans, net 108,235 90,270
Premises and equipment 2,529 2,703
Bank Owned Life Insurance 3,105 --
Other assets 1,743 1,307
--------- ---------
Total assets $ 182,020 $ 153,733
========= =========
Liabilities and Stockholders' Equity
Deposits:
Non-interest bearing $ 35,094 $ 34,602
Interest bearing 122,364 105,427
--------- ---------
157,458 140,029
Other borrowings 10,250 --
Accrued expenses and other liabilities 384 991
--------- ---------
Total liabilities 168,092 141,020
Commitments and contingencies (notes 4 and 8)
Stockholders' equity:
Common stock, par value $3.33 per share
Authorized 7,500,000 shares in 2003
and 2002 Issued and outstanding 1,971,361
1,967,399 shares in 2003 and 2002, respectively 6,258 6,246
Additional paid-in capital 5,157 5,142
Retained earnings 2,535 933
Accumulated other comprehensive (loss) income (22) 392
--------- ---------
Total stockholders' equity 13,928 12,713
--------- ---------
Total liabilities and stockholders' equity $ 182,020 $ 153,733
========= =========
See accompanying notes to consolidated financial statements.
F-35
ALLAIRE COMMUNITY BANK
Consolidated Statements of Income
For the years ended December 31, 2003, 2002 and 2001
(in thousands, except share amounts)
2003 2002 2001
---------- ---------- ----------
Interest and dividend income:
Interest and fees on loans $ 6,542 $ 5,321 $ 4,000
Interest on securities available for sale 2,004 1,845 744
Interest on securities held to maturity 512 45 0
Interest on federal funds sold and due from banks 55 168 519
---------- ---------- ----------
Total interest income 9,113 7,379 5,263
Interest expense:
Interest on deposits 1,780 1,653 1,571
Interest on other borrowings 27 -- --
---------- ---------- ----------
Total interest expense 1,807 1,653 1,571
Net interest income 7,306 5,726 3,692
Provision for loan losses 185 275 203
---------- ---------- ----------
Net interest income after provision for loan losses 7,121 5,451 3,489
Other income:
Service charges on deposit accounts 354 332 227
Gain on sales of securities 120 5 --
Income on Bank Owned Life Insurance 105 -- --
Other service charges, commissions and fees 104 83 76
---------- ---------- ----------
Total other income 683 420 303
Other expenses:
Salaries and employee benefits 2,652 2,155 1,723
Occupancy expenses 932 806 729
Stationery, supplies and printing 129 122 123
Data processing 763 634 498
Advertising and marketing 60 67 74
Professional fees 241 214 110
Other expenses 546 377 284
---------- ---------- ----------
Total other expenses 5,323 4,375 3,541
---------- ---------- ----------
Income before income taxes 2,481 1,496 251
Income taxes 879 562 97
---------- ---------- ----------
Net income $ 1,602 $ 934 $ 154
========== ========== ==========
Net income per share
Basic $ 0.81 $ 0.47 $ 0.08
Diluted 0.73 0.45 0.08
Weighted average shares outstanding
Basic 1,968,731 1,968,637 1,967,398
Diluted 2,187,555 2,083,352 2,012,373
See accompanying notes to consolidated financial statements.
F-36
ALLAIRE COMMUNITY BANK
Consolidated Statements of Changes in Stockholders' Equity
For the years ended December 31, 2003, 2002 and 2001
(in thousands, except for share amounts)
Accumulated
Additional other
Common paid-in Retained comprehensive
Stock capital Earnings (loss) income Total
------- ---------- -------- ------------- -------
Balance at December 31, 2000 $ 5,665 5,542 26 (22) 11,211
Net income 154 154
Other comprehensive income,
net unrealized holding gains
on securities available for sale,
net of tax of $22 33 33
-------
5% Stock distribution, 62,457
shares 283 (227) (56) -- --
------- ------- ------- ------- -------
Balance at December 31, 2001 $ 5,948 5,315 124 11 11,398
Net income 934 934
Other comprehensive income,
net unrealized holding gains
on securities available for sale,
net of tax of $235 384 384
-------
Less reclassification adjustment
for gains included in net income,
net of tax of $2 (3) (3)
Comprehensive income 1,315
5% Stock distribution, 62,457
shares 298 (173) (125) -- --
------- ------- ------- ------- -------
Balance at December 31, 2002 $ 6,246 5,142 933 392 12,713
Net income 1,602 1,602
Other comprehensive income,
net unrealized holding losses
on securities available for sale,
net of tax of $207 (340) (340)
Less reclassification
adjustment for gains included
in net income,
net of tax of $46 (74) (74)
Comprehensive income 1,188
Stock options exercised 12 15 -- -- 27
------- ------- ------- ------- -------
Balance at December 31, 2003 $ 6,258 $ 5,157 $ 2,535 $ (22) $13,928
======= ======= ======= ======= =======
See accompanying notes to consolidated financial statements.
F-37
ALLAIRE COMMUNITY BANK
Consolidated Statements of Cash Flows
For the years ended December 31, 2003, 2002 and 2001
(in thousands)
2003 2002 2001
---------- ---------- ----------
Cash flows from operating activities:
Net income $ 1,602 $ 934 $ 154
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses 185 275 203
Depreciation and amortization 305 295 260
Increase other assets (436) (890) (207)
Gain on sale of securities (120) (5) --
(Decrease) increase in accrued expenses and other liabilities (354) 743 (1)
Increase in cash surrender value of insurance (105) -- --
---------- ---------- ----------
Net cash provided by operating activities 1,077 1,352 409
---------- ---------- ----------
Cash flows from investing activities:
Purchase of Bank Owned Life Insurance (3,000) -- --
Proceeds from maturities/paydowns and sales of securities
available for sale 25,925 29,325 23,691
Purchase of securities available for sale (36,151) (41,840) (37,239)
Purchase of securities held to maturity (4,494) (8,056) --
Net increase in loans (18,150) (26,886) (21,326)
Purchases of premises and equipment (131) (243) 1,265)
---------- ---------- ----------
Net cash used in investing activities (36,001) (47,700) (36,139)
---------- ---------- ----------
Cash flows from financing activities:
Increase in short term borrowings 8,750 -- --
Increase in other borrowings 1,500 -- --
Proceeds from exercise of stock options 27 -- --
Net increase in non-interest bearing deposits 492 8,252 11,428
Net increase in interest bearing deposits 16,937 42,842 20,288
---------- ---------- ----------
Net cash provided by financing activities 27,706 51,094 31,716
---------- ---------- ----------
(Decrease) increase in cash and cash equivalents (7,218) 4,746 (4,014)
Cash and cash equivalents at beginning of year 14,467 9,721 13,735
---------- ---------- ----------
Cash and cash equivalents at end of year $ 7,249 $ 14,467 $ 9,721
========== ========== ==========
Cash paid during the year for:
Interest $ 1,815 $ 1,704 $ 1,569
========== ========== ==========
Income taxes $ 1,360 $ 27 $ 74
========== ========== ==========
See accompanying notes to consolidated financial statements.
F-38
ALLAIRE COMMUNITY BANK
Notes to Consolidated Financial Statements
December 31, 2003, 2002 and 2001
(1) Summary of Significant Accounting Policies
Overview
Allaire Community Bank provides a full range of banking services to customers
located primarily in Monmouth and Ocean Counties, New Jersey. Allaire Community
Bank is subject to federal and New Jersey statutes applicable to banks chartered
under the New Jersey Banking Act of 1948, as amended. Allaire Community Bank's
deposits are insured by the Federal Deposit Insurance Corporation ("FDIC").
Accordingly, Allaire Community Bank is subject to regulation, supervision and
examination by the New Jersey State Department of Banking and Insurance and the
FDIC.
Basis of Financial Statement Presentation
The accompanying consolidated financial statements include the accounts of
Allaire Community Bank and its wholly-owned subsidiary, Allaire Investment Co.,
Inc. (collectively, "Allaire" or the "Bank"). All significant inter-company
transactions have been eliminated in consideration.
In preparing the consolidated financial statements, management is required to
make estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the balance sheet and results of operations for
the periods indicated. Actual results could differ significantly from those
estimates.
Material estimates that are particularly susceptible to significant change in
the near term relate to the determination of the allowance for loan losses.
While management uses available information to recognize estimated losses on
loans, future additions may be necessary based on changes in economic conditions
and underlying collateral values, if any. In addition, various regulatory
agencies, as an integral part of their examination process, periodically review
Allaire's allowances for loan losses. Such agencies may require the Bank to
recognize additions to the allowance based on their judgments of information
available to them at the time of their examination.
Securities Available for Sale and Held to Maturity
Securities classified as held to maturity are stated at cost, adjusted for
amortization of premiums and accretion of discounts, which are recognized as
adjustments to interest income, using a method that approximates level yield.
The Bank has both the positive intent and ability to hold these securities to
maturity. Securities to be held for indefinite periods of time and not intended
to be held to maturity, including all equity securities, are classified as
available for sale. Securities available for sale include securities that
management intends to use as part of its asset/liability management strategy and
that may be sold in response to changes in interest rates, resultant prepayment
risk and other factors related to interest rate and resultant prepayment risk
changes. Securities available for sale are carried at estimated fair value and
unrealized holding gains and losses on such securities are excluded from
earnings and reported as a separate
F-39
ALLAIRE COMMUNITY BANK
Notes to Consolidated Financial Statements
December 31, 2003, 2002 and 2001
component of stockholders' equity, net of tax. Gains and losses on sales of
securities are based on the identifiable cost and are accounted for on a trade
date basis.
Loans
Loans are stated at unpaid principal balances, less unearned income and deferred
loan fees. Interest on loans is credited to operations based upon the principal
amount outstanding. Loan origination and commitment fees and certain direct loan
origination costs are deferred, and the net amount is amortized over the
estimated life of the loan on a basis that approximates a level yield. Fees
relating to standby letters of credit are recognized over the commitment period.
A loan is considered impaired when, based on current information and events, it
is probable that the Bank will be unable to collect all amounts due according to
the contractual terms of the loan agreement. Impaired loans are measured based
on the present value of expected future cash flows, or, as a practical
expedient, at the loan's observable market price, or the fair value of the
underlying collateral, if the loan is collateral dependent. Conforming
residential mortgage loans, home equity and second mortgages, and loans to
individuals are excluded from the definition of impaired loans as they are
characterized as smaller balance, homogeneous loans and are collectively
evaluated.
The accrual of income on loans, including impaired loans, is generally
discontinued when a loan becomes more than ninety (90) days delinquent as to
principal or interest or when other circumstances indicate that collection is
questionable, unless the loan is well secured and in the process of collection.
Income on nonaccrual loans, including impaired loans, is recognized only in the
period in which it is collected and only if management determines that the loan
principal is fully collectible. Loans are returned to an accrual status when a
loan is brought current as to principal and interest and reasons indicating
doubtful collection no longer exist.
Allowance for Loan Losses
The allowance for loan losses is maintained at a level management considers
adequate to provide for probable losses inherent in the loan portfolio as of the
balance sheet date. The allowance is increased by provisions charged to expense
and is reduced by net charge-offs. The level of the allowance is based on
management's evaluation of probable losses inherent in the loan portfolio, after
consideration of among other things, an individual borrower's current economic
condition, underlying collateral values, prevailing economic conditions, and
changes in portfolio composition. Management believes that the allowance for
loan losses is adequate.
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation is charged to operations on a straight-line basis
over the estimated useful lives of the assets or, in the case of leasehold
improvements, the lease period, if shorter. Gains or losses on dispositions are
reflected in current operations. Maintenance and repairs are charged to expense
as incurred.
F-40
ALLAIRE COMMUNITY BANK
Notes to Consolidated Financial Statements
December 31, 2003, 2002 and 2001
Income Taxes
Income taxes are accounted for under the asset and liability method. Current
income taxes are provided for based upon amounts estimated to be currently
payable, for both federal and state income taxes. Deferred federal and state tax
assets and liabilities are recognized for the expected future tax consequences
of existing differences between financial statement and tax bases of existing
assets and liabilities. Deferred tax assets are recognized for future deductible
temporary differences and tax loss carry forwards if their realization is "more
likely than not." The effect of a change in the tax rate on deferred taxes is
recognized in the period of the enactment date.
Net Income per Share and Stock Distributions
Net income per share-basic is calculated by dividing net income by the weighted
average shares outstanding during the period. Net income per share-diluted is
calculated by dividing net income by the weighted average shares outstanding
plus the dilutive effect of stock options, utilizing the treasury stock method.
All per share amounts reflect a 5% stock distribution declared on April 6, 2001,
a 5% stock distribution declared on March 15, 2002, a three-for-two stock split
declared on December 18, 2002 and a 5% stock distribution declared in 2004. See
also Note 13 for information regarding the stock distribution declared and paid
in 2004. As the Bank did not have sufficient retained earnings to record the
stock distribution at the fair value of the stock distributed, the fair value of
the stock was charged against retained earnings, to the extent retained earnings
were available, the remaining amount was charged against additional paid in
capital. The following is a calculation of net income per share for 2003, 2002
and 2001, dollars in thousands:
2003 2002 2001
---------- ---------- ----------
Net income $ 1,602 $ 934 $ 154
Basic weighted average shares outstanding 1,968,731 1,968,637 1,967,398
Plus: Dilutive stock options 218,824 114,715 44,975
Diluted weighted average share outstanding 2,187,555 2,083,352 2,012,373
Net income per share
Basic $ 0.81 $ 0.47 $ 0.08
Diluted $ 0.73 $ 0.45 $ 0.08
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include cash on
hand, amounts due from banks and federal funds sold. Federal funds sold are
generally sold for one-day periods.
F-41
ALLAIRE COMMUNITY BANK
Notes to Consolidated Financial Statements
December 31, 2003, 2002 and 2001
Stock Based Compensation
At December 31, 2003, the Bank had three stock-based compensation plans, which
are described more fully in Note 10. The Bank accounts for those plans under the
recognition and measurement principles of APB Opinion No. 25, Accounting for
Stock Issued to Employees, and related Interpretations. No stock-based employee
compensation cost related to stock options is reflected in net income, as all
options granted under those plans had an exercise price equal to the market
value of the underlying common stock on the date of grant. The following table
illustrates the effect on net income and earnings per share if the Bank had
applied the fair value recognition provisions of FASB Statement No. 123,
Accounting for Stock-Based Compensation, to our stock option plans.
Years Ended December 31,
---------------------------------------------
2003 2002 2001
----------- ---------- ----------
Net income, as reported $ 1,602,000 $ 934,000 $ 154,000
Deduct: Total Stock-based compensation expense
determined under fair value based method all
awards, net of related tax effects 21,000 97,000 392,000
----------- ---------- ----------
Pro forma net income $ 1,581,000 $ 837,000 $ (238,000)
=========== ========== ==========
Earnings per share:
Basic - as reported $ 0.81 $ 0.47 $ 0.08
Basic - pro forma $ 0.80 $ 0.43 $ (0.12)
Diluted - as reported $ 0.73 $ 0.45 $ 0.08
Diluted - pro forma $ 0.72 $ 0.40 $ (0.12)
Comprehensive Income
Comprehensive income includes net income and the change in the unrealized gain
(loss) on securities available for sale, net of tax.
(2) Cash and Due from Banks
The Bank is required to maintain average reserve balances with the Federal
Reserve Bank. At December 31, 2003 and 2002, the Bank was required to maintain
$963,000 and $411,000, respectively, in deposits with the Federal Reserve Bank.
The Bank was not required to maintain any other reserve balances.
F-42
ALLAIRE COMMUNITY BANK
Notes to Consolidated Financial Statements
December 31, 2003, 2002 and 2001
(3) Securities Available for Sale
The amortized cost, gross unrealized gains and losses, and estimated market
value of securities available for sale at December 31, 2003 and 2002 are as
follows (in thousands):
2003
-----------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---------- ---------- ---------- ----------
Obligations of U.S. Government
sponsored agencies $ 46,544 $ 297 $ (335) $ 46,506
Corporate securities 100 3 -- 103
---------- ---------- ---------- ----------
Total $ 46,644 $ 300 $ (335) $ 46,609
========== ========== ========== ==========
2002
-----------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---------- ---------- ---------- ----------
Obligations of U.S. Government
sponsored agencies $ 35,240 $ 589 $ (1) $ 35,828
Corporate securities 1,058 49 (5) 1,102
---------- ---------- ---------- ----------
Total $ 36,298 $ 638 $ (6) $ 36,930
========== ========== ========== ==========
In 2003, 2002 and 2001, the Bank received $25.8 million, $29.3 million and $23.7
million in security proceeds resulting in gross realized gains of $120,000,
$5,000 and $0, respectively.
F-43
ALLAIRE COMMUNITY BANK
Notes to Consolidated Financial Statements
December 31, 2003, 2002 and 2001
The following table (in thousands) includes the amortized cost of securities
held to maturity at December 31, 2003 and 2002. Allaire did not have any
securities classified as held to maturity in 2001.
2003
-----------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---------- ---------- ---------- ----------
Obligations of U.S. Government
sponsored agencies $ 12,550 $ 35 $ (223) $ 12,362
========== ========== ========== ==========
2002
-----------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---------- ---------- ---------- ----------
Obligations of U.S. Government
sponsored agencies $ 8,056 $ 19 $ -- $ 8,075
========== ========== ========== ==========
The amortized cost and estimated market value of securities available for sale
and held to maturity at December 31, 2003, by contractual maturity, are shown
below (in thousands). Expected maturities will differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without call or prepayment penalties.
Estimated
Securities Available for Sale Amortized Cost Market Value
-------------- ------------
Within one year through five years $ -- $ --
After five years through ten years 28,191 28,253
After ten years 18,453 18,356
------------ ------------
Total $ 46,644 $ 46,609
============ ============
Estimated
Securities Held to Maturity Amortized Cost Market Value
-------------- ------------
Within one year through five years $ -- $ --
After five years through ten years 8,552 8,562
After ten years 3,998 3,800
------------ ------------
Total $ 12,550 $ 12,362
============ ============
F-44
ALLAIRE COMMUNITY BANK
Notes to Consolidated Financial Statements
December 31, 2003, 2002 and 2001
Investment securities with a carrying value of $6,518,000 and $1,023,000 at
December 31, 2003 and 2002, respectively, were pledged to secure public funds
and as required by the Federal Home Loan Bank of New York for short term
borrowings.
Gross unrealized losses on securities available for sale and held to maturity
and the estimated market value of the related securities, aggregated by
investment category and length of time that individual securities have been in a
continuous unrealized loss position, at December 31, 2003 were as follows:
Less than 12 months 12 months or more Total
---------------------- --------------------- ----------------------
Fair Unrealized Unrealized Fair Unrealized Fair
Value Losses Losses Value Losses Value
------- ----------- ---------- ------- ---------- -------
Available for Sale:
U.S. Government sponsored
agencies $22,142 $ 335 $ -- $ -- $ 335 $22,142
======= ======= ======= ======= ======= =======
Held to Maturity:
U.S. Government sponsored
agencies $ 4,271 $ 223 $ -- $ -- $ 223 $ 4,271
======= ======= ======= ======= ======= =======
The unrealized losses on securities were caused by interest rate increases. The
contractual terms of these investments do not permit the issuer to settle the
securities at a price less than the par value of the investment. All principal
and interest payments are guaranteed by sponsored agencies of the U.S.
Government. Because the Bank has the ability and intent to hold these
investments until a market price recovery or maturity, these investments are not
considered other-than-temporarily impaired.
F-45
ALLAIRE COMMUNITY BANK
Notes to Consolidated Financial Statements
December 31, 2003, 2002 and 2001
(4) Loans
Loans at December 31, 2003 and 2002 are summarized as follows (in thousands):
2003 2002
--------- ---------
Real estate loans - residential $ 16,199 $ 17,079
Real estate loans - commercial 52,805 39,911
Home equity and second mortgages 16,963 16,183
Commercial and industrial 13,333 11,872
Construction and land development 8,724 5,297
Consumer 1,301 834
--------- ---------
109,325 91,176
Allowance for loan losses (1,090) (906)
--------- ---------
$ 108,235 $ 90,270
========= =========
A substantial portion of the Bank's loans are secured by real estate located in
New Jersey, primarily in Monmouth and Ocean Counties. Accordingly, as with most
financial institutions in the market area, the ultimate collectibility of a
substantial portion of the Bank's loan portfolio is susceptible to changes in
market conditions in these areas.
At December 31, 2003 and 2002, the Bank had loans to Officers, Directors and
their affiliates of $702,000 and $322,000, respectively. The activity in 2003
consisted of originations of $393,000 and repayments of $13,000.
Activity in the allowance for loan losses for the years ended December 31, 2003,
2002 and 2001 is summarized as follows (in thousands):
2003 2002 2001
------ ------ ------
Balance at beginning of year $ 906 $ 633 $ 430
Provision for loan losses 185 275 203
Charge-offs 1 2 --
------ ------ ------
Balance at end of year $1,090 $ 906 $ 633
====== ====== ======
At December 31, 2003 and 2002, there were no non-accrual loans or loans
considered to be impaired.
The Bank is party to financial instruments with off-balance-sheet risk in the
normal course of business to meet the financial needs of its customers. These
financial instruments include commercial and standby letters of credit and
unused lines of credit and involve, to varying degrees, elements of credit risk
in excess of the amount recognized in the financial statements.
F-46
ALLAIRE COMMUNITY BANK
Notes to Consolidated Financial Statements
December 31, 2003, 2002 and 2001
The contract or notional amounts of these instruments express the extent of
involvement the Bank has in each category of financial instruments.
The Bank's exposure to credit loss from nonperformance by the other party to the
above mentioned financial instruments is represented by the contractual amount
of those instruments. The Bank uses the same credit policies in making
commitments and conditional obligations as it does for on-balance-sheet
instruments.
The contract or notional amount of financial instruments whose contract amounts
represent credit risk at December 31, 2003 is as follows (in thousands):
Standby letters of credit $ 508
=======
Outstanding loan and credit line commitments $35,321
=======
Standby letters of credit are conditional commitments issued by the Bank
guaranteeing performance by a customer to a third party. Fees charged for
standby letters of credit with similar terms are utilized to estimate fair value
of such guarantees, which were not significant at December 31, 2003. Outstanding
loan commitments represent the unused portion of loan commitments available to
individuals and companies as long as there is no violation of any condition
established in the contract. Outstanding loan commitments generally have a fixed
expiration date of one year or less, except for home equity loan credit line
commitments which generally have an expiration date of up to 5 years. The bank
evaluates each customer's creditworthiness on a case-by-case basis. The amount
of collateral obtained if deemed necessary by the Bank upon extension of credit
is based upon management's credit evaluation of the customer. Various types of
collateral may be held, including property and marketable securities. The credit
risk involved in these financial instruments is essentially the same as that
involved in extending loan facilities to customers.
Real estate loans, primarily one to four family homes with a carrying value of
$6,354,418 and $8,329,689 at December 31, 2003 and 2002, respectively, were
pledged to secure short term borrowings as required by the Federal Home Loan
Bank of New York. The Bank joined the Federal Home Loan Bank of New York during
2002.
F-47
ALLAIRE COMMUNITY BANK
Notes to Consolidated Financial Statements
December 31, 2003, 2002 and 2001
(5) Premises and Equipment
Premises and equipment at December 31, 2003 and 2002 is summarized as follows
(in thousands):
2003 2002
--------- ---------
Building $ 325 $ 325
Land 378 378
Leasehold improvements 1,444 1,417
Equipment 1,623 1,519
--------- ---------
3,770 3,639
Accumulated depreciation (1,241) (936)
--------- ---------
$ 2,529 $ 2,703
========= =========
Depreciation and amortization expense amounted to $305,000, $295,000 and
$260,000 in 2003, 2002 and 2001, respectively.
(6) Deposits
Interest-bearing deposits at December 31, 2003 and 2002 consist of the following
(in thousands):
2003 2002
--------- ---------
Savings, N.O.W., and money market accounts $ 74,191 $ 66,680
Certificates of deposit of less than $100,000 32,571 26,986
Certificates of deposit of $100,000 or more 15,602 11,761
--------- ---------
$ 122,364 $ 105,427
========= =========
At December 31, 2003, certificates of deposit of $46,380,000 and $1,793,000
mature in 2004 and 2005 respectively.
(7) Other Borrowings
The Bank currently is a member of the Federal Home Loan Bank of New York and
Atlantic Central Bankers Bank, which are both primary sources used for short and
long term borrowings. The Federal Home Loan Bank of New York and Atlantic
Central Bankers Bank both price their advances daily. At December 31, 2003, the
Bank had $1.5 million at a rate of 2.25% for a two year term, and $6.7 million
at a rate of 1.04% in overnight borrowings with the Federal Home Loan Bank of
New York, and $2.1 million at a rate of 1.47% in overnight borrowings with the
Atlantic Central Bankers Bank.
F-48
ALLAIRE COMMUNITY BANK
Notes to Consolidated Financial Statements
December 31, 2003, 2002 and 2001
(8) Income Taxes
Components of income tax expense (benefit) for the years ended December 31,
2003, 2002 and 2001 are as follows (in thousands):
2003 2002 2001
-------- -------- --------
Current income tax expense
Federal $ 825 $ 534 $ 65
State 100 82 21
-------- -------- --------
$ 925 $ 616 $ 86
-------- -------- ========
Deferred income tax expense (benefit)
Federal (49) (47) 18
State 3 (7) (7)
-------- -------- --------
$ (46) $ 54 11
-------- -------- --------
$ 879 $ 562 $ 97
======== ======== ========
The following table presents a reconciliation between the reported income taxes
and the income taxes which would be computed by applying the normal federal
income tax rate (34%) to income before taxes:
2003 2002 2001
-------- -------- --------
Federal income tax $ 844 $ 508 $ 85
Add (deduct) effect of:
State income tax expense, net of federal
income tax effect 66 29 9
Change in valuation reserve -- 21 --
Tax-exempt income (1) (1) --
Bank Owned Life Insurance (36) -- --
Meals & entertainment 3 3 2
Other 3 2 1
-------- -------- --------
$ 879 $ 562 $ 97
======== ======== ========
F-49
ALLAIRE COMMUNITY BANK
Notes to Consolidated Financial Statements
December 31, 2003, 2002 and 2001
The tax effects of existing temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are as follows:
2003 2002
------- -------
Deferred tax assets:
Allowance for loan losses $ 425 $ 354
Organization & start-up costs -- 1
New Jersey NOL carry-forwards 32 32
Unrealized loss on AFS Securities 13 --
Organizational and start-up costs 20 9
------- -------
490 396
Valuation Reserve 63 35
------- -------
427 361
------- -------
Deferred tax liabilities
Loan origination costs 90 76
Depreciation 87 40
Unrealized gains on securities available for sale -- 240
Accrued interest receivable and accrued expenses 195 249
------- -------
372 605
------- -------
Net deferred tax (liability) asset $ 55 $ (244)
======= =======
Included in other comprehensive income was $253,000, $233,000 and $240,000 in
2003, 2002 and 2001, respectfully, of deferred income tax expense related to the
change in unrealized gains on securities available for sale.
Based upon taxes paid and estimated future taxable income, management believes
that it is more likely than not that the net deferred tax asset will be
realized. A valuation reserve of $63,000 and $35,000 has been established at
December 31, 2003 and 2002 related to certain state tax benefits.
(9) Commitments and Contingencies
At December 31, 2003, the Bank was obligated under five non-cancelable leases
for premises. Such leases provide for increased rentals based upon increases in
real estate taxes and the cost of living index. Minimum rental payments under
the terms of these leases are as follows (in thousands):
2004 $ 366
2005 324
2006 270
2007 225
2008 168
Thereafter $ 231
Total rent expense was $377,000, $313,000 and $283,000 in 2003, 2002 and 2001,
respectively.
F-50
ALLAIRE COMMUNITY BANK
Notes to Consolidated Financial Statements
December 31, 2003, 2002 and 2001
Litigation
The Bank may, in the ordinary course of business, become a party to litigation
involving collection matters, contract claims and other legal proceedings
relating to the conduct of its business. The Bank may also have various
commitments and contingent liabilities which are not reflected in the
accompanying consolidated statement of condition. Management is not aware of any
present legal proceedings or contingent liabilities and commitments that would
have a material impact on the Bank's financial position or results of
operations.
(10) Regulatory Matters
Subject to applicable law, the Board of Directors of the Bank may provide for
the payment of dividends. New Jersey law provides that no dividend may be paid
unless, after the payment of such dividend, the capital stock of the Bank will
not be impaired and either the Bank will have a statutory surplus of not less
than 50% of its capital stock or the payment of such dividend will not reduce
the statutory surplus of the Bank.
The Bank is subject to various regulatory capital requirements administered by
federal and state banking agencies. Failure to meet minimum requirements can
initiate certain mandatory and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgments by the regulators and components, risk
weightings and other factors.
The prompt corrective action regulations define specific capital categories
based on an institution's capital ratios. The capital categories, in declining
order, are "well capitalized," "adequately capitalized," "undercapitalized,"
"significantly undercapitalized," and "critically undercapitalized."
Institutions categorized as "undercapitalized" or worse are subject to certain
restrictions on the payment of dividends and management fees, restrictions on
asset growth and executive compensation, and increased supervisory monitoring,
among other things. Other restrictions may be imposed on the institution by the
regulatory agencies, including requirements to raise additional capital, sell
assets, or sell the entire institution.
Once an institution becomes "critically undercapitalized" it must generally be
placed in receivership or conservatorship within ninety (90) days. An
institution is deemed to be "critically undercapitalized" if it has a tangible
equity ratio, as defined, of 2% or less.
To be considered "well capitalized," an institution must generally have a
leverage ratio (Tier 1 capital to total assets), as defined, of at least 5%, a
Tier 1 risk-based capital ratio, as defined, of at least 6%, and a total
risk-based capital ratio, as defined, of at least 10%. Management believes that,
as of December 31, 2003, the Bank meets all capital adequacy requirements of the
FDIC.
F-51
ALLAIRE COMMUNITY BANK
Notes to Consolidated Financial Statements
December 31, 2003, 2002 and 2001
Further, the most recent FDIC notification categorized the Bank as a
well-capitalized institution under the prompt corrective action regulations.
The following is a summary of the Bank's actual capital amounts and ratios as of
December 31, 2003 and 2002, compared to the FDIC minimum capital adequacy
requirements and the FDIC requirements for classification as a
"well-capitalized" institution (dollars in thousands):
2003
-----------------------------------------------------------------------------
Minimum Capital Classification as well
Actual Adequacy Capitalized
--------------------- ------------------- ----------------------
Amount Ratio Amount Ratio Amount Ratio
-------- ------- -------- ------- -------- -------
Leverage (Tier 1) Capital $13,950 7.81% $ 7,144 4.00% $ 8,930 5.00%
Risk-based capital:
Tier 1 $13,950 11.02% $ 5,065 4.00% $ 7,598 6.00%
Total $15,040 11.88% $10,130 8.00% $12,663 10.00%
2002
-----------------------------------------------------------------------------
Minimum Capital Classification as well
Actual Adequacy Capitalized
--------------------- ------------------- ----------------------
Amount Ratio Amount Ratio Amount Ratio
-------- ------- -------- ------- -------- -------
Leverage (Tier 1) Capital $12,338 8.39% $ 5,882 4.00% $ 7,352 5.00%
Risk-based capital:
Tier 1 $12,338 11.95% $ 4,130 4.00% $ 6,195 6.00%
Total $13,244 12.83% $ 8,260 8.00% $10,325 10.00%
(11) Stock Option Plans
The Bank has employee and director stock option plans. The plans provide for the
granting of stock options, of up to 388,375 shares of common stock of the Bank.
The terms of grants are determined by a committee of the board of directors,
subject to the provisions of the plans. Options granted under the plan are not
exercisable beyond 10 years and may not be granted at a price less than the fair
market value of the Bank's stock on the date of grant.
F-52
ALLAIRE COMMUNITY BANK
Notes to Consolidated Financial Statements
December 31, 2003, 2002 and 2001
A summary of the status of the Bank's stock option plans as of and for the year
ended December 31, 2003, 2002 and 2001 is presented below:
2003 2002 2001
---------------------- ---------------------- -----------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------- -------- ------- -------- ------- --------
Outstanding at beginning of year 389,030 $ 7.79 385,386 $ 7.79 191,152 $ 6.52
Granted 3,308 17.50 6,954 7.86 201,417 8.95
Forfeited -- -- (3,310) 7.85 (7,183) 6.30
Exercised 3,963 6.73 -- -- -- --
Outstanding at end of year 388,375 7.91 389,030 7.79 385,386 7.79
Options exercisable at year end 388,375 7.91 389,030 7.79 341,681 7.66
Weighted average fair value
of Options granted
during the year $ 6.22 $ 2.44 $ 2.87
The weighted average remaining contractual life of stock options outstanding at
December 31, 2003 was 6.9 years.
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 2003, 2002 and 2001; dividend yield of 0%,
expected volatility of 35%; risk free interest rate of 4.40% and 4.84%
respectively; and expected lives of five years respectively.
(12) Fair Value of Financial Instruments
The following fair value estimates, methods and assumptions were used to measure
the fair value of each class of financial instruments for which it is practical
to estimate such value:
Cash and Cash Equivalents
Cash and cash equivalents are short-term in nature, the carrying amount was
considered to be a reasonable estimate of fair value.
Securities
Securities were valued based upon quoted market prices, if available, to
determine fair value. If a quoted market price was not available, fair values
were estimated using quoted market prices for similar securities.
F-53
ALLAIRE COMMUNITY BANK
Notes to Consolidated Financial Statements
December 31, 2003, 2002 and 2001
Loans
Fair values were estimated for portfolios of performing loans with similar
characteristics. For certain similar types of loans, such as residential
mortgages, fair value was estimated using the quoted market prices for
securities backed by similar loans, adjusted for differences in loan
characteristics. The fair value of other performing loan types was estimated by
discounting total future cash flows using market discount rates that reflect the
credit and interest rate risk inherent in the loan.
Fair value for significant non-performing loans was based on recent external
appraisals of collateral securing such loan. If such appraisals were not
available, estimated cash flows were discounted employing a rate incorporating
the risk associated with such cash flows.
Commitments to Extend Credit and Standby Letters of Credit
The majority of the Bank's commitments to extend credit and standby letters of
credit carry current market rates if converted to loans. Therefore, the
estimated fair value is approximated by the recorded deferred fee amounts. Such
amounts are immaterial to the consolidated financial statements of the Bank and,
therefore, are not separately disclosed.
Deposit Liabilities
The fair value of demand, savings, N.O.W. and money market deposits is the
amount payable on demand at December 31, 2003 and 2002. The fair value of
certificates of deposit was based on the discounted value of contractual cash
flows. The discount rate was estimated utilizing the rates currently offered for
deposits of similar remaining maturities.
Other Borrowings
Other borrowings consists of two year term borrowings and overnight borrowings.
The fair value of term borrowings is estimated based upon discounted cash flows
utilizing current rates charged for borrowings with similar remaining terms. The
fair value of overnight borrowings is approximated by the carrying value due to
their short-term nature.
Limitations
Fair value estimates were made at December 31, 2003 and 2002, based upon
pertinent market data and relevant information on each financial instrument.
These estimates do not include any premium or discount that could result from an
offer to sell the Bank's entire holdings of a particular financial instrument or
category thereof at one time. Since no market exists for a substantial portion
of the Bank's financial instruments, fair value estimates were necessarily based
on judgments with respect to future loss experience, current economic
conditions, risk assessments of various financial instruments involving a myriad
of individual borrowers, and other factors. Given the innately subjective nature
of these estimates, the uncertainties surrounding them and other matters of
significant judgment that must be applied, these fair value estimations cannot
be calculated with precision. Modifications in such assumptions could
F-54
ALLAIRE COMMUNITY BANK
Notes to Consolidated Financial Statements
December 31, 2003, 2002 and 2001
meaningfully alter these estimates. Since these fair value approximations were
made solely for the balance sheet financial instruments at December 31, 2003,
2002 and 2001, no attempt was made to estimate the value of anticipated future
business or the value of nonfinancial statement assets or liabilities.
Furthermore, certain tax implications related to the realization of the
unrealized gains and losses could have a substantial impact on these fair value
estimates and have not been incorporated into the estimates.
The estimated fair values of the Bank's financial instruments at December 31,
2003 and 2002 are as follows (in thousands):
2003 2002
--------------------------- ---------------------------
Book Value Fair Value Book Value Fair Value
---------- ---------- ---------- ----------
Financial assets:
Cash and cash equivalents $ 7,249 $ 7,249 $ 14,467 $ 14,467
Investment securities available for sale 46,609 46,609 36,930 36,930
Securities held to maturity 12,550 12,362 8,056 8,075
Loans, net 108,235 107,951 90,270 90,134
Financial liabilities:
Deposits $157,458 $157,939 $140,029 $140,240
Borrowed funds 10,250 10,253 -- --
(13) Subsequent Events
The Bank paid a 5% stock distribution on June 7, 2004. All share amounts set
forth in these consolidated financial statements and notes thereto have been
restated to give effect to the June 7, 2004 stock distribution.
On June 30, 2004, the Bank and Monmouth Community Bancorp ("Bancorp") entered
into an agreement and plan of acquisition, pursuant to which the Bank and
Bancorp will combine, as equals, in a strategic business combination. The
agreement and plan of acquisition provides, among other things, for Bancorp to
change its name to Central Jersey Bancorp, effect a six for five stock split to
shareholders of record as of July 15, 2004, and exchange one share of Central
Jersey Bancorp common stock for each outstanding share of the Bank's common
stock. The proposed business combination is subject to certain customary
conditions, including, without limitation, the Bank and Bancorp receiving
shareholder and regulatory approvals.
F-55
ALLAIRE COMMUNITY BANK
Notes to Consolidated Financial Statements
December 31, 2003, 2002 and 2001
Selected Quarterly Financial Data (Unaudited)
The following tables are a summary of certain quarterly financial data for the
years ended December 31, 2003 and 2002.
2003 Quarter Ended
-------------------------------------------------------------------
March 31 June 30 September 30 December 31
---------- ---------- ------------ -----------
Interest income $ 2,144 $ 2,223 $ 2,348 $ 2,398
Interest expense 457 477 446 427
Net interest income 1,687 1,746 1,902 1,971
Provision for loan losses 68 48 23 46
Net interest income after provision for loan
losses 1,619 1,698 1,879 1,925
Non-interest income 135 231 161 156
Non-interest expense 1,234 1,323 1,375 1,391
Income before income taxes 520 606 665 690
Net income 328 393 435 446
Earnings per share:
Basic $ 0.17 $ 0.20 $ 0.22 $ 0.23
Diluted $ 0.15 $ 0.18 $ 0.20 $ 0.20
Weighted average shares outstanding
Basic 1,968,568 1,968,637 1,968,637 1,969,076
Diluted 2,200,637 2,192,718 2,174,955 2,180,983
F-56
ALLAIRE COMMUNITY BANK
Notes to Consolidated Financial Statements
December 31, 2003, 2002 and 2001
2002 Quarter Ended
-----------------------------------------------------------------
March 31 June 30 September 30 December 31
---------- ---------- ------------ ------------
Interest income $ 1,582 $ 1,754 $ 1,952 $ 2,091
Interest expense 349 369 448 487
Net interest income 1,233 1,385 1,504 1,604
Provision for loan losses 48 55 65 107
Net interest income after provision for loan
losses 1,185 1,330 1,439 1,497
Non-interest income 98 101 111 110
Non-interest expense 992 1,074 1,119 1,190
Income before income taxes 291 357 431 417
Net income 186 228 264 256
Earnings per share:
Basic $ 0.09 $ 0.12 $ 0.13 $ 0.13
Diluted $ 0.09 $ 0.11 $ 0.13 $ 0.12
Weighted average shares outstanding
Basic 1,967,398 1,967,398 1,967,398 1,967,587
Diluted 2,007,932 2,005,977 2,033,241 2,083,352
F-57
ALLAIRE COMMUNITY BANK
Consolidated Balance Sheets
June 30, 2004 and December 31, 2003
(in thousands, except share amounts)
June 30, December 31,
2004 2003
----------- ------------
Assets
Cash and due from banks $ 9,605 $ 7,149
Federal funds sold 6,925 100
Securities available for sale, at market value 52,940 46,609
Securities held to maturity (market value of $11,635 and $12,362 at
June 30, 2004 and December 31, 2003 respectively) 12,100 12,550
Loans, net 116,530 108,235
Premises and equipment 2,436 2,529
Bank Owned Life Insurance 3,174 3,105
Other assets 2,251 1,743
----------- -----------
Total assets $ 205,961 $ 182,020
----------- -----------
Liabilities and stockholders' equity
Deposits:
Non-interest bearing $ 44,091 $ 35,094
Interest bearing 146,087 122,364
----------- -----------
190,178 157,458
Short term borrowings 1,500 10,250
Accrued expenses and other liabilities 349 384
----------- -----------
Total liabilities $ 192,027 $ 168,092
----------- -----------
Stockholders' equity:
Common stock, par value $3.33 per share
Authorized 7,500,000 shares: issued and outstanding 1,971,361 shares in
2004 and 1,967,399 in 2003 6,571 6,258
Additional paid-in capital 6,511 5,157
Retained earnings 1,724 2,535
Accumulated other comprehensive loss (872) (22)
----------- -----------
Total stockholders' equity 13,934 13,928
Commitments and contingencies (note 3) -- --
----------- -----------
Total liabilities and stockholders' equity $ 205,961 $ 182,020
=========== ===========
See accompanying notes to consolidated financial statements.
F-58
ALLAIRE COMMUNITY BANK
Consolidated Statements of Income
(in thousands, except share amounts)
Six months ended
June 30,
(unaudited) (unaudited)
2004 2003
---------- ----------
Interest and dividend income:
Interest and fees on loans $ 3,448 $ 3,233
Interest on securities available for sale 1,244 897
Interest on securities held to maturity 299 207
Interest on federal funds sold and due from banks 10 30
---------- ----------
Total interest income 5,001 4,367
Interest expense:
Interest on deposits 867 934
Interest on borrowings 34 --
---------- ----------
Total interest expense 901 934
---------- ----------
Net interest income 4,100 3,433
Provision for loan losses 65 115
---------- ----------
Net interest income after provision for loan losses 4,035 3,318
---------- ----------
Other income:
Service charges on deposit accounts 167 171
Income on Bank Owned Life Insurance 69 33
Other service charges, commissions and fees 60 50
Gain on sale of securities available for sale 11 112
---------- ----------
Total other income 307 366
Other expenses:
Salaries and employee benefits 1,464 1,279
Occupancy expenses 527 507
Stationery, supplies, printing and communications 112 116
Data processing 430 357
Advertising and marketing 30 35
Professional fees 90 87
Other expenses 329 177
---------- ----------
Total other expenses 2,982 2,558
---------- ----------
Income before income taxes 1,360 1,126
Income taxes 505 405
---------- ----------
Net income $ 855 $ 721
========== ==========
Net income per share
Basic $ 0.43 $ 0.37
Diluted $ 0.39 $ 0.33
Weighted average shares outstanding:
Basic 1,971,361 1,968,603
Diluted 2,187,041 2,196,732
See accompanying notes to consolidated financial statements.
F-59
ALLAIRE COMMUNITY BANK
Consolidated Statements of Changes in Stockholders' Equity
For the six months ended June 30, 2004 and 2003
(in thousands)
Accumulated
Additional Other
Common paid-in Retained Comprehensive
Stock Capital Earnings Income (Loss) Total
--------- ---------- -------- ------------- --------
Balance at December 31, 2003 $ 6,258 5,157 2,535 (22) $ 13,928
Net income 855 855
Other comprehensive income, net unrealized
holding losses, on securities available for
sale, net of tax of $506 (843) (843)
Less reclassification adjustment for gains
included in net income, net income, net of
tax of $4 (7) (7)
-------
Comprehensive income 5
5% stock dividend, 93,874 shares 313 1,354 (1,666) -- 1
--------- -------- ------- -------- -------
Balance at June 30, 2004 $ 6,571 6,511 1,724 (872) 13,934
========= ======== ======= ======== ========
Balance at December 31, 2002 $ 6,246 5,142 933 392 12,713
Net income 721 721
Other comprehensive income, net unrealized
holding losses, on securities available for
sale, net of tax of $0 (1) (31)
--------
Less reclassification adjustment for gains
included in net income, net income, net of
tax of $41 (71) (41)
Comprehensive income 649
-------
Stock options exercised 4 9 -- -- 13
--------- -------- ------- -------- -------
Balance at June 30, 2003 $ 6,250 5,151 1,654 320 13,375
========= ======== ======= ======== ========
See accompanying notes to consolidated financial statements.
F-60
ALLAIRE COMMUNITY BANK
Consolidated Statements of Cash Flows
For the six months ended June 30, 2004 and 2003
(in thousands)
(unaudited) (unaudited)
2004 2003
----------- -----------
Cash flows from operating activities:
Net income $ 855 $ 721
Adjustments to reconcile net income to net cash provided by operating activities
Provision for loan losses 65 115
Depreciation and amortization 153 189
Increase in cash surrender value of life insurance (69) (33)
Gain on sale of securities available for sale (11) (112)
Decrease (increase) in other assets (508) 60
Increase (decrease) in accrued expenses and other liabilities 465 (407)
-------- --------
Net cash provided by operating activities 950 533
-------- --------
Cash flows from investing activities:
Proceeds from maturities / pay downs of securities available for sale 4,397 12,560
Proceeds from sale of securities available for sale 1,848 5,767
Proceeds from maturities / pay downs of securities held to maturity 450 --
Purchase of securities available for sale (13,914) (8,386)
Purchase of Bank Owned Life Insurance -- (3,000)
Net increase in loans (8,360) (11,044)
Purchase of premises and equipment (60) (53)
-------- --------
Net cash used in investing activities (15,639) (4,156)
-------- --------
Cash flows from financing activities:
Repayments of short term borrowings (8,750) --
Net increase in non-interest bearing deposits 8,997 (998)
Net increase in interest bearing deposits 23,723 15,908
-------- --------
Net cash provided by financing activities 23,970 14,910
-------- --------
Increase in cash and cash equivalents 9,281 11,287
Cash and cash equivalents at beginning of year 7,249 14,467
-------- --------
Cash and cash equivalents at end of period $ 16,530 $ 25,754
======== ========
Cash paid during the year for:
Interest $ 905 $ 1,013
Income taxes $ 607 $ 924
See accompanying notes to consolidated financial statements.
F-61
ALLAIRE COMMUNITY BANK
Notes to Consolidated Financial Statements
June 30, 2004 and December 31, 2003
(1) Summary of Significant Accounting Policies
The accompanying unaudited consolidated financial statements have been prepared
in accordance with accounting principles generally accepted in the United States
of America ("GAAP") for interim financial information and in conformity with the
instructions to Form 10-Q and Article 10 of Regulation S-X for Allaire Community
Bank ("Allaire" or the "Bank"). All significant inter-company balances and
transactions have been eliminated in the consolidated financial statements.
In the opinion of management, all adjustments (consisting of only normal
recurring accruals) necessary to present fairly the financial condition, results
of operations, and changes in cash flows have been made at and for the six
months ended June 30, 2004 and 2003. The results of operations for the six
months ended June 30, 2004, are not necessarily indicative of results that may
be expected for the entire year ending December 31, 2004. These interim
financial statements should be read in conjunction with the December 31, 2003
annual report.
(2) Earnings Per Share
Basic earnings per share are calculated by dividing net income by the daily
average number of common shares outstanding during the period.
Diluted earnings per share is computed similarly to that of basic earnings per
share except that the denominator is increased to include the number of
additional common shares that would have been outstanding if all potential
dilutive common shares were issued utilizing the treasury stock method.
All per share amounts reflect the effect of a 5% stock dividend declared on
April 28, 2004 by the Bank. The following is a calculation of net income per
share for the six months ended June 30, 2004 and 2003, dollars in thousands:
Calculation of Basic and Diluted Earnings Per Share
- ---------------------------------------------------
(dollars in thousands, except per share data)
Six months ended June 30,
---------- ----------
2004 2003
Net Income $ 855 $ 721
Basic weighted average common shares outstanding 1,971,361 1,968,603
Plus: dilutive stock options 215,680 228,129
Diluted weighted-average common shares outstanding 2,187,041 2,196,732
Net income per common share
Basic $ 0.43 $ 0.37
Diluted $ 0.39 $ 0.33
F-62
ALLAIRE COMMUNITY BANK
Notes to Consolidated Financial Statements
June 30, 2004 and December 31, 2003
(3) Commitments and Contingencies
At June 30, 2004, the Bank had the following commitments: (i) to originate loans
of $11.5 million; (ii) unused equity lines of credit of $11.7 million; (iii)
unused commercial lines of credit of $7.1 million; (iv) unused personal lines of
credit of $57,000; and (vi) letters of credit outstanding totaling $466,000.
Further, certificates of deposits, which are scheduled to mature and/or rollover
in one year or less, totaled $53.3 million at June 30, 2004.
On June 30, 2004, Allaire and Monmouth Community Bancorp ("Bancorp") announced
that they had entered into an Agreement and Plan of Acquisition to combine. The
agreement provides for Bancorp to change its name to Central Jersey Bancorp,
effect a six-for-five stock split to stockholders of record as of July 15, 2004,
and exchange one share of Central Jersey Bancorp for each outstanding share of
Allaire common stock. In order to create an ownership structure that gives each
company approximate equal ownership of the combined entities, Bancorp will
effect a 6-for-5 stock split prior to closing.
It is anticipated that subsequent to the consummation of the transaction,
Allaire and Monmouth Community Bank, National Association will combine as
Central Jersey Bank, National Association.
This combination will result in fifteen branch locations stretching from Point
Pleasant Boro, Ocean County, to Little Silver, Monmouth County.
The proposed combination is subject to certain customary conditions including
Allaire and Bancorp receiving stockholder and regulatory approvals.
(4) Allowance For Loan Losses
The following table presents the activity in the allowance for loan losses.
For the six months ended June 30,
---------------------------------
2004 2003
(unaudited) (in thousands)
----------- --------------
Balance at beginning of period $ 1,090 $ 906
Provision charged to operations 65 115
Charge offs, net of recoveries -- (1)
------- -------
Balance at end of period $ 1,155 $ 1,020
======= =======
(5) Comprehensive Income
Total comprehensive income, consisting of net income and the net change in
unrealized gain (loss) on securities available for sale, was $5,000 and $649,000
for the six months ended June 30, 2004 and 2003, respectively.
F-63
ALLAIRE COMMUNITY BANK
Notes to Consolidated Financial Statements
June 30, 2004 and December 31, 2003
(6) Stock Based Compensation
At June 30, 2004, the Bank had three stock-based compensation plans. The Bank
accounts for these plans under the recognition and measurement principles of APB
Opinion No. 25, Accounting for Stock Issued to Employees, and related
Interpretations. No stock-based compensation cost related to stock options is
reflected in net income, as all options granted under these plans had an
exercise price equal to the market value of the underlying common stock on the
date of the grant. The following table illustrates the effect on net income and
earnings per share if the Bank had applied the fair value recognition provisions
of FASB Statement No. 123, Accounting for Stock-Based Compensation, to our stock
option plans.
For the six months ended June 30,
2004 2003
-------- --------
Net income, as reported $855,000 $721,000
Deduct: total stock-based compensation
expense determined under fair value based
method, net of related tax effects -- --
-------- --------
Pro forma net income $855,000 $721,000
Earnings per share:
Basic - as reported $ 0.43 $ 0.37
Basic - pro forma 0.43 0.37
Diluted - as reported 0.39 0.33
Diluted - pro forma 0.39 0.33
F-64
APPENDIX A
AGREEMENT AND PLAN OF ACQUISITION
DATED AS OF JUNE 30, 2004
AGREEMENT AND PLAN OF ACQUISITION
By and Between
MONMOUTH COMMUNITY BANCORP
and
ALLAIRE COMMUNITY BANK
----------
A-1
TABLE OF CONTENTS
PAGE
----
ARTICLE I. THE COMBINATION.................................................................................12
Section 1.01. The Combination..........................................................................12
Section 1.02. Effective Time...........................................................................14
Section 1.03. Exchange of Allaire Capital Stock........................................................14
Section 1.04. Bancorp Capital Stock....................................................................15
Section 1.05. Allaire Stock Options....................................................................15
Section 1.06. Certificate of Incorporation and By-laws of Bancorp......................................16
Section 1.07. Certificate of Incorporation and By-laws of Allaire......................................16
Section 1.08. Tax Consequences.........................................................................16
Section 1.09. Stock Split..............................................................................16
Section 1.10. Board Composition and Structure; Officers................................................17
ARTICLE II. EXCHANGE OF SHARES.............................................................................18
Section 2.01. Bancorp to Make Shares Available.........................................................18
Section 2.02. Exchange of Shares.......................................................................18
Section 2.03. Dissenting Allaire Shares................................................................20
Section 2.04. Dissenting Bancorp Shares................................................................21
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF ALLAIRE.....................................................21
Section 3.01. Corporate Organization...................................................................21
Section 3.02. Capitalization...........................................................................22
Section 3.03. Authority; No Violation..................................................................23
Section 3.04. Consents and Approvals...................................................................24
Section 3.05. Reports..................................................................................25
Section 3.06. Financial Statements.....................................................................26
Section 3.07. Broker's Fees; Financial Advisor's Fees..................................................26
Section 3.08. Absence of Certain Changes or Events.....................................................26
Section 3.09. Loan Portfolio...........................................................................27
Section 3.10. Legal Proceedings; Agreements with Regulatory Agencies...................................27
Section 3.11. Taxes and Tax Returns....................................................................28
Section 3.12. Employee Benefit Plans...................................................................29
Section 3.13. Title and Related Matters................................................................31
Section 3.14. Real Estate..............................................................................32
Section 3.15. Environmental Matters....................................................................32
Section 3.16. Commitments and Contracts................................................................34
Section 3.17. Regulatory, Accounting and Tax Matters...................................................35
Section 3.18. Registration Obligations.................................................................35
Section 3.19. Antitakeover Provisions..................................................................35
Section 3.20. Insurance................................................................................35
Section 3.21. Labor....................................................................................36
Section 3.22. Compliance with Applicable Laws..........................................................36
A-2
Section 3.23. Transactions with Management.............................................................38
Section 3.24. Interest Rate Risk Management Instruments................................................38
Section 3.25. Deposits.................................................................................38
Section 3.26. Accounting Controls; Disclosure Controls.................................................38
Section 3.27. Allaire Information......................................................................39
Section 3.28. Deposit Insurance........................................................................39
Section 3.29. Intellectual Property....................................................................39
Section 3.30. Untrue Statements and Omissions..........................................................39
Section 3.31. Reorganization...........................................................................40
Section 3.32. Fairness Opinion.........................................................................40
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF BANCORP......................................................40
Section 4.01. Corporate Organization...................................................................40
Section 4.02. Capitalization...........................................................................41
Section 4.03. Authority; No Violation..................................................................42
Section 4.04. Consents and Approvals...................................................................43
Section 4.05. Reports..................................................................................43
Section 4.06. Financial Statements.....................................................................44
Section 4.07. Broker's Fees; Financial Advisor's Fees..................................................45
Section 4.08. Absence of Certain Changes or Events.....................................................45
Section 4.09. Loan Portfolio...........................................................................46
Section 4.10. Legal Proceedings; Agreements with Regulatory Agencies...................................46
Section 4.11. Taxes and Tax Returns....................................................................47
Section 4.12. Employee Benefit Plans...................................................................48
Section 4.13. Title and Related Matters................................................................50
Section 4.14. Real Estate..............................................................................50
Section 4.15. Environmental Matters....................................................................51
Section 4.16. Commitments and Contracts................................................................52
Section 4.17. Regulatory, Accounting and Tax Matters...................................................53
Section 4.18. Registration Obligations.................................................................53
Section 4.19. Antitakeover Provisions..................................................................53
Section 4.20. Insurance................................................................................54
Section 4.21. Labor....................................................................................54
Section 4.22. Compliance with Applicable Laws..........................................................55
Section 4.23. Transactions with Management.............................................................56
Section 4.24. Interest Rate Risk Management Instruments................................................56
Section 4.25. Deposits.................................................................................56
Section 4.26. Accounting Controls; Disclosure Controls.................................................56
Section 4.27. Bancorp Information......................................................................57
Section 4.28. Deposit Insurance........................................................................57
Section 4.29. Intellectual Property....................................................................57
Section 4.30. Untrue Statements and Omissions..........................................................57
Section 4.31. Reorganization...........................................................................57
Section 4.32. Fairness Opinion.........................................................................58
A-3
ARTICLE V. COVENANTS AND AGREEMENTS........................................................................58
Section 5.01. Conduct of the Business Prior to the Effective Time......................................58
Section 5.02. Allaire Forbearances.....................................................................58
Section 5.03. Bancorp Forbearances.....................................................................59
ARTICLE VI. ADDITIONAL COVENANTS AND AGREEMENTS............................................................59
Section 6.01. Best Efforts; Cooperation................................................................59
Section 6.02. Regulatory Matters.......................................................................59
Section 6.03. Employment and Employee Benefits Matters.................................................60
Section 6.04. Indemnification..........................................................................61
Section 6.05. Registration Statement...................................................................62
Section 6.06. Section 16 Matters.......................................................................62
Section 6.07. Affiliate and Voting Agreements..........................................................62
Section 6.08. No Other Bids............................................................................62
Section 6.09. Transaction Expenses of Allaire..........................................................63
Section 6.10. Press Releases...........................................................................64
Section 6.11. Prior Notice and Approval Before Payment to be Made......................................64
Section 6.12. NASDAQ SmallCap Market Listing...........................................................65
Section 6.13. Current Information on Bancorp...........................................................65
Section 6.14. Current Information on Allaire...........................................................65
Section 6.15. Access to Information....................................................................66
Section 6.16. Access to Properties; Personnel and Records; Systems Integration.........................66
Section 6.17. Confidentiality of Information...........................................................68
Section 6.18. Notice of Deadlines......................................................................68
Section 6.19. Maintenance of Properties; Certain Remediation and Capital
Improvements.............................................................................68
Section 6.20. Compliance Matters.......................................................................68
Section 6.21. Approval of Stockholders and Shareholders................................................69
Section 6.22. Registration of Bancorp Common Stock related to Assumed Options..........................69
Section 6.23. Notification of Certain Matters..........................................................69
ARTICLE VII. CONDITIONS PRECEDENT..........................................................................70
Section 7.01. Conditions to Each Party's Obligation to Effect the Combination..........................70
Section 7.02. Conditions to Obligations of Bancorp.....................................................71
Section 7.03. Conditions to Obligations of Allaire.....................................................73
ARTICLE VIII. TERMINATION, WAIVER AND AMENDMENT............................................................74
Section 8.01. Termination..............................................................................74
Section 8.02. Effective of Termination; Termination Fee................................................76
Section 8.03. Amendments...............................................................................77
Section 8.04. Waivers..................................................................................77
Section 8.05. Non-Survival of Representations, Warranties and Covenants................................77
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ARTICLE IX. MISCELLANEOUS..................................................................................77
Section 9.01. Closing..................................................................................77
Section 9.02. Standard.................................................................................78
Section 9.03. Entire Agreement.........................................................................78
Section 9.04. Notices..................................................................................78
Section 9.05. Severability.............................................................................79
Section 9.06. Costs and Expenses.......................................................................79
Section 9.07. Captions.................................................................................79
Section 9.08. Counterparts.............................................................................80
Section 9.09. Persons Bound; No Assignment; No Third-Party Beneficiaries...............................80
Section 9.10. Governing Law............................................................................80
Section 9.11. Recitals, Exhibits and Schedules.........................................................80
Section 9.12. Waiver...................................................................................80
Section 9.13. Construction of Terms....................................................................81
A-5
INDEX OF DEFINED TERMS
- --------------------------------------------------------------------------------
Definition Section
---------- -------
- --------------------------------------------------------------------------------
Acquisition Transaction 8.01(h)
- --------------------------------------------------------------------------------
Affiliate 3.25
- --------------------------------------------------------------------------------
Agreement introductory paragraph
- --------------------------------------------------------------------------------
Allaire introductory paragraph
- --------------------------------------------------------------------------------
Allaire Certificate(s) 1.03(b)
- --------------------------------------------------------------------------------
Allaire Common Stock 1.03(a)
- --------------------------------------------------------------------------------
Allaire Contract 3.16(a)
- --------------------------------------------------------------------------------
Allaire Employee Benefit Plan(s) 3.12(a)
- --------------------------------------------------------------------------------
Allaire Financial Statements 3.06(a)
- --------------------------------------------------------------------------------
Allaire Loan Property /Properties 3.15(a)
- --------------------------------------------------------------------------------
Allaire Participation Facility /Facilities 3.15(a)
- --------------------------------------------------------------------------------
Allaire Regulatory Agreement 3.10(b)
- --------------------------------------------------------------------------------
Allaire Regulatory Reports 3.05(b)
- --------------------------------------------------------------------------------
Allaire Service Contracts 3.16(d)
- --------------------------------------------------------------------------------
Allaire Stock Option/Stock Options 1.05(a)
- --------------------------------------------------------------------------------
Allaire Stock Option Plans 1.05(a)
- --------------------------------------------------------------------------------
Allaire Subsidiary /Subsidiaries 3.01(b)
- --------------------------------------------------------------------------------
Assumed Stock Option(s) 1.05(a)
- --------------------------------------------------------------------------------
Bancorp introductory paragraph
- --------------------------------------------------------------------------------
Bancorp Common Stock 1.03(a)
- --------------------------------------------------------------------------------
Bancorp Contract 4.16(a)
- --------------------------------------------------------------------------------
Bancorp Employee Benefit Plan(s) 4.12(a)
- --------------------------------------------------------------------------------
Bancorp Financial Statements 4.6(a)
- --------------------------------------------------------------------------------
Bancorp Loan Property /Properties 4.15(a)
- --------------------------------------------------------------------------------
Bancorp Participation Facility /Facilities 4.15(a)
- --------------------------------------------------------------------------------
Bancorp Regulatory Agreement 4.10(b)
- --------------------------------------------------------------------------------
Bancorp Regulatory Reports 4.05(b)
- --------------------------------------------------------------------------------
Bancorp Service Contacts 4.16(d)
- --------------------------------------------------------------------------------
Bancorp Stock Option/Stock Options 4.02(a)
- --------------------------------------------------------------------------------
A-6
- --------------------------------------------------------------------------------
Definition Section
---------- -------
- --------------------------------------------------------------------------------
Bancorp Stock Option Plan(s) 4.02(a)
- --------------------------------------------------------------------------------
Bancorp Subsidiary /Subsidiaries 4.01(c)
- --------------------------------------------------------------------------------
Bank Merger fourth recital paragraph
- --------------------------------------------------------------------------------
Bank Secrecy Act 3.22(d)
- --------------------------------------------------------------------------------
Banking Act 2.03(a)
- --------------------------------------------------------------------------------
COBRA 3.12(e)
- --------------------------------------------------------------------------------
Closing 9.01
- --------------------------------------------------------------------------------
Closing Date 9.01
- --------------------------------------------------------------------------------
Code 3.11(c)
- --------------------------------------------------------------------------------
Combination first recital paragraph
- --------------------------------------------------------------------------------
Combination Consideration 1.01(e)
- --------------------------------------------------------------------------------
Community Reinvestment Act 3.17
- --------------------------------------------------------------------------------
Condition 3.08(a)
- --------------------------------------------------------------------------------
Consent 1.02
- --------------------------------------------------------------------------------
Dissenting Allaire Shares 2.03(a)
- --------------------------------------------------------------------------------
Dissenting Bancorp Shares 2.04(a)
- --------------------------------------------------------------------------------
Effective Time 1.02
- --------------------------------------------------------------------------------
Environmental Law 3.15(b)
- --------------------------------------------------------------------------------
Exchange Act 3.26(b)
- --------------------------------------------------------------------------------
Exchange Agent 2.01
- --------------------------------------------------------------------------------
Exchange Fund 2.01
- --------------------------------------------------------------------------------
Exchange Ratio 1.03(a)
- --------------------------------------------------------------------------------
ERISA 3.12(a)
- --------------------------------------------------------------------------------
FDIC 1.02
- --------------------------------------------------------------------------------
FRB 1.02
- --------------------------------------------------------------------------------
Form S-4 3.04
- --------------------------------------------------------------------------------
GAAP 3.06(b)
- --------------------------------------------------------------------------------
Governmental Entity/Entities 3.01(a)
- --------------------------------------------------------------------------------
HIPAA 3.12(e)
- --------------------------------------------------------------------------------
Hazardous Material(s) 3.15(b)
- --------------------------------------------------------------------------------
A-7
- --------------------------------------------------------------------------------
Definition Section
---------- -------
- --------------------------------------------------------------------------------
Indemnified Party 6.04(a)
- --------------------------------------------------------------------------------
Injunction 7.01(f)
- --------------------------------------------------------------------------------
Joint Proxy Statement 3.04
- --------------------------------------------------------------------------------
Lien/Liens 3.02(b)
- --------------------------------------------------------------------------------
Material Adverse Effect 3.01(a)
- --------------------------------------------------------------------------------
Maximum Amount 6.04(b)
- --------------------------------------------------------------------------------
MCBNA second recital paragraph
- --------------------------------------------------------------------------------
NASD 1.02
- --------------------------------------------------------------------------------
NJBCA 2.04
- --------------------------------------------------------------------------------
OCC 1.02
- --------------------------------------------------------------------------------
PBGC 3.12(a)
- --------------------------------------------------------------------------------
Party /Parties introductory paragraph
- --------------------------------------------------------------------------------
Person 3.11(a)
- --------------------------------------------------------------------------------
Regulatory Authority /Authorities 1.02
- --------------------------------------------------------------------------------
Representative 6.08(a)
- --------------------------------------------------------------------------------
Requisite Regulatory Approvals 1.02
- --------------------------------------------------------------------------------
SEC 1.02
- --------------------------------------------------------------------------------
SRO 3.04
- --------------------------------------------------------------------------------
Section 16 6.06
- --------------------------------------------------------------------------------
Securities Act 1.05(b)
- --------------------------------------------------------------------------------
Stock Split 1.09
- --------------------------------------------------------------------------------
Subsidiary/Subsidiaries 3.01(a)
- --------------------------------------------------------------------------------
Tax/Taxes 1.01(e)
- --------------------------------------------------------------------------------
Takeover Proposal 6.08(a)
- --------------------------------------------------------------------------------
Termination Fee 8.02
- --------------------------------------------------------------------------------
USA PATRIOT Act 3.22(d)
- --------------------------------------------------------------------------------
A-8
INDEX OF SCHEDULES
- ------------------------------------------------------------------------------------------------------------------------------------
The Combination Representations and Warranties of Bancorp
- --------------- -----------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Schedule 1.10(a) Bancorp Board Composition Schedule 4.02(a) Stock Options
- ------------------------------------------------------------------------------------------------------------------------------------
Schedule 1.10(b) Allaire and MCBNA Boards Schedule 4.02(b) Subsidiaries
- ------------------------------------------------------------------------------------------------------------------------------------
Schedule 1.10(c) Executive Officers Schedule 4.08 Absence of Changes or Events
- ------------------------------------------------------------------------------------------------------------------------------------
Representations and Warranties of Allaire Schedule 4.09 Loan Portfolio
- -----------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Schedule 3.02(a) Stock Options Schedule 4.10 Legal Proceedings
- ------------------------------------------------------------------------------------------------------------------------------------
Schedule 3.02(b) Subsidiaries Schedule 4.11 Tax Information
- ------------------------------------------------------------------------------------------------------------------------------------
Schedule 3.08 Absence of Changes or Events Schedule 4.12(a) Employee Benefit Plans
- ------------------------------------------------------------------------------------------------------------------------------------
Schedule 3.09 Loan Portfolio Schedule 4.12(b) Defined Benefit Plans
- ------------------------------------------------------------------------------------------------------------------------------------
Schedule 3.10 Legal Proceedings Schedule 4.12(g) Payments or Obligations
- ------------------------------------------------------------------------------------------------------------------------------------
Schedule 3.11 Tax Information Schedule 4.12(l) Grantor or "Rabbi" Trusts
- ------------------------------------------------------------------------------------------------------------------------------------
Schedule 3.12(a) Employee Benefit Plans Schedule 4.12(m) Retirement Benefits
- ------------------------------------------------------------------------------------------------------------------------------------
Schedule 3.12(b) Defined Benefit Plans Schedule 4.13(c) Buildings and Structures
- ------------------------------------------------------------------------------------------------------------------------------------
Schedule 3.12(h) Payments or Obligations Schedule 4.14(a) Real Estate
- ------------------------------------------------------------------------------------------------------------------------------------
Schedule 3.12(m) Grantor or "Rabbi" Trusts Schedule 4.14(b) Leases
- ------------------------------------------------------------------------------------------------------------------------------------
Schedule 3.12(n) Retirement Benefits Schedule 4.16(a) Material Contracts
- ------------------------------------------------------------------------------------------------------------------------------------
Schedule 3.13(c) Buildings and Structures Schedule 4.16(c) Certain Other Contracts
- ------------------------------------------------------------------------------------------------------------------------------------
Schedule 3.14(a) Real Estate Schedule 4.16(d) Effect on Contracts and Consents
- ------------------------------------------------------------------------------------------------------------------------------------
Schedule 3.14(b) Leases Schedule 4.18 Registration Obligations
- ------------------------------------------------------------------------------------------------------------------------------------
Schedule 3.16(a) Material Contracts Schedule 4.20 Insurance
- ------------------------------------------------------------------------------------------------------------------------------------
Schedule 3.16(c) Certain Other Contracts Schedule 4.21(b) Benefit or Compensation Plans
- ------------------------------------------------------------------------------------------------------------------------------------
Schedule 3.16(d) Effect on Contracts and Consents Schedule 4.21(d) Labor Relations
- ------------------------------------------------------------------------------------------------------------------------------------
Schedule 3.18 Registration Obligations Schedule 4.22 Compliance with Applicable Laws
- ------------------------------------------------------------------------------------------------------------------------------------
Schedule 3.20 Insurance Schedule 4.23 Transactions with Management
- ------------------------------------------------------------------------------------------------------------------------------------
Schedule 3.21(b) Benefit or Compensation Plans Schedule 4.25 Deposits
- ------------------------------------------------------------------------------------------------------------------------------------
Schedule 3.21(d) Labor Relations Additional Covenants and Agreements
-----------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Schedule 3.22 Compliance with Applicable Laws Schedule 6.18(a) Notice of Deadlines (Allaire)
- ------------------------------------------------------------------------------------------------------------------------------------
Schedule 3.23 Transactions with Management Schedule 6.18(b) Notice of Deadlines (Bancorp)
- ------------------------------------------------------------------------------------------------------------------------------------
Schedule 3.25 Deposits
- ------------------------------------------------------------------------------------------------------------------------------------
A-9
INDEX OF EXHIBITS
- --------------------------------------------------------------------------------
Exhibit Number A Voting Agreements
- --------------------------------------------------------------------------------
Exhibit Number B Affiliate Agreements
- --------------------------------------------------------------------------------
Exhibit Number C Opinion of Giordano, Halleran & Ciesla, P.C.
- --------------------------------------------------------------------------------
Exhibit Number D Opinion of Frieri Conroy & Lombardo, LLC
- --------------------------------------------------------------------------------
A-10
AGREEMENT AND PLAN OF ACQUISITION
By and Between
MONMOUTH COMMUNITY BANCORP
and
ALLAIRE COMMUNITY BANK
----------
This AGREEMENT AND PLAN OF ACQUISITION, dated as of the 30th day of June, 2004
(this "Agreement"), is by and between Monmouth Community Bancorp, a bank holding
company incorporated and organized under the laws of the State of New Jersey
("Bancorp"), and Allaire Community Bank, a commercial bank organized under the
laws of the State of New Jersey ("Allaire"). Bancorp and Allaire are sometimes
collectively referred to herein as the "Parties," and individually referred to
herein as a "Party."
W I T N E S S E T H:
WHEREAS, the Boards of Directors of Bancorp and Allaire have determined that it
is in the best interests of their respective entities and shareholders and
stockholders, as the case may be, to combine "as equals" by consummating the
strategic business combination transaction provided for in this Agreement (the
"Combination"), in which Bancorp will, on the terms and subject to the
conditions set forth in this Agreement, acquire all of the outstanding capital
stock of Allaire;
WHEREAS, the Parties desire and intend that Bancorp will change its name to
"Central Jersey Bancorp" contemporaneous with the consummation of the
Combination, and that Monmouth Community Bank, National Association, a national
association organized under the laws of the United States of America and
wholly-owned subsidiary of Bancorp ("MCBNA"), similarly will change its name to
"Central Jersey Bank, National Association" shortly after the consummation of
the Combination;
WHEREAS, MCBNA shall make the requisite filing(s) to change its name to "Central
Jersey Bank, National Association," as soon as practicable after the date of
this Agreement;
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WHEREAS, subsequent to the consummation of the Combination, Allaire will merge
with and into "Central Jersey Bank, National Association," subject to applicable
regulatory approval (the "Bank Merger");
WHEREAS, for federal income tax purposes, it is intended that the Combination
shall qualify as a "reorganization" under the provisions of Section 368(a) of
the Code (as defined herein), and this Agreement is intended to be and is
adopted as a "plan of reorganization" for purposes of Sections 354 and 361 of
the Code;
WHEREAS, the Parties desire to make certain representations, warranties and
agreements in connection with the Combination and also to prescribe certain
conditions to the Combination; and
WHEREAS, as an inducement and condition to each Party entering into this
Agreement, each Party shall use its best efforts to cause each of its directors
and executive officers to enter into Voting Agreements with Allaire and Bancorp
attached hereto as Exhibit A, pursuant to which such directors and executive
officers will agree to vote their Allaire Common Stock and Bancorp Common Stock
(as such terms are defined herein), as the case may be, in favor of approval of
this Agreement, the Combination and the other transactions contemplated hereby
(it being the intention of each Party to have a signed Voting Agreement from
each director and executive officer of Bancorp and Allaire at the time this
Agreement is entered into by the Parties).
NOW, THEREFORE, in consideration of the premises and the mutual covenants,
representations, warranties and agreements contained in this Agreement, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, and intending to be legally bound hereby, the Parties agree
as follows:
ARTICLE I.
THE COMBINATION
Section 1.01. The Combination.
---------------
(a) Parties to the Combination - Subject to the terms and conditions of
this Agreement, at the Effective Time (as defined below), Bancorp shall acquire
all of the outstanding capital stock of Allaire, a commercial bank organized
under the laws of the State of New Jersey. The principal offices of Bancorp, the
acquiring corporation, are located at 627 Second Avenue, Long Branch, New Jersey
07740. The principal offices of Allaire, the participating bank, are located at
2200 Highway 35, Sea Girt, New Jersey 08750.
A-12
(b) Board of Directors of Bancorp - The name and address of each of the
current members of Bancorp's Board of Directors are set forth below:
James G. Aaron, Esq. John F. McCann
10 Muncy Drive 135 Bingham Avenue
West Long Branch, NJ 07764 Rumson, NJ 07760
Mark R. Aikins, Esq. Harold M. Miller, Jr.
14 North Ward Avenue 126 Rick Road
Rumson, NJ 07760 Milford, NJ 08848
Nicholas A. Alexander, C.P.A. Carmen M. Penta, C.P.A.
79 West River Road 8 DeCamp Court
Rumson, NJ 07760 West Long Branch, NJ 07764
John A. Brockriede Mark G. Solow
2 Van Court Avenue 15 Page Drive
Long Branch, NJ 07740 Red Bank, NJ 07701
Richard O. Lindsey James S. Vaccaro
315 Hutchinson Avenue 613 N. Edgemere Drive
Barrington, NJ 08007 West Allenhurst, NJ 07711
(c) Board of Directors of Allaire - The name and address of each of the
current members of Allaire's Board of Directors are set forth below:
Thomas S. Birckhead, Jr. M. Claire French
309 Main Street 3420 Belmar Boulevard
Manasquan, NJ 08736 Neptune, NJ 07753
George S. Callas Rev. William H. Jewett
632 Valley Road 807 Schoolhouse Road
Brielle, NJ 08730 Brielle, NJ 08730
Carl F. Chirico Paul A. Larson, Jr.
632 Bayview Drive 3221 Allaire Road
Toms River, NJ 08753 Wall, NJ 07719
Benjamin H. Danskin Robert S. Vuono
114 Magnolia Avenue 2162 Hidden Brook Drive
Sea Girt, NJ 08750 Wall, NJ 07719
James P. Dugan
35 Fox Hedge Road
Saddle River, NJ 07458
A-13
(d) Monmouth Community Bank, N.A. - Monmouth Community Bank, National
Association, is currently the only banking subsidiary of Bancorp. Bancorp owns
one hundred percent (100%) of the outstanding capital stock of MCBNA. There is
currently 100 shares of common stock, par value $5.00 per share, of MCBNA
outstanding.
(e) Change in Structure of Combination - The Parties may at any time
change the method of effecting the Combination, if and to the extent requested
by either Party and consented to by the other Party (such consent not to be
unreasonably withheld); provided, however, that no such change shall (i) alter
or change the amount or kind of consideration to be issued to holders of the
capital stock of Allaire as provided for in this Agreement (the "Combination
Consideration"), (ii) adversely affect the treatment of Allaire's stockholders
as a result of receiving the Combination Consideration or the treatment of
either Party pursuant to this Agreement relative to any Tax or Taxes (which term
shall mean, as used herein, (A) all federal, state and local income taxes,
excise taxes and taxes with respect to gross receipts, gross income, ad valorem,
profits, gains, property, capital, sales, transfer, use, payroll, employment,
severance, withholding, duties, intangibles, franchise, backup withholding, and
other taxes, charges, levies or like assessments together with all penalties and
additions to tax and interest thereon and (B) any liability for Taxes described
in clause (A), or (iii) materially impede or delay the consummation of the
transactions contemplated by this Agreement.
Section 1.02. Effective Time.
--------------
The effective time of the Combination shall occur (a) on the fifth (5th )
business day following the latest to occur of (i) the effective date (including
expiration of any applicable waiting period) of the last required consent,
approval or authorization, waiver, clearance, exemption or similar affirmation
(each a "Consent" and collectively, the "Consents") of any applicable regulatory
authority having authority over the transactions contemplated under this
Agreement, including, without limitation, the Federal Trade Commission, the
United States Department of Justice, the Board of Governors of the Federal
Reserve System ("FRB"), the Federal Deposit Insurance Corporation ("FDIC"), the
Office of the Comptroller of the Currency ("OCC"), the New Jersey Department of
Banking and Insurance, the National Association of Securities Dealers, Inc.
("NASD"), and the Securities and Exchange Commission ("SEC") (collectively, the
"Regulatory Authorities" and each a "Regulatory Authority") (such Consents and
the expiration of all such waiting periods being referred to as the "Requisite
Regulatory Approvals"), (ii) the date on which the stockholders of Allaire and
the shareholders of Bancorp shall approve the transactions contemplated by this
Agreement, and (iii) the obtainment of the last Consent of any Person (as
hereinafter defined) pursuant to any lease, contract or other arrangement or
waiver of such Consent by the Parties hereto, or (b) such other day and at such
other time as the Parties may agree (the "Effective Time").
Section 1.03. Exchange of Allaire Capital Stock.
---------------------------------
At the Effective Time, by virtue of the Combination and without any further
action on the part of Bancorp, Allaire or the holders of any shares of the
securities described below:
(a) Each holder of a share of the common stock, par value $3.33333 per
share, of Allaire issued and outstanding immediately prior to the Effective Time
("Allaire Common
A-14
Stock") shall cease to have any rights as a stockholder of Allaire. Except for
Dissenting Allaire Shares (as hereinafter defined) and shares of Allaire Common
Stock held in treasury by Allaire, each share of Allaire Common Stock shall be
exchanged (the "Exchange Ratio") for the right to receive one (1) share of the
common stock, par value $0.01 per share, of Bancorp ("Bancorp Common Stock").
The Exchange Ratio will be one-for-one, and, therefore, no fractional shares
will result upon the consummation of the Combination. In order to effectuate a
one-for-one Exchange Ratio, Bancorp shall implement the Stock Split described in
Section 1.09.
(b) All of the shares of Allaire Common Stock exchanged for the right to
receive Bancorp Common Stock pursuant to this Article I shall no longer be
outstanding and shall automatically be cancelled and shall cease to exist as of
the Effective Time, and each certificate previously representing any such shares
of Allaire Common Stock (each an "Allaire Certificate" and collectively, the
"Allaire Certificates") shall thereafter represent only the right to receive (i)
a certificate representing the number of whole shares of Bancorp Common Stock
that a holder of Allaire Common Stock is entitled to receive for such shares of
Allaire Common Stock as a result of the Combination and (ii) cash in lieu of
fractional shares into which the shares of Allaire Common Stock represented by
such certificate have been converted pursuant to this 1.03 and Section 2.02(e).
Allaire Certificates previously representing shares of Allaire Common Stock
shall be exchanged for certificates representing whole shares of Bancorp Common
Stock and cash in lieu of fractional shares of Bancorp Common Stock issued in
consideration therefor upon the surrender of such Allaire Certificates in
accordance with Section 2.02, without any interest thereon.
(c) Notwithstanding anything in this Agreement to the contrary, at the
Effective Time, all shares of Allaire Common Stock that are held in treasury or
owned by Allaire shall be cancelled and shall cease to exist, and no stock of
Bancorp or other consideration shall be delivered in exchange therefor.
Section 1.04. Bancorp Capital Stock.
---------------------
At and after the Effective Time, each share of Bancorp Common Stock issued and
outstanding immediately prior to the Effective Time shall remain issued and
outstanding and shall not be affected by the Combination. It is hereby
understood by the Parties that the Stock Split shall have been effected prior to
the Effective Time.
Section 1.05. Allaire Stock Options.
---------------------
(a) Effective as of the Effective Time, each outstanding option to
purchase shares of Allaire Common Stock (each an "Allaire Stock Option" and
collectively, the "Allaire Stock Options") granted by Allaire under the Allaire
Stock Option Plans set forth in Schedule 3.02(a) (the "Allaire Stock Option
Plans"), each of which is listed and described on Schedule 3.02(a), shall be
assumed by Bancorp and shall be converted into an option to purchase a number of
shares of Bancorp Common Stock (rounded to the nearest whole share)
(collectively, the "Assumed Stock Options" and individually an "Assumed Stock
Option") equal to (i) the number of shares of Allaire Common Stock subject to
such Allaire Stock Option immediately prior to the Effective Time multiplied by
(ii) the Exchange Ratio, and the per share exercise price for Bancorp Common
Stock issuable upon the exercise of such Assumed Stock Option shall be
A-15
equal to (A) the exercise price per share of Allaire Common Stock at which such
Allaire Stock Option was exercisable immediately prior to the Effective Time
divided by (B) the Exchange Ratio (rounded to the nearest whole cent); provided,
however, that in the case of any Allaire Stock Option to which Section 421 of
the Code applies by reason of its qualification under Section 422 of the Code,
the conversion formula shall be adjusted, if necessary, to comply with Section
424(a) of the Code. Except as otherwise provided herein, the Assumed Stock
Options shall be subject to the same terms and conditions (including expiration
date, vesting and exercise provisions) as were applicable to the corresponding
Allaire Stock Options immediately prior to the Effective Time (but taking into
account any changes thereto, including the acceleration thereof, provided for in
the Allaire Stock Option Plans or in any award agreement thereunder by reason of
this Agreement or the transactions contemplated hereby); provided, however, that
thereafter references to Allaire shall be deemed to be references to Bancorp.
(b) Bancorp has taken all corporate actions necessary to reserve for
issuance a sufficient number of shares of Bancorp Common Stock upon the exercise
of the Assumed Stock Options. On or as soon as practicable following the Closing
Date, Bancorp shall file a registration statement on an appropriate form or a
post-effective amendment to a previously filed registration statement under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
issuance of (or settlement in cash in respect of) the shares of Bancorp Common
Stock subject to the Assumed Stock Options, and shall use its reasonable efforts
to maintain the effectiveness of such registration statement (and maintain the
current status of the prospectus contained therein) for so long as such Assumed
Stock Options remain outstanding.
Section 1.06. Certificate of Incorporation and By-laws of Bancorp.
---------------------------------------------------
At the Effective Time, the Certificate of Incorporation and By-laws of Bancorp,
amended for the purpose of changing the name of Bancorp to "Central Jersey
Bancorp," shall be the Certificate of Incorporation and By-laws of Bancorp until
thereafter amended in accordance with applicable law.
Section 1.07. Certificate of Incorporation and By-laws of Allaire.
---------------------------------------------------
At the Effective Time, the Certificate of Incorporation and By-laws of Allaire
shall be amended, if necessary, to give effect to the terms and conditions of
this Agreement and the Combination contemplated hereby.
Section 1.08. Tax Consequences.
----------------
It is intended that the Combination shall constitute a "reorganization" within
the meaning of Section 368(a) of the Code, and that this Agreement shall
constitute a "plan of reorganization" for purposes of Sections 354 and 361 of
the Code.
Section 1.09. Stock Split.
-----------
As soon as is practicable after the execution of this Agreement by the Parties,
Bancorp shall effect a 6 for 5 stock split (the "Stock Split"). It is estimated
that there shall be approximately 1,860,876 shares of Bancorp Common Stock
outstanding immediately after the Stock Split is placed into effect.
A-16
Section 1.10. Board Composition and Structure; Officers.
-----------------------------------------
As of the Effective Time:
(a) The Board of Directors of Bancorp shall be comprised of the twelve
(12) directors listed on Schedule 1.10(a).
(b) The Board of Directors of each of Allaire and MCBNA shall be comprised
of the nineteen (19) directors listed on Schedule 1.10(b); provided, however,
that it is the intention of the Parties for the size of the Board of Directors
of "Central Jersey Bank, National Association" will be reduced to eighteen
directors by December 31, 2005 and, assuming no change in the composition of
such Board of Directors prior to such reduction, the Board of Directors of
"Central Jersey Bank, National Association" immediately after such reduction
will have an equal number of representatives from the pre-Combination Allaire
and the pre-Combination Bancorp.
(c) The executive officers of Bancorp, Allaire and MCBNA shall be those
persons listed on Schedule 1.10(c).
(d) Each committee of Bancorp, Allaire and MCBNA shall have an equal
number of representatives from Allaire and Bancorp at least through December 31,
2005.
Through December 31, 2005, the chairperson of the Personnel Committee,
Compensation Committee, Advertisement Committee, Investment Committee,
Nominating Committee and ALCO Committee of any of Bancorp, Allaire or MCBNA will
be a representative of Allaire and the chairperson of the Executive Committee,
Expansion Committee, Ethics Committee, Loan Committee and Audit Committee of any
of Bancorp, Allaire and MCBNA will be a representative of Bancorp.
(e) The Executive Committee of Bancorp shall have an equal number of
representatives from Allaire and Bancorp at least through December 31, 2005. The
members of the Executive Committee of Bancorp shall serve as the members of the
Boards of Directors of MCB Investment Company and Allaire Investment
Corporation, Inc.. The officers of MCBNA and Allaire initially shall serve as
the officers of MCB Investment Company and Allaire Investment Corporation, Inc..
(f) (i) the Chairman of the Board of Bancorp, Allaire and MCBNA, (ii) the
Vice-Chairman of the Board of Bancorp, Allaire and MCBNA, and (iii) the
President and Chief Executive Officer of Bancorp, Allaire and MCBNA, each of
whom is listed on Schedule 1.10(a)(iii), will serve in such capacity for at
least two (2) years following the Closing Date; provided, however, that such
person can continue to serve in such capacity and, with respect to the Chairman
of the Board of Bancorp and Vice-Chairman of the Board of Bancorp, such persons
are nominated and then elected by the shareholders of Bancorp to serve on the
Board of Directors of Bancorp for such period. It is hereby understood and
agreed to by the Parties that the Parties will take all reasonable and
appropriate action to ensure that each of the Chairman of the Board of Bancorp,
the Vice-Chairman of the Board of Bancorp and the President and Chief Executive
Officer of Bancorp set forth on Schedule 1.10(a)(iii) serves in such capacity
for at least two (2) years following the Closing Date.
A-17
After the Effective Time, each director and executive officer of Bancorp,
Allaire and MCBNA shall hold office in accordance with the respective By-laws of
Bancorp, Allaire and MCBNA, as such By-laws may be amended from time to time.
ARTICLE II.
EXCHANGE OF SHARES
Section 2.01. Bancorp to Make Shares Available.
At or prior to the Effective Time, Bancorp shall deposit, or shall cause to be
deposited, with a bank or trust company reasonably acceptable to each of Allaire
and Bancorp (the "Exchange Agent"), for the benefit of the holders of Allaire
Certificates, certificates representing the shares of Bancorp Common Stock, and
cash in lieu of any fractional shares (such cash and certificates for shares of
Bancorp Common Stock, together with any dividends or distributions with respect
thereto, being referred to as the "Exchange Fund"), to be issued pursuant to
Section 1.03 and paid pursuant to Section 2.02 in exchange for outstanding
shares of Allaire Common Stock, except for Dissenting Allaire Shares.
Section 2.02. Exchange of Shares.
(a) As soon as practicable after the Effective Time, the Exchange Agent
shall mail to each holder of record of one or more Allaire Certificates a letter
of transmittal in customary form as reasonably agreed to by the Parties (which
shall specify, among other things, that delivery shall be effected, and risk of
loss and title to the Allaire Certificates shall pass, only upon delivery of the
Allaire Certificates to the Exchange Agent) and instructions for surrendering
the Allaire Certificates in exchange for certificates representing the shares of
Bancorp Common Stock and any cash in lieu of fractional shares into which the
shares of Allaire Common Stock represented by such Allaire Certificate or
Allaire Certificates shall have been exchanged pursuant to this Agreement. Upon
proper surrender of a Allaire Certificate or Allaire Certificates to the
Exchange Agent for exchange and cancellation, together with such properly
completed letter of transmittal, duly executed, the holder of such Allaire
Certificate or Allaire Certificates shall be entitled to receive in exchange
therefor, as applicable, (i) a certificate representing the number of whole
shares of Bancorp Common Stock to which such holder of Allaire Common Stock
shall have become entitled pursuant to the provisions of Article I, (ii) a check
representing the amount of any cash in lieu of fractional shares which such
holder has the right to receive in respect of the Allaire Certificate or Allaire
Certificates surrendered pursuant to the provisions of this Article II, and
(iii) a check representing the amount of any dividends or distributions then
payable pursuant to Sections 2.02(b)(i), and the Allaire Certificate or Allaire
Certificates so surrendered shall forthwith be cancelled. No interest will be
paid or accrued on any cash in lieu of fractional shares or on any unpaid
dividends and distributions payable to holders of Allaire Certificates.
(b) No dividends or other distributions declared with respect to Bancorp
Common Stock shall be paid to the holder of any unsurrendered Allaire
Certificate until the holder thereof shall surrender such Allaire Certificate in
accordance with this Article II. After the surrender of a Allaire Certificate in
accordance with this Article II, the record holder thereof shall be entitled
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to receive (i) the amount of dividends or other distributions payable on Bancorp
Common Stock with a record date after the Effective Time theretofore paid,
without any interest thereon, with respect to the whole shares of Bancorp Common
Stock represented by such Allaire Certificate, and (ii) at the appropriate
payment date, the amount of dividends or other distributions payable on Bancorp
Common Stock with a record date after the Effective Time but prior to surrender
and a payment date subsequent to surrender, with respect to shares of Bancorp
Common Stock exchanged for the shares of Allaire Common Stock represented by
such Allaire Certificate.
(c) If any certificate representing shares of Bancorp Common Stock is to
be issued in a name other than that in which the Allaire Certificate or Allaire
Certificates surrendered in exchange therefor is or are registered, it shall be
a condition to the issuance thereof that the Allaire Certificate or Allaire
Certificates so surrendered shall be properly endorsed (or accompanied by an
appropriate instrument of transfer) for transfer, and that the person requesting
such exchange shall pay to the Exchange Agent in advance of any transfer any
Taxes required by reason of the issuance of a certificate representing shares of
Bancorp Common Stock in any name other than that of the registered holder of the
Allaire Certificate or Allaire Certificates surrendered, or required for any
other reason, or shall establish to the satisfaction of the Exchange Agent that
such Tax has been paid or is not payable.
(d) After the Effective Time, the stock transfer books of Allaire shall be
closed as to holders of Allaire Common Stock immediately prior to the Effective
Time and no transfer of Allaire Common Stock by any such holder shall thereafter
be made or recognized other than to settle transfers of Allaire Common Stock
that occurred prior to the Effective Time and to effect the transfer of all
outstanding shares of Allaire Common Stock, except for Dissenting Allaire
Shares, to Bancorp. If, after the Effective Time, Allaire Certificates are
properly presented for transfer to the Exchange Agent, the shares of Allaire
Common Stock represented by such certificates (other than Allaire Dissenting
Shares) shall be cancelled and exchanged for the certificates representing
shares of Bancorp Common Stock as provided in this Article II.
(e) Notwithstanding anything to the contrary contained in this Agreement,
no certificates or scrip representing fractional shares of Bancorp Common Stock
shall be issued upon the surrender of Allaire Certificates for exchange, no
dividend or distribution with respect to Bancorp Common Stock shall be payable
on or with respect to any fractional share, and such fractional share interests
shall not entitle the owner thereof to vote or to any other rights of a
shareholder of Bancorp. In lieu of the issuance of any such fractional share,
each holder of Allaire Common Stock exchanged pursuant to the Combination who
would otherwise have been entitled to receive a fraction of a share of Bancorp
Common Stock (after taking into account all Allaire Certificates delivered by
such holder), shall receive in lieu thereof and amount in cash (rounded to the
nearest cent, without interest) equal to such fractional part (rounded to the
nearest thousandth) of such Bancorp share, multiplied by the market value of one
share of Bancorp Common Stock determined at the Effective Time. The market value
of a share of Bancorp Common Stock at the Effective Time shall be the average of
the last sale price for the five (5) trading days prior to the Effective Time of
such Bancorp Common Stock, as reported by the NASDAQ SmallCap Market, ending on
the last business day preceding the Effective Time.
(f) Any portion of the Exchange Fund that remains unclaimed by the
stockholders of Allaire as of the first anniversary of the Effective Time shall
be delivered to Bancorp. Any
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former stockholders of Allaire who have not theretofore complied with this
Article II shall thereafter look only to Bancorp for delivery of the shares of
Bancorp Common Stock, payment of the cash in lieu of any fractional shares and
any unpaid dividends and distributions on the Bancorp Common Stock deliverable
in respect of each share of Allaire Common Stock that such stockholder formerly
held as determined pursuant to this Agreement, in each case, without interest
thereon. Notwithstanding the foregoing, none of Bancorp, Allaire, the Exchange
Agent or any other Person shall be liable to any former holder of shares of
Allaire Common Stock for any amount delivered in good faith to a public official
pursuant to applicable abandoned property, escheat or similar laws.
(g) In the event that any Allaire Certificate shall have been lost, stolen
or destroyed, upon the making of an affidavit of that fact by the Person
claiming such Allaire Certificate to be lost, stolen or destroyed and, if
reasonably required by Bancorp, the posting by such Person of a bond in such
amount as Bancorp may determine is reasonably necessary as indemnity against any
claim that may be made against it with respect to such Allaire Certificate, the
Exchange Agent will issue in exchange for such lost, stolen or destroyed Allaire
Certificate the shares of Bancorp Common Stock and any cash in lieu of
fractional shares deliverable in respect thereof pursuant to this Agreement.
Section 2.03. Dissenting Allaire Shares.
-------------------------
(a) Any holders of Allaire Common Stock who dissent from the Combination
shall be entitled to payment for their shares ("Dissenting Allaire Shares") only
to the extent permitted by and in accordance with the provisions of The New
Jersey Banking Act of 1948, as amended (the "Banking Act"); provided, however,
that if, in accordance with the Banking Act, any Dissenting Allaire Shares shall
forfeit such right to payment for the Dissenting Allaire Shares, such shares
shall thereupon be deemed to have become exchangeable for, as of the Effective
Time, the right to receive the Combination Consideration without interest from
Bancorp for such shares. Holders of Dissenting Allaire Shares shall not, after
the Effective Time, be entitled to vote for any purpose or receive any dividends
or other distributions and shall be entitled only to such rights as are afforded
in respect of Dissenting Allaire Shares pursuant to the Banking Act.
(b) Allaire shall give Bancorp prompt notice of any written objections to
the Combination and any written demands for the payment of the fair value of any
shares of Allaire Common Stock under the Banking Act, withdrawals of such
demands, and any other instruments served pursuant to the Banking Act and
received by Allaire. Allaire shall not voluntarily make any payment with respect
to any demands for payment for Dissenting Allaire Shares and shall not, except
with prior written consent of Bancorp, settle or offer to settle any such
demands. Notwithstanding the foregoing, Allaire shall make all payments to its
stockholders with regard to the exercise of dissenter's rights.
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Section 2.04. Dissenting Bancorp Shares.
-------------------------
(a) Any holders of Bancorp Common Stock who dissent from the Combination
shall be entitled to payment for such shares ("Dissenting Bancorp Shares") only
to the extent permitted by and in accordance with the provisions of the New
Jersey Business Corporation Act ("NJBCA"); provided, however, that if, in
accordance with the NJBCA, any holder of Dissenting Bancorp Shares shall forfeit
such right to payment of the fair value of such shares, such shares shall
continue to remain outstanding after the Effective Time. Holders of Dissenting
Bancorp Shares shall not, after the Effective Time, be entitled to vote for any
purpose or receive any dividends or other distributions and shall be entitled
only to such rights as are afforded in respect of Dissenting Bancorp Shares
pursuant to the NJBCA.
(b) Bancorp shall give Allaire prompt notice of any written objections to
the Combination and any written demands for the payment of the fair value of any
shares of Bancorp Common Stock under the NJBCA, withdrawals of such demands, and
any other instruments served pursuant to the NJBCA and received by Bancorp.
Bancorp shall not voluntarily make any payment with respect to any demands for
payment for Dissenting Bancorp Shares and shall not, except with prior written
consent of Allaire, settle or offer to settle any such demands.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF ALLAIRE
Except as disclosed in a disclosure Schedule of Allaire attached hereto, Allaire
hereby represents and warrants to Bancorp as follows as of the date hereof and
as of all times up to and including the Effective Time (except as otherwise
expressly provided below or where the context otherwise expressly indicates, for
the purposes of the representations and warranties made in this Article III and
the other provisions of this Agreement, the term "Allaire" shall mean Allaire
and each Allaire Subsidiary (as hereinafter defined)):
Section 3.01. Corporate Organization.
----------------------
(a) Allaire is a commercial bank duly organized, validly existing and in
good standing under the laws of the State of New Jersey. Allaire (i) has all
requisite corporate power and authority to own or lease all of its properties
and assets and to carry on its business as such business is now being conducted;
(ii) is duly licensed or qualified to do business in all such places where the
nature of the business conducted by it or the character or location of the
properties and assets owned or leased by it make such qualification necessary;
and (iii) has in effect all federal, state and local governmental, regulatory
and other authorizations, permits and licenses necessary to own or lease its
properties and assets and to carry on its business as now conducted, except in
each of clauses (ii) and (iii) as would not be reasonably likely to have, either
individually or in the aggregate, a Material Adverse Effect (defined below) on
Allaire. True, correct and complete copies of the Certificate of Incorporation
and the By-laws of Allaire, each as amended to the date hereof, have been
delivered to Bancorp.
For purposes of this Agreement, the term "Material Adverse Effect," with respect
to any Party, shall mean any event, change or occurrence which, together with
any other event, change or
A-21
occurrence, has a material adverse impact on (i) the financial position,
business or results of operation or financial performance of such Party and its
Subsidiaries (as defined below), taken as a whole, or (ii) the ability of such
Party to perform its obligations under this Agreement or to consummate the
Combination and the other transactions contemplated by this Agreement; provided,
however, that with respect to clause (i), "Material Adverse Effect" shall not be
deemed to include the effects of (A) changes, after the date hereof, in GAAP (as
hereinafter defined) or regulatory accounting requirements applicable to banks
and their holding companies generally, (B) changes, after the date hereof, in
laws, rules or regulations of general applicability or interpretations thereof
by courts, administrative agencies, commissions or other governmental
authorities or instrumentalities (collectively, the "Governmental Entities" and
individually a "Governmental Entity"), (C) actions or omissions of a Party taken
with the prior written consent of the other or required hereunder, (D) changes,
after the date hereof, in general economic or market conditions affecting banks
or their holding companies generally, or (E) public disclosure of the
transactions contemplated hereby.
For purposes of this Agreement, the term "Subsidiary" of a Party shall mean a
bank, corporation, partnership, limited liability company or other organization,
whether incorporated or unincorporated, in which the Party owns, directly or
indirectly, five percent (5%) of more of the outstanding equity or ownership
interests thereof or is consolidated with the Party for financial reporting
purposes under GAAP (collectively, the "Subsidiaries").
(b) Each Subsidiary of Allaire (each an "Allaire Subsidiary" and
collectively, the "Allaire Subsidiaries") is duly organized, validly existing
and in good standing under the laws of its jurisdiction of incorporation or
organization. Each Allaire Subsidiary (i) has all requisite corporate power and
authority to own or lease all of its properties and assets and to carry on its
business as such business is now being conducted; (ii) is duly licensed or
qualified to do business in all such places where the nature of the business
being conducted by the Allaire Subsidiary or the character or location of the
properties and assets owned or leased by the Allaire Subsidiary make such
qualification necessary; and (iii) has in effect all federal, state and local
governmental, regulatory and other authorizations, permits and licenses
necessary for it to own or lease its properties and assets and to carry on its
business as now conducted, except in each of clauses (ii) and (iii) as would not
be reasonably likely to have, either individually or in the aggregate, a
Material Adverse Effect on Allaire. True, correct and complete copies of the
incorporation or organizational documents, by-laws, and operating or partnership
agreements, as applicable, of the Allaire Subsidiaries, as amended to the date
hereof, have been delivered to Bancorp.
(c) The minute books of Allaire and each Allaire Subsidiary contain
complete and accurate records in all material respects of all meetings and other
corporate actions held or taken by their respective stockholders and Boards of
Directors (including all committees thereof).
Section 3.02. Capitalization.
--------------
(a) The authorized capital stock of Allaire consists of 7,500,000 shares
of common stock, par value $3.33333 per share, of which 1,971,361 shares as of
the date hereof are issued and outstanding (none of which is held in the
treasury of Allaire). As of the date hereof, none of the Allaire Common Stock
was reserved for issuance, except for 388,375 shares of Allaire
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Common Stock reserved for issuance upon the exercise of Allaire Stock Options.
Except for the Allaire Stock Options, there are no outstanding options,
warrants, commitments or other rights or instruments to purchase or acquire any
shares of capital stock of Allaire, or any securities or rights convertible into
or exchangeable for shares of capital stock of Allaire. All of the issued and
outstanding shares of Allaire Common Stock have been duly authorized and validly
issued and all such shares are fully paid, nonassessable and free of preemptive
rights (except as the same may be afforded by applicable law). As of the date of
this Agreement, except pursuant to this Agreement and the Allaire Stock Option
Plans, Allaire does not have and is not bound by any outstanding subscriptions,
options, warrants, calls, commitments or agreements of any character calling for
the purchase or issuance of any shares of Allaire capital stock or any other
securities representing the right to purchase or otherwise receive any shares of
Allaire capital stock. Allaire has furnished Bancorp with a list of the
aggregate number of Allaire Stock Options outstanding under the Allaire Stock
Option Plans (identified on Schedule 3.02(a)) as of March 31, 2004 and the
exercise price for such stock options. Since March 31, 2004 through the date
hereof, Allaire has not issued or awarded any options or other grants or awards
under the Allaire Stock Option Plans.
(b) Schedule 3.02(b) lists all Allaire Subsidiaries and indicates for each
Allaire Subsidiary as of the date of this Agreement its jurisdiction of
organization and the jurisdiction(s) wherein it is qualified to do business.
Except as set forth on Schedule 3.02(b), all of the issued and outstanding
shares of capital stock or other equity ownership interests of the Allaire
Subsidiaries are owned by Allaire or another Allaire Subsidiary, free and clear
of any liens, pledges, charges and security interests or similar encumbrances
(each a "Lien" and collectively, "Liens") and adverse claims thereto, and all of
such shares or equity ownership interests are duly authorized and validly issued
and are fully paid, nonassessable and free of preemptive rights and restrictions
(other than those imposed by applicable federal and state securities laws). Each
Allaire Subsidiary does not have and is not bound by any outstanding
subscriptions, options, warrants, calls, commitments or agreements of any
character calling for the purchase or issuance of any shares of capital stock or
any other equity security of the Allaire Subsidiary or any securities
representing the right to purchase or otherwise receive any shares of capital
stock or any other equity security of the Allaire Subsidiary. There are no
agreements or understandings with respect to the voting or disposition of any
shares of capital stock or other equity interests of any Allaire Subsidiary.
Allaire's ownership interests in the Allaire Subsidiaries are in compliance with
all applicable laws, rules and regulations relating to direct investment in
equity ownership interests. No Allaire Subsidiary is an "insured depository
institution" as defined in the Federal Deposit Insurance Act, as amended, and
the applicable regulations thereunder.
Section 3.03. Authority; No Violation.
-----------------------
(a) Allaire has full corporate power and authority to execute and deliver
this Agreement and, subject to the approval of the stockholders of Allaire and
the receipt of the Consents of the Regulatory Authorities, to consummate the
transactions contemplated hereby. The Board of Directors of Allaire has
determined that this Agreement and the transactions contemplated hereby are in
the best interests of Allaire and its stockholders and has directed that this
Agreement and the transactions contemplated by this Agreement be submitted to
Allaire's stockholders for adoption at a duly held meeting of such stockholders
and, except for the approval of this Agreement and the transactions contemplated
by this Agreement by the
A-23
affirmative vote of the holders of two-thirds of the outstanding shares of
Allaire Common Stock entitled to vote at such meeting, no other corporate
proceedings on the part of Allaire are necessary to approve this Agreement or to
consummate the transactions contemplated hereby. This Agreement has been duly
and validly executed and delivered by Allaire and (assuming due authorization,
execution and delivery by Bancorp and subject to any review and approval of any
Regulatory Authority) constitutes a valid and binding obligation of Allaire,
enforceable against Allaire in accordance with its terms (except as may be
limited by bankruptcy, insolvency, moratorium, reorganization or similar laws
affecting the rights of creditors generally, and except that the availability of
the equitable remedy of specific performance or injunctive relief is subject to
the discretion of the court before which any proceeding may be brought).
(b) Neither the execution and delivery of this Agreement by Allaire, the
consummation by Allaire of the transactions contemplated hereby, nor compliance
by Allaire with any of the terms or provisions hereof, will (i) violate any
provision of the Certificate of Incorporation or By-laws of Allaire, or the
Certificate of Incorporation, By-laws or any other formation document of any
Allaire Subsidiary, (ii) assuming that the Consents of the Regulatory
Authorities and approvals referred to herein are duly obtained, (A) violate any
statute, code, ordinance, rule, regulation, judgment, order, writ, decree or
injunction applicable to Allaire or its properties or assets, (B) violate,
conflict with, result in a breach of any provision of or the loss of any benefit
under, constitute a default (or an event which, with notice or lapse of time, or
both, would constitute a default) under, result in the termination of or a right
of termination or cancellation under, accelerate the performance required by, or
result in creation of any Lien upon any of the respective properties or assets
of Allaire under any note, bond, mortgage, indenture, deed of trust, license,
lease, agreement or other instrument or obligation to which Allaire is a party
or by which it or any of its properties or assets may be bound or affected,
except for such violations, conflicts, breaches or defaults that are not
reasonably likely to have, either individually or in the aggregate, a Material
Adverse Effect on Allaire.
Section 3.04. Consents and Approvals.
----------------------
(a) Except for (i) the filings required to be made with the SEC,
including, without limitation, a registration statement on Form S-4 (the "Form
S-4") and, as part thereof, a proxy statement relating to the meeting(s) of
Allaire's stockholders and Bancorp's shareholders to be held in connection with
this Agreement and the transactions contemplated herein (the "Joint Proxy
Statement") and any similar filings which may be required by the FDIC, (ii) a
declaration of effectiveness of the Form S-4 by the SEC, (iii) any Consents,
authorizations, approvals, filings or exemptions required under the applicable
provisions of federal and state securities laws relating to the regulation of
broker-dealers, investment advisers or transfer agents, federal commodities laws
relating to the regulation of futures commission merchants and the rules and
regulations thereunder, the rules and regulations of any applicable industry
self-regulatory organization ("SRO"), the rules of the NASDAQ SmallCap Market
and OTC Bulletin Board, and consumer finance, mortgage banking and other similar
laws, (iv) such filings and approvals as are required to be made or obtained
under the securities or "Blue Sky" laws of various states in connection with the
issuance of the shares of Bancorp Common Stock pursuant to this Agreement, (v)
the approval by the OCC, the FDIC and the New Jersey State Department of Banking
and Insurance of this Agreement, (vi) the approval by the Boards of Directors of
Bancorp and Allaire and the requisite vote of the stockholders of Allaire and
the shareholders of
A-24
Bancorp, and (vii) filings, if any, required on behalf of Bancorp with NASDAQ,
no corporate action or Consents of, approvals of or filings or registrations
with any Regulatory Authority or Governmental Entity is or are necessary in
connection with (A) the execution and delivery by Allaire of this Agreement and
(B) the consummation by Allaire of the Combination and the other transactions
contemplated by this Agreement.
Section 3.05. Reports.
-------
(a) Allaire has timely filed all reports, registrations and statements,
together with any amendments required to be made with respect thereto, that it
was required to file since January 1, 2000, with all applicable Regulatory
Authorities, and all other reports and statements required to be filed by it
since January 1, 2000, and has paid all fees and assessments due and payable in
connection therewith, except where the failure to file such report, registration
or statement or to pay such fees and assessments is not reasonably likely to
have, either individually or in the aggregate, a Material Adverse Effect on
Allaire. Except for normal examinations conducted by a Regulatory Authority in
the ordinary course of the business of Allaire, no Regulatory Authority has
initiated or has pending any proceeding or, to the knowledge of Allaire,
investigation into the business or operations of Allaire since January 1, 2000,
except where such proceedings or investigation is not reasonably likely to have,
either individually or in the aggregate, a Material Adverse Effect on Allaire.
There (i) is no unresolved violation, criticism, or exception by any Regulatory
Authority with respect to any report or statement relating to any examinations
or inspections of Allaire, and (ii) has been no formal or informal inquiries by,
or disagreements or disputes with, any Regulatory Authority with respect to the
business, operations, policies or procedures of Allaire since January 1, 2000,
that are reasonably likely to have, either individually or in the aggregate, a
Material Adverse Effect on Allaire.
(b) Allaire has previously delivered to Bancorp copies of the call reports
of Allaire as of and for each of the years ended December 31, 2003, December 31,
2002 and December 31, 2001, and call reports for the quarter ended March 31,
2004, and Allaire shall deliver to Bancorp, as soon as practicable following the
preparation of additional call reports for each subsequent calendar quarter (or
other reporting period) or year, the call reports of Allaire as of and for such
subsequent calendar quarter (or other reporting period) or year (such call
reports, unless otherwise indicated, being hereinafter referred to collectively
as the "Allaire Regulatory Reports"). To the extent not prohibited by law,
Allaire has heretofore delivered or made available, or caused to be delivered or
made available, to Bancorp all reports and filings made or required to be made
by Allaire with the Regulatory Authorities, and will from time to time hereafter
furnish to Bancorp, upon filing or furnishing the same to the Regulatory
Authorities, all such reports and filings made after the date hereof with the
Regulatory Authorities. As of the respective dates of such reports and filings,
all such reports and filings did not and shall not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. Each of the Allaire
Regulatory Reports has been or will be prepared in all material respects in
accordance with regulatory accounting principles, as applicable, which
principles have been or will be consistently applied during the periods
involved, except as otherwise noted therein. Each of the Allaire Regulatory
Reports fairly presents or will fairly present the financial position of Allaire
as of the respective dates thereof
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and fairly presents or will fairly present the results of operations of Allaire
for the respective periods therein set forth.
Section 3.06. Financial Statements.
--------------------
(a) Allaire has previously delivered to Bancorp copies of the audited
consolidated financial statements of Allaire as of and for the years ended
December 31, 2003, December 31, 2002 and December 31, 2001, and unaudited
consolidated financial statements for the quarter ended March 31, 2004, and
Allaire shall deliver to Bancorp, as soon as practicable following the
preparation of additional financial statements for each subsequent calendar
quarter (or other reporting period) or year of Allaire, the additional
consolidated financial statements of Allaire as of and for such subsequent
calendar quarter (or other reporting period) or year (such financial statements,
unless otherwise indicated, being hereinafter referred to collectively as the
"Allaire Financial Statements").
(b) Each of the Allaire Financial Statements (including the related notes)
have been or will be prepared in all material respects in accordance with
Generally Accepted Accounting Principles of the United States of America
("GAAP"), which principles have been or will be consistently applied during the
periods involved, except as otherwise noted therein, and the books and records
of Allaire have been, are being, and will be maintained in all material respects
in accordance with applicable legal and accounting requirements and reflect only
actual transactions. Each of the Allaire Financial Statements (including the
related notes) fairly presents or will fairly present the financial position of
Allaire on a consolidated basis, as of the respective dates thereof and fairly
presents or will fairly present the results of operations of Allaire on a
consolidated basis for the respective periods therein set forth.
(c) Except for those liabilities that are reflected or reserved against on
the consolidated balanced sheet of Allaire dated March 31, 2004 and for
liabilities incurred in the ordinary course of business consistent with past
practice since such date, Allaire has not incurred any liability of any nature
whatsoever (whether absolute, accrued, contingent or otherwise and whether due
or to become due) that has had or is reasonably likely to have, either
individually or in the aggregate, a Material Adverse Effect on Allaire.
Section 3.07. Broker's Fees; Financial Advisor's Fees.
---------------------------------------
Neither Allaire nor any of its officers or directors has employed any broker or
finder or incurred any liability for any broker's fees, commissions or finder's
fees in connection with the Combination or related transactions contemplated by
this Agreement. However, Allaire has retained Janney Montgomery Scott LLC to
provide financial advisory services and render a fairness opinion with respect
to the Combination and is obligated to pay the fees and expenses for such
services.
Section 3.08. Absence of Certain Changes or Events.
------------------------------------
(a) Except as set forth in Schedule 3.08, since December 31, 2003, Allaire
has not incurred any obligation or liability (contingent or otherwise) that has
or might reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect on Allaire, except obligations and liabilities (i) which
are accrued or reserved against in the Allaire Financial
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Statements or the Allaire Regulatory Reports, or reflected in the notes thereto,
or (ii) which were incurred after December 31, 2003, in the ordinary course of
business consistent with past practices. Since December 31, 2003, Allaire has
not incurred or paid any obligation or liability which would be material to the
business, assets, operations, financial condition or results of the operations
("Condition") of Allaire, except as may have been incurred or paid in the
ordinary course of business, consistent with past practices.
(b) Since December 31, 2003, there has not been (i) any declaration,
payment or setting aside of any dividend or distribution (whether in cash, stock
or property) in respect of Allaire Common Stock, other than the stock dividend
declared on June 11, 2004, or (ii) any change or any event involving a
prospective change in the Condition of Allaire, or a combination of any such
change(s) and any such event(s) which has had, or is reasonably likely to have,
a Material Adverse Effect on Allaire, including, without limitation, any change
in the administration or supervisory standing or rating of Allaire with any
Regulatory Authority, and no fact or condition exists as of the date hereof
which might reasonably be expected to cause any such event or change in the
future.
(c) Since December 31, 2003, no event or events have occurred that have
had or are reasonably likely to have, either individually or in the aggregate, a
Material Adverse Effect on Allaire.
(d) Since December 31, 2003 through and including the date of this
Agreement, Allaire has carried on its business in all material respects in the
ordinary course.
Section 3.09. Loan Portfolio.
--------------
Except as set forth in Schedule 3.09, all evidences of indebtedness in original
principal amount in excess of $500,000 reflected as assets in the Allaire
Financial Statements and the Allaire Regulatory Reports as of March 31, 2004,
were as of such date in all respects the binding obligations of the respective
obligors named therein in accordance with their respective terms, and were not
subject to any defenses, setoffs, or counterclaims, except as may be provided by
bankruptcy, insolvency or similar laws or by general principles of equity.
Section 3.10. Legal Proceedings; Agreements with Regulatory
---------------------------------------------
Agencies.
- --------
(a) Except as set forth in Schedule 3.10, Allaire is not a party to any,
and there are no pending or, to the knowledge of Allaire, threatened, judicial,
administrative, arbitral or other proceedings, claims, actions, causes of action
or governmental or regulatory investigations against Allaire challenging the
validity of the transactions contemplated by this Agreement. There is no
proceeding, claim, action or governmental or regulatory investigation against
Allaire, no judgment, decree, injunction, rule or order of any court,
governmental department, commission, agency, instrumentality or arbitrator
outstanding or, to the knowledge of Allaire, threatened against Allaire which
has had, or is reasonably likely to have, a Material Adverse Effect on Allaire.
Allaire is not a party to any agreement, order or memorandum in writing by or
with any Regulatory Authority restricting the operations of Allaire, and no
Regulatory Authority has advised Allaire that such Regulatory Authority is
contemplating issuing or requesting the issuance of any such order or memorandum
in the future.
A-27
(b) Allaire (i) is not subject to any cease-and-desist or other order or
enforcement action issued by, (ii) is not a party to any written agreement,
consent agreement or memorandum of understanding with, (iii) is not a party to
any commitment letter or similar undertaking with, (iv) is not subject to any
order or directive by, (v) has not been ordered to pay any civil money penalty
by, (vi) has not been since January 1, 2000, a recipient of any supervisory
letter from, or (vii) since January 1, 2000, has not adopted any policies,
procedures or board resolutions at the request or suggestion of, any Regulatory
Agency or other Governmental Entity, that currently restricts in any material
respect the conduct of its business or that in any material manner relates to
its capital adequacy, its ability to pay dividends, its credit or risk
management policies, its management or its business, other than those of general
application that apply to similarly-situated financial institutions or their
subsidiaries (each item in this sentence, whether or not disclosed in Schedule
3.10, an "Allaire Regulatory Agreement"), nor has Allaire been advised since
January 1, 2000 by any Regulatory Agency or Governmental Entity that it is
considering issuing, initiating, ordering or requesting any such Allaire
Regulatory Agreement.
Section 3.11. Taxes and Tax Returns.
---------------------
(a) Allaire has previously delivered or made available to Bancorp copies
of the federal, state and local income Tax returns of Allaire for the years
2003, 2002 and 2001 and all schedules and exhibits thereto, and such returns
have not been examined by the Internal Revenue Service or any other Taxing
authority. Except as reflected in Schedule 3.11, Allaire has duly filed in
correct form all federal, state and local information returns and Tax returns
required to be filed on or prior to the date hereof, and Allaire has duly paid
or made adequate provisions for the payment of all Taxes and other governmental
charges which are owed by Allaire to, or claimed to be due from it by, any
federal, state or local taxing authorities, whether or not reflected in such
returns, other than Taxes and other charges which (i) are not yet delinquent or
are being contested in good faith, or (ii) have not been finally determined and
have adequately been reserved against. The amounts set forth as liabilities for
Taxes on the Allaire Financial Statements and the Allaire Regulatory Reports are
sufficient, in the aggregate, for the payment of all unpaid federal, state and
local Taxes (including any interest or penalties thereon), whether or not
disputed, accrued or applicable, for the periods then ended, and have been
computed in accordance with GAAP. Allaire is not responsible for the Taxes of
any other individual, sole proprietorship, partnership, joint venture, limited
liability entity, trust, unincorporated organization, association, corporation,
institution, entity, or government (including any division, agency or department
thereof), and, as applicable, the successors, heirs and assigns of each (each a
"Person") under Treasury Regulation 1.1502-6 or any similar provision of
federal, state or foreign law.
(b) Except as disclosed in Schedule 3.11, Allaire has not executed an
extension or waiver of any statute of limitations on the assessment or
collection of any federal, state or local Tax due that is currently in effect,
and all deferred Taxes of Allaire, have been adequately provided for in the
Allaire Financial Statements.
(c) There are no material disputes pending, or claims asserted, for Taxes
or assessments upon Allaire for which Allaire does not have adequate reserves.
Allaire is not a party to and is not bound by any Tax sharing, allocation or
indemnification agreement or arrangement (other than such an agreement or
arrangement exclusively between or among
A-28
Allaire and any of the Allaire Subsidiaries). No disallowance of a deduction
under Section 162(m) of the Internal Revenue Code of 1986, as amended ("Code"),
for employee remuneration of any amount paid or payable by Allaire under any
contract, plan, program or arrangement or understanding would be reasonably
likely to have, individually or in the aggregate, a Material Adverse Effect on
Allaire.
(d) There has not been an ownership change, as defined in Section 382(g)
of the Code, of Allaire that occurred during or after any taxable period in
which Allaire incurred an operating loss that carries over to any taxable period
ending after the fiscal year of Allaire immediately preceding the date of this
Agreement.
(e) (i) Proper and accurate amounts have been withheld by Allaire from its
employees and others for all prior periods in compliance in all material
respects with the Tax withholding provisions of all applicable federal, state
and local laws and regulations, and proper due diligence steps have been taken
in connection with back-up withholding; (ii) federal, state and local Tax
returns have been filed by Allaire for all periods for which returns were due
with respect to withholding, Social Security and unemployment Taxes or charges
due to any federal, state or local taxing authority; and (iii) the amounts shown
on such returns to be due and payable have been paid in full or adequate
provisions therefor have been included by Allaire in the Allaire Financial
Statements.
Section 3.12. Employee Benefit Plans.
----------------------
(a) Allaire does not have or maintain any "employee benefit plan," as
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), except as described in Schedule 3.12(a) (collectively the
"Allaire Employee Benefit Plans" and individually an "Allaire Employee Benefit
Plan"). Allaire has, with respect to each Allaire Employee Benefit Plan,
delivered or made available to Bancorp true and complete copies of: (i) all plan
texts and agreements and related trust agreements or annuity contracts and any
amendments thereto; (ii) all summary plan descriptions and material employee
communications; (iii) the Form 5500 filed in each of the most recent actuarial
valuation (if any); (iv) the most recent annual and periodic accounting of plan
assets; (v) if the Allaire Employee Benefit Plan is intended to qualify under
Section 401(a) or 403(a) of the Code, the most recent determination letter
received from the Internal Revenue Service; and (vi) all material communications
with any Governmental Entity (including, without limitation, the Department of
Labor, Internal Revenue Service and the Pension Benefit Guaranty Corporation
("PBGC")).
(b) Except as described in Schedule 3.12(b), no Allaire Employee Benefit
Plan is a defined benefit plan. None of Allaire nor any pension plan maintained
by it has incurred any liability to the PBGC or the Internal Revenue Service
with respect to any pension plan qualified under Section 401 of the Code, except
liabilities to the PBGC pursuant to Section 4007 of ERISA, all of which have
been fully paid. No reportable event under Section 4043(b) of ERISA (including
events waived by PBGC regulation) has occurred with respect to any such pension
plan.
A-29
(c) Allaire has not incurred any liability under Section 4201 of ERISA for
a complete or partial withdrawal from, or agreed to participate in, any
multi-employer plan, as such term is defined in Section 3(37) of ERISA.
(d) All Allaire Employee Benefit Plans comply with the provisions of ERISA
and the Code that are applicable, or intended to be applicable, including, but
not limited to, COBRA (as defined below), HIPAA (as defined below) and any
applicable similar state law. Allaire has no material liability under any
Allaire Employee Benefit Plan that is not reflected in the Allaire Financial
Statements or the Allaire Regulatory Reports. Neither Allaire, any Allaire
Employee Benefit Plan or any employee, administrator or agent thereof, is or has
been in violation of the transaction code set rules under HIPAA ss.ss.1172-1174
or the HIPAA privacy rules under 45 CFR Part 160 and subparts A and E of Part
165. No penalties have been imposed on Allaire, any Allaire Employee Benefit
Plan, or any employee, administrator or agent thereof, under HIPAA ss.1176 or
ss.1177.
(e) For purposes of this Agreement, "COBRA" means the provision of Section
4980B of the Code and the regulations thereunder, and Part 6 of the Subtitle B
of Title I of ERISA and any regulations thereunder, and "HIPAA" means the
provisions of the Code and ERISA as enacted by the Health Insurance Portability
and Accountability Act of 1996.
(f) No prohibited transaction (which shall mean any transaction prohibited
by Section 406 of ERISA and not exempt under Section 408 of ERISA) has occurred
with respect to any Allaire Employee Benefit Plan which would result in the
imposition, directly or indirectly, of an excise Tax under Section 4975 of the
Code or a civil penalty under Section 502(i) of ERISA; and no actions have
occurred which could result in the imposition of a penalty under any section or
provision of ERISA.
(g) No Allaire Employee Benefit Plan which is a defined benefit pension
plan has any "unfunded current liability," as that term is defined in Section
302(d)(8)(A) of ERISA, and the present fair market value of the assets of any
such plan exceeds the plan's "benefit liabilities," as that term is defined in
Section 4001(a)(16) of ERISA, when determined under actuarial factors that would
apply if the plan terminated in accordance with all applicable legal
requirements.
(h) Except as described in Schedule 3.12(h), neither the execution and
delivery of this Agreement nor the consummation of the transactions contemplated
hereby will (i) result in any payment or obligation (including, without
limitation, severance, bonus, deferred compensation, retirement, unemployment
compensation, golden parachute or otherwise) becoming due to any director or any
officer or employee of Allaire under any Allaire Employee Benefit Plan or
otherwise, (ii) increase any benefits or obligations otherwise payable under any
Allaire Employee Benefit Plan, or (iii) result in any acceleration of the time
of payment or vesting of any such benefits or obligations.
(i) No Allaire Employee Benefit Plan is a multiemployer plan as defined in
Section 414(f) of the Code or Section 3(37) or 4001(a)(3) of ERISA. Allaire has
never been a party to or participant in a multiemployer plan.
A-30
(j) There are no actions liens, suits or claims pending or threatened
(other than routine claims for benefits) with respect to any Allaire Employee
Benefit Plan or against the assets of any Allaire Employee Benefit Plan. No
assets of Allaire are subject to any Lien under Section 302(f) of ERISA or
Section 12(n) of the Code.
(k) Each Allaire Employee Benefit Plan which is intended to qualify under
Section 401(a) or 403(a) of the Code so qualifies and its related trust is
exempt from taxation under Section 501(a) of the Code. No event has occurred or
circumstance exists that will or could give rise to a disqualification or loss
of tax-exempt status of any such plan or trust.
(l) No Allaire Employee Benefit Plan is a multiple employer plan within
the meaning of Section 413(c) of the Code or Section 4063, 4064, or 4066 of
ERISA. No Allaire Employee Benefit Plan is a multiple employer welfare
arrangement as defined in Section 3(40) of ERISA.
(m) Each Allaire Employee Benefit Plan that is an employee pension benefit
plan as defined in Section 3(2) of ERISA, and not qualified under Section 401(a)
or 403(a) of the Code, is exempt from Part 2, 3 and 4 of Title I of ERISA as an
unfunded plan that is maintained primarily for the purpose of providing deferred
compensation for a select group of management or highly-compensation employees,
pursuant to Section 201(2), 301(a)(3) and 401(a)(1) of ERISA. Except as
disclosed on Schedule 3.12(m), no assets of Allaire are allocated to or held in
a grantor trust or "rabbi trust" or similar funding vehicle.
(n) Except as set forth on Schedule 3.12(n), no Allaire Employee Benefit
Plan provides benefits to any current or former employee of Allaire following
the retirement or other termination of service (other than coverage mandated by
COBRA, the cost of which is fully paid by the current or former employee or his
or her dependents). Any such Allaire Employee Benefit Plan may be amended or
terminated at any time by unilateral action of Allaire.
(o) With respect to each Allaire Employee Benefit Plan, there are no
funded benefit obligations for which contributions have not been made or
properly accrued and there are no unfunded benefit obligations that have not
been accounted for by reserves or otherwise properly footnoted in accordance
with GAAP on the Allaire Financial Statements.
Section 3.13. Title and Related Matters.
-------------------------
(a) Allaire has good title, and as to owned real property, has good and
marketable title in fee simple absolute, to all assets and properties, real or
personal, tangible or intangible, reflected as owned by or leased or subleased
by or carried under its name on the Allaire Financial Statements or the Allaire
Regulatory Reports or acquired subsequent thereto (except to the extent that
such assets and properties have been disposed of for fair value in the ordinary
course of business since December 31, 2003), free and clear of all Liens, except
for (i) those Liens reflected in the Allaire Financial Statements and the
Allaire Regulatory Reports, (ii) statutory Liens for amounts not yet delinquent
or which are being contested in good faith, and (iii) Liens that are not in the
aggregate material to the Condition of Allaire.
(b) All agreements pursuant to which Allaire leases, subleases or licenses
material real or material personal properties from others are valid, binding and
enforceable in accordance with their respective terms, and there is not, under
any of such leases or licenses, any existing
A-31
default or event of default, or any event which, with notice or lapse of time,
or both, would constitute a default or force majeure, or provide the basis for
any other claim of excusable delay or nonperformance, except for defaults which,
individually or in the aggregate, would not have a Material Adverse Effect on
Allaire. Allaire shall have all right, title and interest as a lessee under the
terms of each lease or sublease, free and clear of all Liens, claims or
encumbrances (other than the rights of the lessor) as of the Effective Time.
(c) Except as set forth in Schedule 3.13(c), (i) all of the buildings,
structures and fixtures owned, leased or subleased by Allaire are in good
operating condition and repair, subject only to ordinary wear and tear and/or
minor defects which do not interfere with the continued use thereof in the
conduct of normal operations, and (ii) all of the material personal properties
owned, leased or subleased by Allaire are in good operating condition and
repair, subject only to ordinary wear and tear and/or minor defects which do not
interfere with the continued use thereof in the conduct of normal operations.
Section 3.14. Real Estate.
-----------
(a) Schedule 3.14(a) identifies each parcel of real estate or interest
therein owned, leased or subleased by Allaire or in which Allaire has any
ownership or leasehold interest.
(b) Schedule 3.14(b) lists or otherwise describes each and every written
or oral lease or sublease, together with the current name and address of the
landlord or sublandlord and the landlord's property manager (if any), under
which Allaire is the lessee of any real property and which related in any manner
to the operation of the business of Allaire.
(c) Allaire has not violated, and is not currently in violation of, any
law, regulation or ordinance relating to the ownership or use of the real estate
and real estate interests described in Schedule 3.14(a) and Schedule 3.14(b)
including, but not limited to, any law, regulation or ordinance relating to
zoning, building, occupancy, environmental or comparable matter.
(d) As to each parcel of real property owned or used by Allaire, there are
no pending or, to the knowledge of Allaire, threatened condemnation proceedings,
litigation proceedings or mechanic's or materialmen's Liens.
Section 3.15. Environmental Matters.
---------------------
(a) Each of Allaire, the Allaire Participation Facilities (as defined
below), and the Allaire Loan Properties (as defined below) are, and have been,
in material compliance, and there are no present circumstances that would
prevent or interfere with the continuation of such material compliance, with all
applicable federal, state and local laws, including common law, rules,
regulations and ordinances, and with all applicable decrees, orders and
contractual obligations, relating to pollution or the protection of the
environment or the discharge of, or exposure to, Hazardous Materials (as defined
below) in the environment or workplace.
As used herein, the term "Allaire Participation Facility" shall mean any
facility in which Allaire has engaged in Participation in the Management (as
defined in 40 C.F.R. ss.300.1100(c)) of such facility, and, where required by
the context, includes the owner or operator of such facility, but only with
respect to such facility (collectively, the "Allaire Participation Facilities").
A-32
As used herein, the term "Allaire Loan Property" shall mean any property owned
by Allaire or in which Allaire holds a security interest, and, where required by
the context, includes the owner or operator of such property, but only with
respect to such property (collectively, the "Allaire Loan Properties").
(b) There is no litigation pending or, to the knowledge of Allaire,
threatened before any Governmental Entity in which Allaire or any Allaire
Participation Facility has been or, with respect to threatened litigation, may
be, named as defendant (i) for alleged noncompliance (including by any
predecessor) with respect to any Environmental Law (as defined below) or (ii)
relating to the release into the environment of any Hazardous Material, whether
or not occurring at, on or involving a site owned, leased or operated by Allaire
or any Allaire Participation Facility.
As used herein, the term "Environmental Law" means any applicable federal, state
or local law, statute, ordinance, rule, regulation, code, license, permit,
authorization, approval, consent, order, judgment, decree or injunction relating
to (i) the protection, preservation or restoration of the environment
(including, without limitation, air, water vapor, surface water, groundwater,
drinking water supply, surface soil, subsurface soil, plant and animal life or
any other natural resource), and/or (ii) the use, storage, recycling, treatment,
generation, transportation, processing, handling, labeling, production, release
or disposal of any substance presently listed, defined, designated or classified
as hazardous, toxic, radioactive or dangerous, or otherwise regulated, whether
by type or by substance as a component.
As used herein, the term "Hazardous Material" means any pollutant, contaminant,
or hazardous substance within the meaning of the Comprehensive Environmental
Response, Compensation, and Liability Act, 42 U.S.C. ss. 9601 et seq., or any
similar federal, state or local law. Hazardous Material shall include, but not
be limited to, (i) any hazardous substance, hazardous material, hazardous waste,
regulated substance, or toxic substance (as those terms are defined by any
applicable Environmental Laws), and (ii) any chemicals, pollutants,
contaminants, petroleum, petroleum products, or oil (and specifically shall
include asbestos requiring abatement, removal, or encapsulation pursuant to the
requirements of governmental authorities and any polychlorinated biphenyls)
(collectively, "Hazardous Materials").
(c) There is no litigation pending or, to the knowledge of Allaire,
threatened before any Governmental Entity in which any Allaire Loan Property (or
Allaire in respect of such Allaire Loan Property) has been or, with respect to
threatened litigation, may be, named as a defendant or potentially responsible
party (i) for alleged noncompliance (including by any predecessor) with any
Environmental Law or (ii) relating to the release into the environment of any
Hazardous Material, whether or not occurring at, on or involving an Allaire Loan
Property.
(d) To the knowledge of Allaire, there is no reasonable basis for any
litigation of a type described in Section 3.15(b) and Section 3.15(c) of this
Agreement.
(e) During the period of (i) ownership or operation by Allaire of any of
its current properties, (ii) Participation by Allaire in the Management of any
Allaire Participation Facility, or (iii) holding by Allaire of a security
interest in any Allaire Loan Property, there have been no releases of Hazardous
Material in, on, under or affecting such properties.
A-33
(f) Prior to the period of (i) ownership or operation by Allaire of any of
its current properties, (ii) Participation by Allaire in the Management of any
Allaire Participation Facility, or (iii) holding by Allaire of a security
interest in any Allaire Loan Property, to the knowledge of Allaire, there were
no releases of Hazardous Material or oil in, on, under or affecting any such
property, Allaire Participation Facility or Allaire Loan Property.
Section 3.16. Commitments and Contracts.
-------------------------
(a) Except as set forth in Schedule 3.16(a), Allaire is not a party to or
bound by any contract, arrangement, commitment or understanding (whether written
or oral) (i) that is a "material contract" (as such term is defined in Item
601(b)(10) of Regulation S-K of the SEC) to be performed after the date of this
Agreement that has not been disclosed to Bancorp, (ii) that would materially
restrict the conduct of any material line of business of Allaire upon
consummation of the Combination, (iii) with or to a labor union or guild
(including any collective bargaining agreement), or (iv) any of the benefits of
which will be increased, or the vesting of the benefits of which will be
accelerated, by the execution of this Agreement, the occurrence of any
stockholder approval or the consummation of any of the transactions contemplated
by this Agreement, or the value of any of the benefits of which will be
calculated on the basis of or affected by any of the transactions contemplated
by this Agreement. Each contract, arrangement, commitment or understanding of
the type described in this Section 3.16(a), whether or not set forth in a
Schedule attached hereto, is referred to as an "Allaire Contract," and Allaire
does not know of, and has received no notice of, any violation of the above by
any of the other parties thereto that is reasonably likely to have, either
individually or in the aggregate, a Material Adverse Effect on Allaire.
(b) With such exceptions that are not reasonably likely to have, either
individually or in the aggregate, a Material Adverse Effect on Allaire, (i) each
Allaire Contract is valid and binding on Allaire, and is in full force and
effect, (ii) Allaire has in all material respects performed all obligations
required to be performed by it to date under each Allaire Contract, and (iii) no
event or condition exists that constitutes or, after notice or lapse of time or
both, will constitute, a material default on the part of Allaire, or constitute
a force majeure, or provide the basis for any other claim of excusable delay or
non-performance under such Allaire Contract.
(c) Except as set forth in Schedule 3.16(c), Allaire is not a party or
subject to any of the following (whether written or oral, express or implied):
(i) Any employment contract or understanding (including any
understandings or obligations with respect to severance or
termination pay liabilities or fringe benefits) with any
present or former officer, director, employee, including in
any such Person's capacity as a consultant (other than those
which are terminable at will without any further amount being
payable thereunder);
(ii) Any labor contract or agreement with any labor union;
(iii) Any contract or agreement which limits the ability of Allaire
to compete in any line of business or which involves any
restriction of the geographical
A-34
area in which Allaire may carry on its business (other than as
may be required by law or applicable regulatory authorities);
(iv) Any lease (other than real estate leases described on Schedule
3.14) or other agreements or contracts with annual payments
aggregating $50,000 or more; or
(v) Any other contract or agreement which would be required to be
disclosed in reports filed by Allaire with the New Jersey
Department of Banking and Insurance or the FDIC and which has
not been so disclosed.
(d) Except as set forth on Schedule 3.16(d), (i) neither the execution of
this Agreement nor the consummation of the transactions contemplated hereby will
result in termination of any of the material service contracts (including
leases, agreements or licenses) to which Allaire is a party ("Allaire Service
Contracts"), or modification or acceleration of any of the terms of such Allaire
Service Contracts; and (ii) no Consents are required to be obtained and no
notices are required to be given in order for the Allaire Service Contracts to
remain effective, without any modification or acceleration of any of the terms
thereof, following the consummation of the transactions contemplated by this
Agreement.
Section 3.17. Regulatory, Accounting and Tax Matters.
--------------------------------------
Allaire has not taken or agreed to take any action and has no knowledge of any
fact nor has it agreed to any circumstance that would (a) materially impede or
delay receipt of any Consent of any Regulatory Authorities required to
consummate the transactions contemplated by this Agreement, including matters
relating to the Community Reinvestment Act, 12 U.S.C.ss. 2901 (the "Community
Reinvestment Act") and protests thereunder; or (b) prevent the transactions
contemplated by this Agreement from qualifying as a "reorganization" within the
meaning of Section 368(a) of the Code.
Section 3.18. Registration Obligations.
------------------------
Except with respect to obligations set forth on Schedule 3.18, Allaire is not
under any obligation, contingent or otherwise, which will survive the
Combination to register any of its securities under the Securities Act or any
state securities laws.
Section 3.19. Antitakeover Provisions.
-----------------------
Allaire has taken all actions required to exempt Allaire, this Agreement, and
the Combination from any provisions of an antitakeover nature contained in its
organizational documents and the provisions of any federal or state
"antitakeover," "fair price," "moratorium," "control share acquisition" or
similar laws or regulations.
Section 3.20. Insurance.
---------
Allaire is presently insured as set forth on Schedule 3.20, and during each of
the past three calendar years has been insured, for such amounts against such
risks as companies or institutions engaged in a similar business would, in
accordance with good business practice, customarily be
A-35
insured. To the knowledge of Allaire, the policies of fire, theft, liability and
other insurance maintained with respect to the assets or businesses of Allaire
provide adequate coverage against loss, and the fidelity bonds in effect as to
which Allaire is named an insured are sufficient for their purpose.
Section 3.21. Labor.
-----
(a) No work stoppage involving Allaire is pending as of the date hereof
nor, to the knowledge of Allaire, threatened. Allaire is not involved in, or, to
the knowledge of Allaire, threatened with or affected by, any proceeding
asserting that Allaire has committed an unfair labor practice, or any labor
dispute, arbitration, lawsuit or administrative proceeding which might
reasonably be expected to have a Material Adverse Effect on Allaire. No union
represents or claims to represent any employees of Allaire, and, to the
knowledge of Allaire, no labor union is attempting to organize employees of
Allaire.
(b) Allaire has made available to Bancorp a true and complete list of all
employees of Allaire as of the date hereof, together with the employee position,
title, salary and date of hire. Schedule 3.21(b) sets forth a true and complete
list of each benefit or compensation plan, arrangement or agreement, and any
material bonus, incentive, deferred compensation, vacation, stock purchase,
stock option, severance, employment, change of control or fringe benefit plan,
program or agreement that is maintained, or contributed to, for the benefit of
current or former directors or employees of Allaire or with respect to which
Allaire may, directly or indirectly, have any liability, as of the date of this
Agreement. Except as set forth on Schedule 3.21(b), the consummation of the
transactions contemplated hereby will not cause Allaire to incur or suffer any
liability relating to, or obligation to pay, severance, termination or other
payments to any person or entity. Except as set forth on Schedule 3.21(b)
hereto, no employee of Allaire has any contractual right to continued employment
by Allaire.
(c) Allaire is in compliance with all applicable law and regulations
relating to employment or the workplace, including, without limitation,
provisions relating to wages, hours, collective bargaining, safety and health,
work authorization, equal employment opportunity, immigration and the
withholding of Taxes, unemployment compensation, workers compensation, employee
privacy and right-to-know and social security contributions.
(d) Except as set forth on Schedule 3.21(d) hereto, there has not been,
there is not presently pending or existing and there is not threatened any
proceeding against or affecting Allaire relating to the alleged violation of any
legal requirement pertaining to labor relations or employment matters, including
any charge or complaint filed by an employee or union with the National Labor
Relations Board, the Equal Employment Opportunity Commission or any comparable
governmental body.
Section 3.22. Compliance with Applicable Laws.
-------------------------------
Allaire has conducted its business in accordance with all applicable federal,
state and local laws, regulations and orders, and is in material compliance with
such laws, regulations and orders. Except as disclosed in Schedule 3.22:
A-36
(a) Allaire is not in violation of any laws, orders or permits applicable
to its business or the employees or agents or representatives conducting its
business (other than where such violation will not, alone or in the aggregate,
have a Material Adverse Effect on Allaire).
(b) Allaire has not received a notification or communication from any
Governmental Entity or any Regulatory Authority or the staff thereof (i)
asserting that Allaire is not in compliance with any laws or orders which such
Governmental Entity or Regulatory Authority enforces (other than where such
noncompliance will not, alone or in the aggregate, have a Material Adverse
Effect on Allaire), (ii) threatening to revoke any permit or license (other than
licenses or permits the revocation of which will not, alone or in the aggregate,
have a Material Adverse Effect on Allaire), (iii) requiring Allaire to enter
into any cease and desist order, formal agreement, commitment or memorandum of
understanding, or to adopt any resolutions or similar undertakings, or (iv)
directing, restricting or limiting, or purporting to direct, restrict or limit
in any material manner, the operations of Allaire, including, without
limitation, any restrictions on the payment of dividends, or that in any manner
relates to such entity's capital adequacy, credit policies, management or
business.
(c) Except as is not reasonably likely to have, either individually or in
the aggregate, a Material Adverse Effect on Allaire, Allaire has properly
administered all accounts for which it acts as a fiduciary, including accounts
for which it serves as a trustee, agent, custodian, personal representative,
guardian, conservator or investment advisor, in accordance with the terms of the
governing documents, applicable state and federal law and regulation and common
law. None of Allaire, or any director, officer or employee of Allaire, has
committed any breach of trust or fiduciary duty with respect to any such
fiduciary account that is reasonably likely to have, either individually or in
the aggregate, a Material Adverse Effect on Allaire, and the accountings for
each such fiduciary account are true and correct and accurately reflect the
assets of such fiduciary account.
(d) Allaire is not aware of, has not been advised of, or has no reason to
believe that any facts or circumstances exist, which would cause Allaire (i) to
be deemed to be operating in violation in any material respect of the federal
Bank Secrecy Act, as amended, and its implementing regulations (31 C.F.R. Part
103) (the "Bank Secrecy Act"), the USA PATRIOT Act of 2001, Public Law 107-56
(the "USA PATRIOT Act"), and all regulations promulgated thereunder, any order
issued with respect to anti-money laundering by the U.S. Department of the
Treasury's Office of Foreign Assets Control, or any other applicable anti-money
laundering statue, rule or regulation; or (ii) to be deemed not to be in
satisfactory compliance in any material respect with the applicable privacy of
customer information requirements contained in any federal and state privacy
laws and regulations, including, without limitation, Title V of the
Gramm-Leach-Bliley Act of 1999 and the regulations promulgated thereunder, as
well as the provisions of the information security program adopted by Allaire
pursuant to 12 C.F.R. Part 570. Furthermore, the Board of Directors of Allaire
has adopted and Allaire has implemented an anti-money laundering program that
contains adequate and appropriate customer identification verification
procedures that comply with Section 326 of the USA PATRIOT Act and such
anti-money laundering program meets the requirements in all material respects of
Section 352 of the USA PATRIOT Act and the regulations thereunder.
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Section 3.23. Transactions with Management.
----------------------------
Except for (a) deposits, all of which are on terms and conditions comparable to
those made available to other customers of Allaire at the time such deposits
were entered into, (b) arm's length loans to employees entered into in the
ordinary course of business, (c) the agreements listed on Schedule 3.16, (d)
obligations under the Allaire Employee Benefit Plans set forth in Schedule 3.12,
and (e) the items described on Schedule 3.23 and any loans or deposit agreements
entered into in the ordinary course with customers of Allaire, there are no
contracts with or commitments to directors, officers or employees involving the
expenditure of more than $5,000 as to any one individual, including, with
respect to any business directly or indirectly controlled by any such Person, or
$5,000 for all such contracts for commitments in the aggregate for all such
individuals.
Section 3.24. Interest Rate Risk Management Instruments.
-----------------------------------------
Except as would not be reasonably likely to have, either individually or in the
aggregate, a Material Adverse Effect on Allaire, (a) all interest rate swaps,
caps, floors and option agreements and other interest rate risk management
arrangements, whether entered into for the account of Allaire or for the account
of a customer of Allaire, were entered into in the ordinary course of business
consistent with past practice and in accordance with prudent banking practice
and applicable rules, regulations and policies of any applicable Regulatory
Authority and with counterparties believed to be financially responsible at the
time and are legal, valid and binding obligations of Allaire enforceable against
it in accordance with their terms (except as may be limited by bankruptcy,
insolvency, moratorium, reorganization or similar laws affecting the rights of
creditors generally and the availability of equitable remedies), and are in full
force and effect, and (b) to Allaire's knowledge, there are no breaches,
violations or defaults or allegations or assertions of such by any party
thereunder.
Section 3.25. Deposits.
--------
None of the deposits of Allaire are "brokered" deposits as such term is defined
in the rules and regulations of the FDIC or are subject to any encumbrance,
legal restraint or other legal process (other than garnishments, pledges, setoff
rights, escrow limitations and similar actions taken in the ordinary course of
business), and no portion of such deposits represents a deposit of any Affiliate
(as defined below) of Allaire, except as set forth in Schedule 3.25.
As used in this Agreement, an "Affiliate" of a Person shall mean (i) any other
Person, directly or indirectly, through one or more intermediaries, controlling,
controlled by or under common control with such Person, (ii) any officer,
director, partner, employer or direct or indirect beneficial owner of ten
percent (10%) or greater equity or voting interest of such Person, or (iii) any
other Persons for which a Person described in clause (ii) acts in any such
capacity.
Section 3.26. Accounting Controls; Disclosure Controls.
----------------------------------------
(a) Allaire has devised and maintained systems of internal accounting
control sufficient to provide reasonable assurances that: (i) all material
transactions are executed in accordance with general or specific authorization
of the Board of Directors and the duly authorized executive officers of Allaire;
(ii) all material transactions are recorded as necessary to
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permit the preparation of financial statements in conformity with GAAP
consistently applied with respect to institutions such as Allaire or any other
criteria applicable to such financial statements, and to maintain proper
accountability for items therein; (iii) access to the material properties and
assets of Allaire is permitted only in accordance with general or specific
authorization of the Board of Directors and the duly authorized executive
officers of Allaire; and (iv) the recorded accountability for items is compared
with the actual levels at reasonable intervals and appropriate actions taken
with respect to any differences.
(b) To the extent required, Allaire has in place "disclosure controls and
procedures" as defined in Rules 13a-15(e) and 15d-15(e) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), to allow Allaire's
management to make timely decisions regarding required disclosures and to make
the certifications of the Chief Executive Officer and Chief Financial Officer of
Allaire required under the Exchange Act.
Section 3.27. Allaire Information.
-------------------
None of the information relating to Allaire to be included in the Form S-4, in
the Joint Proxy Statement which is to be mailed to the stockholders of Allaire
and the shareholders of Bancorp in connection with the solicitation of their
approval of this Agreement, or in any other document filed with any other
Regulatory Authority in connection with the transactions contemplated by this
Agreement, will be false or misleading with respect to any material fact, or
omit to state any material fact necessary in order to make a statement therein
not false or misleading. The portions of the Joint Proxy Statement that relate
to Allaire will comply in all material respects with the provisions of the
Exchange Act, and the rules and regulations thereunder, and the rules,
requirements and approvals of the FDIC.
Section 3.28. Deposit Insurance.
-----------------
The deposit accounts of Allaire are insured by the FDIC in accordance with the
provisions of the Federal Deposit Insurance Act; Allaire has paid all regular
premiums and special assessments and filed all reports required under the
Federal Deposit Insurance Act.
Section 3.29. Intellectual Property.
---------------------
Allaire owns or possesses valid and binding licenses and other rights to use all
patents, copyrights, trade secrets, trade names, servicemarks, trademarks,
computer software and other intellectual property used in its business, if any,
Allaire has not received any notice of conflict with respect thereto that
asserts the right of others.
Section 3.30. Untrue Statements and Omissions.
-------------------------------
No representation or warranty contained in Article III of this Agreement or in
the Schedules attached hereto with respect to information concerning Allaire
contains any untrue statement of a material fact or omits to state a material
fact necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading.
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Section 3.31. Reorganization.
--------------
As of the date of this Agreement, Allaire is not aware of any fact or
circumstance that could reasonably be expected to prevent the Combination from
qualifying as a "reorganization" within the meaning of Section 368(a) of the
Code.
Section 3.32. Fairness Opinion.
----------------
Prior to the execution of this Agreement, Allaire received an opinion from
Janney Montgomery Scott LLC to the effect that as of the date thereof and based
upon and subject to the matters set forth therein, the Combination Consideration
is fair to the stockholders of Allaire from a financial point of view. Such
opinion has not been amended or rescinded as of the date of this Agreement.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF BANCORP
Except as disclosed in a disclosure Schedule of Bancorp attached hereto, Bancorp
hereby represents and warrants to Allaire as follows as of the date hereof and
as of all times up to and including the Effective Time (except as otherwise
expressly provided below or where the context otherwise expressly indicates, for
the purposes of the representations and warranties made in this Article IV and
the other provisions of this Agreement, the term "Bancorp" shall mean Bancorp
and each Bancorp Subsidiary (as hereinafter defined)):
Section 4.01. Corporate Organization.
----------------------
(a) Bancorp is a corporation duly organized, validly existing and in good
standing under the laws of the State of New Jersey. Bancorp (i) has all
requisite corporate power and authority to own or lease all of its properties
and assets and to carry on its business as such business is now being conducted;
(ii) is duly licensed or qualified to do business in all such places where the
nature of the business conducted by it or the character or location of the
properties and assets owned or leased by it make such qualification necessary;
and (iii) has in effect all federal, state and local governmental, regulatory
and other authorizations, permits and licenses necessary to own or lease its
properties and assets and to carry on its business as now conducted, except in
each of clauses (i) through (iii) as would not be reasonably likely to have,
either individually or in the aggregate, a Material Adverse Effect on Bancorp.
True, correct and complete copies of the Certificate of Incorporation and the
By-laws of Bancorp, each as amended to the date hereof, have been delivered to
Allaire.
(b) MCBNA is a national association duly organized, validly existing and
in good standing under the laws of the United States of America. MCBNA: (i) has
all requisite corporate power and authority to own or lease all of its
properties and assets and to carry on its business as such business is now being
conducted; (ii) is duly licensed or qualified to do business in all such places
where the nature of the business conducted by it or the character or location of
the properties and assets owned or leased by it make such qualification
necessary; and (iii) has in effect all federal, state and local governmental,
regulatory and other authorizations, permits and licenses necessary to own or
lease its properties and assets and to carry on its business as now
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conducted, except in each of clauses (i) through (iii) as would not be
reasonably likely to have, either individually or in the aggregate, a Material
Adverse Effect on MCBNA. True, correct and complete copies of the Articles of
Association and the By-laws of MCBNA, each as amended to the date hereof, have
been delivered to Allaire.
(c) Each other Subsidiary of Bancorp (each a "Bancorp Subsidiary" and
together with MCBNA, the "Bancorp Subsidiaries") is duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation or organization. Each Bancorp Subsidiary: (i) has all requisite
corporate power and authority to own or lease all of its properties and assets
and to carry on its business as such business is now being conducted; (ii) is
duly licensed or qualified to do business in all such places where the nature of
the business being conducted by the Bancorp Subsidiary or the character or
location of the properties and assets owned or leased by the Bancorp Subsidiary
make such qualification necessary; and (iii) has in effect all federal, state
and local governmental, regulatory and other authorizations, permits and
licenses necessary for it to own or lease its properties and assets and to carry
on its business as now conducted, except in each of clauses (i) through (iii) as
would not be reasonably likely to have, either individually or in the aggregate,
a Material Adverse Effect on Bancorp. True, correct and complete copies of the
incorporation or organizational documents, By-laws, and operating or partnership
agreements, as applicable, of the Bancorp Subsidiaries, as amended to the date
hereof, have been delivered to Allaire.
(d) The minute books of Bancorp, MCBNA and each other Bancorp Subsidiary
contain complete and accurate records in all material respects of all meetings
and other corporate actions held or taken by their respective shareholders and
Boards of Directors (including all committees thereof).
Section 4.02. Capitalization.
--------------
(a) The authorized capital stock of Bancorp consists of 100,000,000 shares
of common stock, par value $0.01 per share, of which 1,550,730 shares as of the
date hereof are issued and outstanding (none of which is held in the treasury of
Bancorp). As of the date hereof, none of the Bancorp Common Stock was reserved
for issuance, except for 607,610 shares of Bancorp Common Stock reserved for
issuance upon the exercise of Bancorp Stock Options (as defined below). Except
for the Bancorp Stock Options, there are no outstanding options, warrants,
commitments or other rights or instruments to purchase or acquire any shares of
capital stock of Bancorp, or any securities or rights convertible into or
exchangeable for shares of capital stock of Bancorp. All of the issued and
outstanding shares of Bancorp Common Stock have been duly authorized and validly
issued and all such shares are fully paid, nonassessable and free of preemptive
rights (except as the same may be afforded by applicable law). As of the date of
this Agreement, except pursuant to this Agreement and the Bancorp Stock Option
Plans (as defined below), Bancorp does not have and is not bound by any
outstanding subscriptions, options, warrants, calls, commitments or agreements
of any character calling for the purchase or issuance of any shares of Bancorp
capital stock or any other securities representing the right to purchase or
otherwise receive any shares of Bancorp capital stock. Bancorp has furnished
Allaire with a list of the aggregate number of Bancorp stock options (each a
"Bancorp Stock Option" and collectively, the "Bancorp Stock Options")
outstanding under the Bancorp Stock Option Plans (identified on Schedule
4.02(a)) (the "Bancorp Stock Option Plans") as of March
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31, 2004 and the exercise price for such stock options. Since March 31, 2004
through the date hereof, Bancorp has not issued or awarded any options or other
grants or awards under the Bancorp Stock Option Plans.
(b) Schedule 4.02(b) lists all Bancorp Subsidiaries and indicates for each
Bancorp Subsidiary as of the date of this Agreement its jurisdiction of
organization and the jurisdiction(s) wherein it is qualified to do business.
Except as set forth on Schedule 4.02(b), all of the issued and outstanding
shares of capital stock or other equity ownership interests of the Bancorp
Subsidiaries are owned by Bancorp or another Bancorp Subsidiary, free and clear
of any Liens and adverse claims thereto, and all of such shares or equity
ownership interests are duly authorized and validly issued and are fully paid,
nonassessable and free of preemptive rights and restrictions (other than those
imposed by applicable federal and state securities laws). Each Bancorp
Subsidiary does not have and is not bound by any outstanding subscriptions,
options, warrants, calls, commitments or agreements of any character calling for
the purchase or issuance of any shares of capital stock or any other equity
security of the Bancorp Subsidiary or any securities representing the right to
purchase or otherwise receive any shares of capital stock or any other equity
security of the Bancorp Subsidiary. There are no agreements or understandings
with respect to the voting or disposition of any shares of capital stock or
other equity interests of any Bancorp Subsidiary. Bancorp's ownership interests
in the Bancorp Subsidiaries are in compliance with all applicable laws, rules
and regulations relating to direct investment in equity ownership interests.
MCBNA is the only Bancorp Subsidiary that is an "insured depository institution"
as defined in the Federal Deposit Insurance Act, as amended, and the applicable
regulations thereunder.
Section 4.03. Authority; No Violation.
-----------------------
(a) Bancorp has full corporate power and authority to execute and deliver
this Agreement and, subject to the approval of the shareholders of Bancorp and
the receipt of the Consents of the Regulatory Authorities, to consummate the
transactions contemplated hereby. The Boards of Directors of Bancorp has
determined that this Agreement and the transactions contemplated hereby are in
the best interests of Bancorp and its shareholders and has directed that this
Agreement and the transactions contemplated by this Agreement be submitted to
Bancorp's shareholders for adoption at a duly held meeting of such shareholders
and, except for the approval of this Agreement and the transactions contemplated
by this Agreement by the affirmative vote of the holders of a majority of the
outstanding shares of Bancorp Common Stock entitled to vote at such meeting, no
other corporate proceedings on the part of Bancorp are necessary to approve this
Agreement or to consummate the transactions contemplated hereby. This Agreement
has been duly and validly executed and delivered by Bancorp and (assuming due
authorization, execution and delivery by Allaire and subject to any review and
approval of any Regulatory Authority) constitutes a valid and binding obligation
of Bancorp, enforceable against Bancorp in accordance with its terms (except as
may be limited by bankruptcy, insolvency, moratorium, reorganization or similar
laws affecting the rights of creditors generally, and except that the
availability of the equitable remedy of specific performance or injunctive
relief is subject to the discretion of the court before which any proceeding may
be brought).
(b) Neither the execution and delivery of this Agreement by Bancorp, the
consummation by Bancorp of the transactions contemplated hereby, nor compliance
by Bancorp
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with any of the terms or provisions hereof, will (i) violate any provision of
the Certificate of Incorporation or By-laws of Bancorp, or the Certificate of
Incorporation, By-laws or any other formation document of any Bancorp
Subsidiary, (ii) assuming that the Consents of the Regulatory Authorities and
approvals referred to herein are duly obtained, (A) violate any statute, code,
ordinance, rule, regulation, judgment, order, writ, decree or injunction
applicable to Bancorp or its properties or assets, (B) violate, conflict with,
result in a breach of any provision of or the loss of any benefit under,
constitute a default (or an event which, with notice or lapse of time, or both,
would constitute a default) under, result in the termination of or a right of
termination or cancellation under, accelerate the performance required by, or
result in creation of any Lien upon any of the respective properties or assets
of Bancorp under any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, deed of trust, license, lease, agreement or other
instrument or obligation to which Bancorp is a party or by which it or any of
its properties or assets may be bound or affected, except for such violations,
conflicts, breaches or defaults that are not reasonably likely to have, either
individually or in the aggregate, a Material Adverse Effect on Bancorp.
Section 4.04. Consents and Approvals.
----------------------
Except for (i) the filings required to be made with the SEC, including, without
limitation, the Form S-4 and Joint Proxy Statement and any similar filings which
may be required by the FDIC, (ii) a declaration of effectiveness of the Form S-4
by the SEC, (iii) any Consents, authorizations, approvals, filings or exemptions
required under the applicable provisions of federal and state securities laws
relating to the regulation of broker-dealers, investment advisers or transfer
agents, federal commodities laws relating to the regulation of futures
commission merchants and the rules and regulations thereunder, the rules and
regulations of any applicable industry SRO, the rules of the NASDAQ SmallCap
Market and OTC Bulletin Board, and consumer finance, mortgage banking and other
similar laws, (iv) such filings and approvals as are required to be made or
obtained under the securities or "Blue Sky" laws of various states in connection
with the issuance of the shares of Bancorp Common Stock pursuant to this
Agreement, (v) the approval by the OCC, the FDIC and the New Jersey State
Department of Banking and Insurance of this Agreement, (vi) the approval by the
Boards of Directors of Bancorp and Allaire and the requisite vote of the
shareholders of Bancorp and stockholders of Allaire, and (vii) filings, if any,
required on behalf of Allaire, no corporate action or Consents of, approvals of
or filings or registrations with any Regulatory Authority or Governmental Entity
is or are necessary in connection with (A) the execution and delivery by Bancorp
of this Agreement and (B) the consummation by Bancorp of the Combination and the
other transactions contemplated by this Agreement.
Section 4.05. Reports.
-------
(a) Bancorp has timely filed all reports, registrations and statements,
together with any amendments required to be made with respect thereto, that it
was required to file since January 1, 2000, with all applicable Regulatory
Authorities, and all other reports and statements required to be filed by it
since January 1, 2000, and has paid all fees and assessments due and payable in
connection therewith, except where the failure to file such report, registration
or statement or to pay such fees and assessments is not reasonably likely to
have, either individually or in the aggregate, a Material Adverse Effect on
Bancorp. Except for normal examinations conducted by a Regulatory Authority in
the ordinary course of the business of Bancorp, no
A-43
Regulatory Authority has initiated or has pending any proceeding or, to the
knowledge of Bancorp, investigation into the business or operations of Bancorp
since January 1, 2000, except where such proceedings or investigation is not
reasonably likely to have, either individually or in the aggregate, a Material
Adverse Effect on Bancorp. There (i) is no unresolved violation, criticism, or
exception by any Regulatory Authority with respect to any report or statement
relating to any examinations or inspections of Bancorp and (ii) has been no
formal or informal inquiries by, or disagreements or disputes with, any
Regulatory Authority with respect to the business, operations, policies or
procedures of Bancorp since January 1, 2000, that are reasonably likely to have,
either individually or in the aggregate, a Material Adverse Effect on Bancorp.
(b) Bancorp has previously delivered to Allaire copies of the call reports
of MCBNA as of and for each of the years ended December 31, 2003, December 31,
2002 and December 31, 2001, and call reports for the quarter ended March 31,
2004, and Bancorp shall deliver to Allaire, as soon as practicable following the
preparation of additional call reports for each subsequent calendar quarter (or
other reporting period) or year, the call reports of MCBNA as of and for such
subsequent calendar quarter (or other reporting period) or year (such call
reports, unless otherwise indicated, being hereinafter referred to collectively
as the "Bancorp Regulatory Reports"). To the extent not prohibited by law,
Bancorp has heretofore delivered or made available, or caused to be delivered or
made available, to Allaire all reports and filings made or required to be made
by Bancorp with the Regulatory Authorities, and will from time to time hereafter
furnish to Allaire, upon filing or furnishing the same to the Regulatory
Authorities, all such reports and filings made after the date hereof with the
Regulatory Authorities. As of the respective dates of such reports and filings,
all such reports and filings did not and shall not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. Each of the Bancorp
Regulatory Reports has been or will be prepared in all material respects in
accordance with regulatory accounting principles, as applicable, which
principles have been or will be consistently applied during the periods
involved, except as otherwise noted therein. Each of the Bancorp Regulatory
Reports fairly presents or will fairly present the financial position of Bancorp
as of the respective dates thereof and fairly presents or will fairly present
the results of operations of Bancorp for the respective periods therein set
forth.
Section 4.06. Financial Statements.
--------------------
(a) Bancorp has previously delivered to Allaire copies of the audited
consolidated financial statements of Bancorp as of and for the years ended
December 31, 2003, December 31, 2002 and December 31, 2001, and unaudited
consolidated financial statements for the quarter ended March 31, 2004, and
Bancorp shall deliver to Allaire, as soon as practicable following the
preparation of additional financial statements for each subsequent calendar
quarter (or other reporting period) or year of Bancorp, the additional
consolidated financial statements of Bancorp as of and for such subsequent
calendar quarter (or other reporting period) or year (such financial statements,
unless otherwise indicated, being hereinafter referred to collectively as the
"Bancorp Financial Statements").
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(b) Each of the Bancorp Financial Statements (including the related notes)
has been or will be prepared in all material respects in accordance with GAAP,
which principles have been or will be consistently applied during the periods
involved, except as otherwise noted therein, and the books and records of
Bancorp have been, are being, and will be maintained in all material respects in
accordance with applicable legal and accounting requirements and reflect only
actual transactions. Each of the Bancorp Financial Statements (including the
related notes) fairly presents or will fairly present the financial position of
Bancorp on a consolidated basis, as of the respective dates thereof and fairly
presents or will fairly present the results of operations of Bancorp on a
consolidated basis for the respective periods therein set forth.
(c) Except for those liabilities that are reflected or reserved against on
the consolidated balanced sheet of Bancorp dated March 31, 2004 and for
liabilities incurred in the ordinary course of business consistent with past
practice since such date, Bancorp has not incurred any liability of any nature
whatsoever (whether absolute, accrued, contingent or otherwise and whether due
or to become due) that has had or is reasonably likely to have, either
individually or in the aggregate, a Material Adverse Effect on Bancorp.
Section 4.07. Broker's Fees; Financial Advisor's Fees.
---------------------------------------
Neither Bancorp nor any of its officers or directors has employed any broker or
finder or incurred any liability for any broker's fees, commissions or finder's
fees in connection with the Combination or related transactions contemplated by
this Agreement. However, Bancorp has retained Sandler, O'Neill & Partners,
L.L.P. to provide financial advisory services and render a fairness opinion with
respect to the Combination and is obligated to pay the fees and expenses for
such services.
Section 4.08. Absence of Certain Changes or Events.
------------------------------------
(a) Except as set forth in Schedule 4.08, since December 31, 2003, Bancorp
has not incurred any obligation or liability (contingent or otherwise) that has
or might reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect on Bancorp, except obligations and liabilities (i) which
are accrued or reserved against in the Bancorp Financial Statements or the
Bancorp Regulatory Reports, or reflected in the notes thereto, or (ii) which
were incurred after December 31, 2003, in the ordinary course of business
consistent with past practices. Since December 31, 2003, Bancorp has not
incurred or paid any obligation or liability which would be material to the
Condition of Bancorp, except as may have been incurred or paid in the ordinary
course of business, consistent with past practices.
(b) Since December 31, 2003, there has not been (i) any declaration,
payment or setting aside of any dividend or distribution (whether in cash, stock
or property) in respect of Bancorp Common Stock or (ii) any change or any event
involving a prospective change in the Condition of Bancorp, or a combination of
any such change(s) and any such event(s) which has had, or is reasonably likely
to have, a Material Adverse Effect on Bancorp, including, without limitation,
any change in the administration or supervisory standing or rating of Bancorp
with any Regulatory Authority, and no fact or condition exists as of the date
hereof which might reasonably be expected to cause any such event or change in
the future.
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(c) Since December 31, 2003, no event or events have occurred that have
had or are reasonably likely to have, either individually or in the aggregate, a
Material Adverse Effect on Bancorp.
(d) Since December 31, 2003 through and including the date of this
Agreement, Bancorp has carried on its business in all material respects in the
ordinary course.
Section 4.09. Loan Portfolio.
--------------
Except as set forth in Schedule 4.09, all evidences of indebtedness in original
principal amount in excess of $500,000 reflected as assets in the Bancorp
Financial Statements and the Bancorp Regulatory Reports as of March 31, 2004,
were as of such date in all respects the binding obligations of the respective
obligors named therein in accordance with their respective terms, and were not
subject to any defenses, setoffs, or counterclaims, except as may be provided by
bankruptcy, insolvency or similar laws or by general principles of equity.
Section 4.10. Legal Proceedings; Agreements with Regulatory
---------------------------------------------
Agencies.
--------
(a) Except as set forth in Schedule 4.10, Bancorp is not a party to any,
and there are no pending or, to the knowledge of Bancorp, threatened, judicial,
administrative, arbitral or other proceedings, claims, actions, causes of action
or governmental or regulatory investigations against Bancorp challenging the
validity of the transactions contemplated by this Agreement. There is no
proceeding, claim, action or governmental or regulatory investigation against
Bancorp, no judgment, decree, injunction, rule or order of any court,
governmental department, commission, agency, instrumentality or arbitrator
outstanding or, to the knowledge of Bancorp, threatened against Bancorp which
has had, or is reasonably likely to have, a Material Adverse Effect on Bancorp.
Bancorp is not a party to any agreement, order or memorandum in writing by or
with any Regulatory Authority restricting the operations of Bancorp, and no
Regulatory Authority has advised Bancorp that such Regulatory Authority is
contemplating issuing or requesting the issuance of any such order or memorandum
in the future.
(b) Bancorp (i) is not subject to any cease-and-desist or other order or
enforcement action issued by, (ii) is a party to any written agreement, consent
agreement or memorandum of understanding with, (iii) is not a party to any
commitment letter or similar undertaking with, (iv) is not subject to any order
or directive by, (v) has not been ordered to pay any civil money penalty by,
(vi) since January 1, 2000, has not been a recipient of any supervisory letter
from, or since January 1, 2000, has not adopted any policies, procedures or
board resolutions at the request or suggestion of, any Regulatory Agency or
other Governmental Entity that currently restricts in any material respect the
conduct of its business or that in any material manner relates to its capital
adequacy, its ability to pay dividends, its credit or risk management policies,
its management or its business, other than those of general application that
apply to similarly-situated financial institutions or their subsidiaries (each
item in this sentence, whether or not disclosed in Schedule 4.10, a "Bancorp
Regulatory Agreement"), nor has Bancorp been advised since January 1, 2000 by
any Regulatory Agency or Governmental Entity that it is considering issuing,
initiating, ordering or requesting any such Bancorp Regulatory Agreement.
A-46
Section 4.11. Taxes and Tax Returns.
---------------------
(a) Bancorp has previously delivered or made available to Allaire copies
of the federal, state and local income Tax returns of Bancorp for the years
2003, 2002 and 2001 and all schedules and exhibits thereto, and such returns
have not been examined by the Internal Revenue Service or any other taxing
authority. Except as reflected in Schedule 4.11, Bancorp has duly filed in
correct form all federal, state and local information returns and Tax returns
required to be filed on or prior to the date hereof, and Bancorp has duly paid
or made adequate provisions for the payment of all Taxes and other governmental
charges which are owed by Bancorp to, or claimed to be due from it by, any
federal, state or local taxing authorities, whether or not reflected in such
returns, other than Taxes and other charges which (i) are not yet delinquent or
are being contested in good faith, or (ii) have not been finally determined and
have adequately been reserved against. The amounts set forth as liabilities for
Taxes on the Bancorp Financial Statements and the Bancorp Regulatory Reports are
sufficient, in the aggregate, for the payment of all unpaid federal, state and
local Taxes (including any interest or penalties thereon), whether or not
disputed, accrued or applicable, for the periods then ended, and have been
computed in accordance with GAAP. Bancorp is not responsible for the Taxes of
any other Person, under Treasury Regulation 1.1502-6 or any similar provision of
federal, state or foreign law.
(b) Except as disclosed in Schedule 4.11, Bancorp has not executed an
extension or waiver of any statute of limitations on the assessment or
collection of any federal, state or local Taxes due that is currently in effect,
and all deferred Taxes of Bancorp, have been adequately provided for in the
Bancorp Financial Statements.
(c) There are no material disputes pending, or claims asserted, for Taxes
or assessments upon Bancorp for which Bancorp does not have adequate reserves.
Bancorp is not a party to and is not bound by any Tax sharing, allocation or
indemnification agreement or arrangement (other than such an agreement or
arrangement exclusively between or among Bancorp and any of the Bancorp
Subsidiaries). No disallowance of a deduction under Section 162(m) of the Code
for employee remuneration of any amount paid or payable by Bancorp under any
contract, plan, program or arrangement or understanding would be reasonably
likely to have, individually or in the aggregate, a Material Adverse Effect on
Bancorp.
(d) There has not been an ownership change, as defined in Section 482(g)
of the Code, of Bancorp that occurred during or after any taxable period in
which Bancorp incurred an operating loss that carries over to any taxable period
ending after the fiscal year of Bancorp immediately preceding the date of this
Agreement.
(e) (i) Proper and accurate amounts have been withheld by Bancorp from its
employees and others for all prior periods in compliance in all material
respects with the Tax withholding provisions of all applicable federal, state
and local laws and regulations, and proper due diligence steps have been taken
in connection with back-up withholding; (ii) federal, state and local Tax
returns have been filed by Bancorp for all periods for which returns were due
with respect to withholding, Social Security and unemployment Taxes or charges
due to any federal, state or local taxing authority; and (iii) the amounts shown
on such returns to be due and payable have been paid in full or adequate
provisions therefor have been included by Bancorp in the Bancorp Financial
Statements.
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Section 4.12. Employee Benefit Plans.
----------------------
(a) Bancorp does not have nor maintains any "employee benefit plan," as
defined in Section 3(3) of ERISA, except as described in Schedule 4.12(a)
(collectively, the "Bancorp Employee Benefit Plans" and individually, a "Bancorp
Employee Benefit Plan"). Bancorp has, with respect to each Bancorp Employee
Benefit Plan, delivered or made available to Allaire true and complete copies
of: (i) all plan texts and agreements and related trust agreements or annuity
contracts and any amendments thereto; (ii) all summary plan descriptions and
material employee communications; (iii) the Form 5500 filed in each of the most
recent actuarial valuation (if any); (iv) the most recent annual and periodic
accounting of plan assets; (v) if the Bancorp Employee Benefit Plan is intended
to qualify under Section 401(a) or 404(a) of the Code, the most recent
determination letter received from the Internal Revenue Service; and (vi) all
material communications with any Governmental Entity (including, without
limitation, the Department of Labor, Internal Revenue Service and the PBGC).
(b) Except as described in Schedule 4.12(b), no Bancorp Employee Benefit
Plan is a defined benefit plan. None of Bancorp nor any pension plan maintained
by it has incurred any liability to the PBGC or the Internal Revenue Service
with respect to any pension plan qualified under Section 401 of the Code, except
liabilities to the PBGC pursuant to Section 4007 of ERISA, all of which have
been fully paid. No reportable event under Section 4043(b) of ERISA (including
events waived by PBGC regulation) has occurred with respect to any such pension
plan.
(c) Bancorp has not incurred any liability under Section 4201 of ERISA for
a complete or partial withdrawal from, or agreed to participate in, any
multi-employer plan, as such term is defined in Section 3(37) of ERISA.
(d) All Bancorp Employee Benefit Plans comply with the applicable
provisions of ERISA and the Code that are applicable, or intended to be
applicable, including, but not limited to, COBRA, HIPAA and any applicable
similar state law. Bancorp has no material liability under any Bancorp Employee
Benefit Plan that is not reflected in the Bancorp Financial Statements or the
Bancorp Regulatory Reports. Neither Bancorp, any Bancorp Employee Benefit Plan
or any employee, administrator or agent thereof, is or has been in violation of
the transaction code set rules under HIPAA ss.ss.1172-1174 or the HIPAA privacy
rules under 45 CFR Part 160 and subparts A and E of Part 165. No penalties have
been imposed on Bancorp, any Bancorp Employee Benefit Plan, or any employee,
administrator or agent thereof, under HIPAA ss.1176 or ss.1177.
(e) No prohibited transaction (which shall mean any transaction prohibited
by Section 406 of ERISA and not exempt under Section 408 of ERISA) has occurred
with respect to any Bancorp Employee Benefit Plan which would result in the
imposition, directly or indirectly, of an excise Tax under Section 4975 of the
Code or a civil penalty under Section 502(i) of ERISA; and no actions have
occurred which could result in the imposition of a penalty under any section or
provision of ERISA.
(f) No Bancorp Employee Benefit Plan which is a defined benefit pension
plan has any "unfunded current liability," as that term is defined in Section
302(d)(8)(A) of ERISA, and
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the present fair market value of the assets of any such plan exceeds the plan's
"benefit liabilities," as that term is defined in Section 4001(a)(16) of ERISA,
when determined under actuarial factors that would apply if the plan terminated
in accordance with all applicable legal requirements.
(g) Except as described in Schedule 4.12(g), neither the execution and
delivery of this Agreement nor the consummation of the transactions contemplated
hereby will (i) result in any payment or obligation (including, without
limitation, severance, bonus, deferred compensation, retirement, unemployment
compensation, golden parachute or otherwise) becoming due to any director or any
officer or employee of Bancorp under any Bancorp Employee Benefit Plan or
otherwise, (ii) increase any benefits or obligations otherwise payable under any
benefit plan, or (iii) result in any acceleration of the time of payment or
vesting of any such benefits or obligations.
(h) No Bancorp Employee Benefit Plan is a multiemployer plan as defined in
Section 414(f) of the Code or Section 3(37) or 4001(a)(3) of ERISA. Bancorp has
never been a party to or participant in a multiemployer plan.
(i) There are no actions liens, suits or claims pending or threatened
(other than routine claims for benefits) with respect to any Bancorp Employee
Benefit Plan or against the assets of any Bancorp Employee Benefit Plan. No
assets of Bancorp are subject to any Lien under Section 302(f) of ERISA or
Section 12(n) of the Code.
(j) Each Bancorp Employee Benefit Plan which is intended to qualify under
Section 401(a) or 403(a) of the Code so qualifies and its related trust is
exempt from taxation under Section 501(a) of the Code. No event has occurred or
circumstance exists that will or could give rise to a disqualification or loss
of tax-exempt status of any such plan or trust.
(k) No Bancorp Employee Benefit Plan is a multiple employer plan within
the meaning of Section 413(c) of the Code or Section 4063, 4064, or 4066 of
ERISA. No Bancorp Employee Benefit Plan is a multiple employer welfare
arrangement as defined in Section 3(40) of ERISA.
(l) Each Bancorp Employee Benefit Plan that is an employee pension benefit
plan as defined in Section 3(2) of ERISA, and not qualified under Section 401(a)
or 403(a) of the Code, is exempt from Part 2, 3 and 4 of Title I of ERISA as an
unfunded plan that is maintained primarily for the purpose of providing deferred
compensation for a select group of management or highly compensation employees,
pursuant to Section 201(2), 301(a)(3) and 401(a)(1) of ERISA. Except as
disclosed on Schedule 4.12(l), no assets of Bancorp are allocated to or held in
a grantor trust or "rabbi trust" or similar funding vehicle.
(m) Except as set forth on Schedule 4.12(m), no Bancorp Employee Benefit
Plan provides benefits to any current or former employee of Bancorp following
the retirement or other termination of service (other than coverage mandated by
COBRA, the cost of which is fully paid by the current or former employee or his
or her dependents). Any such Bancorp Employee Benefit Plan may be amended or
terminated at any time by unilateral action of Bancorp.
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(n) With respect to each Bancorp Employee Benefit Plan, there are no
funded benefit obligations for which contributions have not been made or
properly accrued and there are no unfunded benefit obligations that have not
been accounted for by reserves or otherwise properly footnoted in accordance
with GAAP on the Bancorp Financial Statements.
Section 4.13. Title and Related Matters.
-------------------------
(a) Bancorp has good title, and as to owned real property, has good and
marketable title in fee simple absolute, to all assets and properties, real or
personal, tangible or intangible, reflected as owned by or leased or subleased
by or carried under its name on the Bancorp Financial Statements or the Bancorp
Regulatory Reports or acquired subsequent thereto (except to the extent that
such assets and properties have been disposed of for fair value in the ordinary
course of business since December 31, 2003), free and clear of all Liens, except
for (i) those Liens reflected in the Bancorp Financial Statements and the
Bancorp Regulatory Reports, (ii) statutory Liens for amounts not yet delinquent
or which are being contested in good faith, and (iii) Liens that are not in the
aggregate material to the Condition of Bancorp.
(b) All agreements pursuant to which Bancorp leases, subleases or licenses
material real or material personal properties from others are valid, binding and
enforceable in accordance with their respective terms, and there is not, under
any of such leases or licenses, any existing default or event of default, or any
event which with notice or lapse of time, or both, would constitute a default or
force majeure, or provide the basis for any other claim of excusable delay or
nonperformance, except for defaults which, individually or in the aggregate,
would not have a Material Adverse Effect on Bancorp. Bancorp shall have all
right, title and interest as a lessee under the terms of each lease or sublease,
free and clear of all Liens, claims or encumbrances (other than the rights of
the lessor) as of the Effective Time.
(c) Except as set forth in Schedule 4.13(c), (i) all of the buildings,
structures and fixtures owned, leased or subleased by Bancorp are in good
operating condition and repair, subject only to ordinary wear and tear and/or
minor defects which do not interfere with the continued use thereof in the
conduct of normal operations, and (ii) all of the material personal properties
owned, leased or subleased by Bancorp are in good operating condition and
repair, subject only to ordinary wear and tear and/or minor defects which do not
interfere with the continued use thereof in the conduct of normal operations.
Section 4.14. Real Estate.
-----------
(a) Schedule 4.14(a) identifies each parcel of real estate or interest
therein owned, leased or subleased by Bancorp or in which Bancorp has any
ownership or leasehold interest.
(b) Schedule 4.14(b) lists or otherwise describes each and every written
or oral lease or sublease, together with the current name and address of the
landlord or sublandlord and the landlord's property manager (if any), under
which Bancorp is the lessee of any real property and which related in any manner
to the operation of the business of Bancorp.
(c) Bancorp has not violated, and is not currently in violation of, any
law, regulation or ordinance relating to the ownership or use of the real estate
and real estate interests described
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in Schedule 4.14(a) and Schedule 4.14(b) including, but not limited to, any law,
regulation or ordinance relating to zoning, building, occupancy, environmental
or comparable matter.
(d) As to each parcel of real property owned or used by Bancorp, there are
no pending or, to the knowledge of Bancorp, threatened condemnation proceedings,
litigation proceedings or mechanic's or materialmen's Liens.
Section 4.15. Environmental Matters.
---------------------
(a) Each of Bancorp, the Bancorp Participation Facilities (as defined
below), and the Bancorp Loan Properties (as defined below) are, and have been,
in material compliance, and there are no present circumstances that would
prevent or interfere with the continuation of such material compliance, with all
applicable federal, state and local laws, including common law, rules,
regulations and ordinances, and with all applicable decrees, orders and
contractual obligations, relating to pollution or the protection of the
environment or the discharge of, or exposure to, Hazardous Materials in the
environment or workplace.
As used herein, the term "Bancorp Participation Facility" shall mean any
facility in which Bancorp has engaged in Participation in the Management (as
defined in 40 C.F.R. ss.300.1100(c)) of such facility, and, where required by
the context, includes the owner or operator of such facility, but only with
respect to such facility (collectively, the "Bancorp Participation Facilities").
As used herein, the term "Bancorp Loan Property" shall mean any property owned
by Bancorp or in which Bancorp holds a security interest, and, where required by
the context, includes the owner or operator of such property, but only with
respect to such property (collectively, the "Bancorp Loan Properties").
(b) There is no litigation pending or, to the knowledge of Bancorp,
threatened before any Governmental Entity in which Bancorp or any Participation
Facility has been or, with respect to threatened litigation, may be, named as
defendant (i) for alleged noncompliance (including by any predecessor) with
respect to any Environmental Law or (ii) relating to the release into the
environment of any Hazardous Material, whether or not occurring at, on or
involving a site owned, leased or operated by Bancorp or any Bancorp
Participation Facility.
(c) There is no litigation pending or, to the knowledge of Bancorp,
threatened before any Governmental Entity in which any Bancorp Loan Property (or
Bancorp in respect of such Bancorp Loan Property) has been or, with respect to
threatened litigation, may be, named as a defendant or potentially responsible
party (i) for alleged noncompliance (including by any predecessor) with any
Environmental Law or (ii) relating to the release into the environment of any
Hazardous Material, whether or not occurring at, on or involving a Bancorp Loan
Property.
(d) To the knowledge of Bancorp, there is no reasonable basis for any
litigation of a type described in Section 4.15(b) and Section 4.15(c) of this
Agreement.
(e) During the period of (i) ownership or operation by Bancorp of any of
its current properties, (ii) Participation by Bancorp in the Management of any
Bancorp Participation
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Facility, or (iii) holding by Bancorp of a security interest in any Bancorp Loan
Property, there have been no releases of Hazardous Material in, on under or
affecting such properties.
(f) Prior to the period of (i) ownership or operation by Bancorp of any of
its current properties, (ii) Participation by Bancorp in the Management of any
Bancorp Participation Facility, or (iii) holding by Bancorp of a security
interest in any Bancorp Loan Property, to the knowledge of Bancorp, there were
no releases of Hazardous Material or oil in, on, under or affecting any such
property, Bancorp Participation Facility or Bancorp Loan Property.
Section 4.16. Commitments and Contracts.
-------------------------
(a) Except as set forth in Schedule 4.16(a), Bancorp is not a party to or
bound by any contract, arrangement, commitment or understanding (whether written
or oral) (i) that is a "material contract" (as such term is defined in Item
601(b)(10) of Regulation S-K of the SEC) to be performed after the date of this
Agreement that has not been disclosed to Allaire, (ii) that would materially
restrict the conduct of any material line of business of Bancorp upon
consummation of the Combination, (iii) with or to a labor union or guild
(including any collective bargaining agreement) or (iv) any of the benefits of
which will be increased, or the vesting of the benefits of which will be
automatically accelerated, by the execution of this Agreement, the occurrence of
any shareholder approval or the consummation of any of the transactions
contemplated by this Agreement, or the value of any of the benefits of which
will be calculated on the basis of or affected by any of the transactions
contemplated by this Agreement. Each contract, arrangement, commitment or
understanding of the type described in this Section 4.16(a), whether or not set
forth in a Schedule attached hereto, is referred to as a "Bancorp Contract," and
Bancorp does not know of, and has received no notice of, any violation of the
above by any of the other parties thereto that is reasonably likely to have,
either individually or in the aggregate, a Material Adverse Effect on Bancorp.
(b) With such exceptions that are not reasonably likely to have, either
individually or in the aggregate, a Material Adverse Effect on Bancorp, (i) each
Bancorp Contract is valid and binding on Bancorp, and is in full force and
effect, (ii) Bancorp has in all material respects performed all obligations
required to be performed by it to date under each Bancorp Contract, and (iii) no
event or condition exists that constitutes or, after notice or lapse of time or
both, will constitute, a material default on the part of Bancorp, or constitute
a force majeure, or provide the basis for any other claim of excusable delay or
non-performance under such Bancorp Contract.
(c) Except as set forth in Schedule 4.16(c), Bancorp is not a party or
subject to any of the following (whether written or oral, express or implied):
(i) Any employment contract or understanding (including any
understandings or obligations with respect to severance or
termination pay liabilities or fringe benefits) with any
present or former officer, director, employee, including in
any such Person's capacity as a consultant (other than those
which are terminable at will without any further amount being
payable thereunder);
(ii) Any labor contract or agreement with any labor union;
A-52
(iii) Any contract or agreement which limits the ability of Bancorp
to compete in any line of business or which involves any
restriction of the geographical area in which Bancorp may
carry on its business (other than as may be required by law or
applicable regulatory authorities);
(iv) Any lease (other than real estate leases described on Schedule
4.14) or other agreements or contracts with annual payments
aggregating $50,000 or more; or
(v) Any other contract or agreement which would be required to be
disclosed in reports filed by Bancorp with the Federal Reserve
Bank of New York, the OCC or the FDIC and which has not been
so disclosed.
(d) Except as set forth on Schedule 4.16(d), (i) neither the execution of
this Agreement nor the consummation of the transactions contemplated hereby will
result in termination of any of the material service contracts (including
leases, agreements or licenses) to which Bancorp is a party ("Bancorp Service
Contracts"), or modification or acceleration of any of the terms of such Bancorp
Service Contracts; and (ii) no Consents are required to be obtained and no
notices are required to be given in order for the Bancorp Service Contracts to
remain effective, without any modification or acceleration of any of the terms
thereof, following the consummation of the transactions contemplated by this
Agreement.
Section 4.17. Regulatory, Accounting and Tax Matters.
--------------------------------------
Bancorp has not taken or agreed to take any action and has no knowledge of any
fact and has not agreed to any circumstance that would (a) materially impede or
delay receipt of any Consent of any Regulatory Authorities required to
consummate the transactions contemplated by this Agreement, including matters
relating to the Community Reinvestment Act and protests thereunder; or (b)
prevent the transactions contemplated by this Agreement from qualifying as a
"reorganization" within the meaning of Section 368(a) of the Code.
Section 4.18. Registration Obligations.
------------------------
Except with respect to obligations set forth herein as to Allaire Stock Options
or set forth on Schedule 4.18, Bancorp is not under any obligation, contingent
otherwise, which will survive the Combination to register any of its securities
under the Securities Act or any state securities laws.
Section 4.19. Antitakeover Provisions.
-----------------------
Bancorp has taken all actions required to exempt Bancorp, this Agreement and the
Combination from any provisions of an antitakeover nature contained in their
organizational documents and the provisions of any federal or state
"antitakeover," "fair price," "moratorium," "control share acquisition" or
similar laws or regulations.
A-53
Section 4.20. Insurance.
---------
Bancorp is presently insured as set forth on Schedule 4.20, and during each of
the past three calendar years has been insured, for such amounts against such
risks as companies or institutions engaged in a similar business would, in
accordance with good business practice, customarily be insured. To the knowledge
of Bancorp, the policies of fire, theft, liability and other insurance
maintained with respect to the assets or businesses of Bancorp provide adequate
coverage against loss, and the fidelity bonds in effect as to which Bancorp is
named an insured are sufficient for their purpose.
Section 4.21. Labor.
-----
(a) No work stoppage involving Bancorp is pending as of the date hereof
nor to the knowledge of Bancorp, threatened. Bancorp is not involved in, or, to
the knowledge of Bancorp, threatened with or affected by, any proceeding
asserting that Bancorp has committed an unfair labor practice or any labor
dispute, arbitration, lawsuit or administrative proceeding which might
reasonably be expected to have a Material Adverse Effect on Bancorp. No union
represents or claims to represent any employees of Bancorp, and, to the
knowledge of Bancorp, no labor union is attempting to organize employees of
Bancorp.
(b) Bancorp has made available to Allaire a true and complete list of all
employees of Bancorp as of the date hereof, together with the employee position,
title, salary and date of hire. Schedule 4.21 sets forth a true and complete
list of each benefit or compensation plan, arrangement or agreement, and any
material bonus, incentive, deferred compensation, vacation, stock purchase,
stock option, severance, employment, change of control or fringe benefit plan,
program or agreement that is maintained, or contributed to, for the benefit of
current or former directors or employees of Bancorp or with respect to which
Bancorp may, directly or indirectly, have any liability, as of the date of this
Agreement. Except as set forth on Schedule 4.21, the consummation of the
transactions contemplated hereby will not cause Bancorp to incur or suffer any
liability relating to, or obligation to pay, severance, termination or other
payments to any person or entity. Except as set forth on Schedule 4.21 hereto,
no employee of Bancorp has any contractual right to continued employment by
Bancorp.
(c) Bancorp is in compliance with all applicable law and regulations
relating to employment or the workplace, including, without limitation,
provisions relating to wages, hours, collective bargaining, safety and health,
work authorization, equal employment opportunity, immigration and the
withholding of income taxes, unemployment compensation, workers compensation,
employee privacy and right-to-know and social security contributions.
(d) Except as set forth on Schedule 4.21 hereto, there has not been, there
is not presently pending or existing and there is not threatened any proceeding
against or affecting Bancorp relating to the alleged violation of any legal
requirement pertaining to labor relations or employment matters, including any
charge or complaint filed by an employee or union with the National Labor
Relations Board, the Equal Employment Opportunity Commission or any comparable
governmental body.
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Section 4.22. Compliance with Applicable Laws.
-------------------------------
Bancorp has conducted its business in accordance with all applicable federal,
state and local laws, regulations and orders, and is in material compliance with
such laws, regulations and orders. Except as disclosed in Schedule 4.22:
(a) Bancorp is not in violation of any laws, orders or permits applicable
to its business or the employees or agents or representatives conducting its
business (other than where such violation will not, alone or in the aggregate,
have a Material Adverse Effect on Bancorp).
(b) Bancorp has not received a notification or communication from any
Governmental Entity or any Regulatory Authority or the staff thereof (i)
asserting that Bancorp is not in compliance with any laws or orders which such
Governmental Entity or Regulatory Authority enforces (other than where such
noncompliance will not, alone or in the aggregate, have a Material Adverse
Effect on Bancorp), (ii) threatening to revoke any permit or license (other than
licenses or permits the revocation of which will not, alone or in the aggregate,
have a Material Adverse Effect on Bancorp), (iii) requiring Bancorp to enter
into any cease and desist order, formal agreement, commitment or memorandum of
understanding, or to adopt any resolutions or similar undertakings, or (iv)
directing, restricting or limiting, or purporting to direct, restrict or limit
in any material manner, the operations of Bancorp, including, without
limitation, any restrictions on the payment of dividends, or that in any manner
relates to such entity's capital adequacy, credit policies, management or
business.
(c) Except as is not reasonably likely to have, either individually or in
the aggregate, a Material Adverse Effect on Bancorp, Bancorp has properly
administered all accounts for which it acts as a fiduciary, including accounts
for which it serves as a trustee, agent, custodian, personal representative,
guardian, conservator or investment advisor, in accordance with the terms of the
governing documents, applicable state and federal law and regulation and common
law. None of Bancorp, or any director, officer or employee of Bancorp, has
committed any breach of trust or fiduciary duty with respect to any such
fiduciary account that is reasonably likely to have, either individually or in
the aggregate, a Material Adverse Effect on Bancorp, and the accountings for
each such fiduciary account are true and correct and accurately reflect the
assets of such fiduciary account.
(d) Bancorp is not aware of, has not been advised of, or has no reason to
believe that any facts or circumstances exist, which would cause Bancorp (i) to
be deemed to be operating in violation in any material respect of the Bank
Secrecy Act, the USA PATRIOT Act, and all regulations promulgated thereunder,
any order issued with respect to anti-money laundering by the U.S. Department of
the Treasury's Office of Foreign Assets Control, or any other applicable
anti-money laundering statue, rule or regulation; or (ii) to be deemed not to be
in satisfactory compliance in any material respect with the applicable privacy
of customer information requirements contained in any federal and state privacy
laws and regulations, including, without limitation, Title V of the
Gramm-Leach-Bliley Act of 1999 and the regulations promulgated thereunder, as
well as the provisions of the information security program adopted by MCBNA
pursuant to 12 C.F.R. Part 570. Furthermore, the Board of Directors of MCBNA has
adopted and MCBNA has implemented an anti-money laundering program that contains
adequate and appropriate customer identification verification procedures that
comply with Section 326 of the
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USA PATRIOT Act and such anti-money laundering program meets the requirements in
all material respects of Section 352 of the USA PATRIOT Act and the regulations
thereunder.
Section 4.23. Transactions with Management.
----------------------------
Except for (a) deposits, all of which are on terms and conditions comparable to
those made available to other customers of MCBNA at the time such deposits were
entered into, (b) arm's length loans to employees entered into in the ordinary
course of business, (c) the agreements listed on Schedule 4.16, (d) obligations
under employee benefit plans of Bancorp set forth in Schedule 4.12, and (e) the
items described on Schedule 4.23 and any loans or deposit agreements entered
into in the ordinary course with customers of MCBNA, there are no contracts with
or commitments to directors, officers or employees involving the expenditure of
more than $5,000 as to any one individual, including, with respect to any
business directly or indirectly controlled by any such Person, or $5,000 for all
such contracts for commitments in the aggregate for all such individuals.
Section 4.24. Interest Rate Risk Management Instruments.
-----------------------------------------
Except as would not be reasonably likely to have, either individually or in the
aggregate, a Material Adverse Effect on Bancorp, (a) all interest rate swaps,
caps, floors and option agreements and other interest rate risk management
arrangements, whether entered into for the account of Bancorp or for the account
of a customer of Bancorp, were entered into in the ordinary course of business
consistent with past practice and in accordance with prudent banking practice
and applicable rules, regulations and policies of any applicable Regulatory
Authority and with counterparties believed to be financially responsible at the
time and are legal, valid and binding obligations of Bancorp enforceable against
it in accordance with their terms (except as may be limited by bankruptcy,
insolvency, moratorium, reorganization or similar laws affecting the rights of
creditors generally and the availability of equitable remedies), and are in full
force and effect, and (b) to Bancorp's knowledge, there are no breaches,
violations or defaults or allegations or assertions of such by any party
thereunder.
Section 4.25. Deposits.
--------
None of the deposits of MCBNA are "brokered" deposits as such term is defined in
the regulations of the FDIC or are subject to any encumbrance, legal restraint
or other legal process (other than garnishments, pledges, setoff rights, escrow
limitations and similar actions taken in the ordinary course of business), and
no portion of such deposits represents a deposit of any Affiliate of Bancorp's
except as set forth in Schedule 4.25.
Section 4.26. Accounting Controls; Disclosure Controls.
----------------------------------------
(a) Bancorp has devised and maintained systems of internal accounting
control sufficient to provide reasonable assurances that: (i) all material
transactions are executed in accordance with general or specific authorization
of the Board of Directors and the duly authorized executive officers of Bancorp;
(ii) all material transactions are recorded as necessary to permit the
preparation of financial statements in conformity with GAAP consistently applied
with respect to institutions such as Bancorp or any other criteria applicable to
such financial statements, and to maintain proper accountability for items
therein; (iii) access to the material
A-56
properties and assets of Bancorp permitted only in accordance with general or
specific authorization of the Board of Directors and the duly authorized
executive officers of Bancorp; and (iv) the recorded accountability for items is
compared with the actual levels at reasonable intervals and appropriate actions
taken with respect to any differences.
(b) To the extent required, Bancorp has in place "disclosure controls and
procedures" as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act to
allow Bancorp's management to make timely decisions regarding required
disclosures and to make the certifications of the Chief Executive Officer and
Chief Financial Officer of Bancorp required under the Exchange Act.
Section 4.27. Bancorp Information.
-------------------
None of the information relating to Bancorp to be included in the Form S-4, in
the Joint Proxy Statement which is to be mailed to the shareholders of Bancorp
and the stockholders of Allaire in connection with the solicitation of their
approval of this Agreement, or in any other document filed with any other
Regulatory Authority in connection with the transactions contemplated by this
Agreement, will be false or misleading with respect to any material fact, or
omit to state any material fact necessary in order to make a statement therein
not false or misleading. The portions of the Joint Proxy Statement that relate
to Bancorp will comply in all material respects with the provisions of the
Exchange Act, and the rules and regulations thereunder, and the rules,
requirements and approvals of the FDIC.
Section 4.28. Deposit Insurance.
-----------------
The deposit accounts of MCBNA are insured by the FDIC in accordance with the
provisions of the Federal Deposit Insurance Act; MCBNA has paid all regular
premiums and special assessments and filed all reports required under the
Federal Deposit Insurance Act.
Section 4.29. Intellectual Property.
---------------------
Bancorp owns or possesses valid and binding licenses and other rights to use all
patents, copyrights, trade secrets, trade names, servicemarks, trademarks,
computer software and other intellectual property used in its business, if any;
Bancorp has not received any notice of conflict with respect thereto that
asserts the right of others.
Section 4.30. Untrue Statements and Omissions.
-------------------------------
No representation or warranty contained in Article IV of this Agreement or in
the Schedules attached hereto with respect to information concerning Bancorp
contains any untrue statement of a material fact or omits to state a material
fact necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading.
Section 4.31. Reorganization.
--------------
As of the date of this Agreement, Bancorp is not aware of any fact or
circumstance that could reasonably be expected to prevent the Combination from
qualifying as a "reorganization" within the meaning of Section 368(a) of the
Code.
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Section 4.32. Fairness Opinion.
----------------
Prior to the execution of this Agreement, Bancorp received an opinion from
Sandler O'Neill & Partners, L.L.P. to the effect that as of the date thereof and
based upon and subject to the matters set forth therein, the Exchange Ratio is
fair to the shareholders of Bancorp from a financial point of view. Such opinion
has not been amended or rescinded as of the date of this Agreement.
ARTICLE V.
COVENANTS AND AGREEMENTS
Section 5.01. Conduct of the Business Prior to the Effective Time.
---------------------------------------------------
During the period from the date of this Agreement to the Effective Time, except
as expressly contemplated or permitted by this Agreement (including the
Schedules attached hereto), each of Allaire and Bancorp shall, and shall cause
each of their respective Subsidiaries to, (i) conduct its business in the
ordinary course in all material respects consistent with past practice and,
where applicable, prudent banking principles, (ii) use reasonable best efforts
to maintain and preserve intact its business organization, employees, goodwill
with customers and advantageous business relationships and retain the service of
its key officers and key employees, (iii) except as required by law or
regulation, take no action that would adversely affect or materially delay the
ability of either Allaire or Bancorp to obtain any Consent from any Regulatory
Authority or Governmental Entity required for the consummation of the
transactions contemplated hereby or to perform its covenants and agreements
under this Agreement.
Section 5.02. Allaire Forbearances.
--------------------
During the period from the date of this Agreement to the Effective Time, except
as expressly contemplated or permitted by this Agreement, Allaire shall not, and
shall not permit any of the Allaire Subsidiaries to, without the prior written
consent of Allaire (which consent shall not be unreasonably withheld), (a)
amend, repeal or otherwise modify any provision of its Certificate of
Incorporation, By-laws or other formation documents, except as otherwise
contemplated hereby; (b) knowingly take any action or knowingly fail to take any
action, which action or failure to act is reasonably likely to prevent the
Combination from qualifying as a "reorganization" within the meaning of Section
368(a) of the Code; (c) take any action that would materially impede or delay
the ability of the Parties to obtain any necessary approvals of any Regulatory
Agency or Governmental Entity required for the transactions contemplated by this
Agreement; (d) take any action that is intended or is reasonably likely to
result in any of its representations or warranties set forth in Article III of
this Agreement being or becoming untrue in any material respect at any time
prior to the Effective Time, or in any of the conditions to the Combination set
forth in Article VII not being satisfied or in a violation of any provision of
this Agreement, except, in every case, as may be required by applicable law; (e)
take any action that would materially impede or delay the ability of the Parties
to obtain any necessary Consents of any Regulatory Agency or Governmental Entity
required for the transactions contemplated by this Agreement; or (f) agree to
take, make any commitments to take, or adopt any resolutions of its Board of
Directors in support of, any of the actions prohibited by this Section 5.03.
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Section 5.03. Bancorp Forbearances.
--------------------
During the period from the date of this Agreement to the Effective Time, except
as expressly contemplated or permitted by this Agreement, Bancorp shall not, and
shall not permit any of the Bancorp Subsidiaries to, without the prior written
consent of Allaire (which consent shall not be unreasonably withheld), (a)
amend, repeal or otherwise modify any provision of its Certificate of
Incorporation, By-laws or other formation documents, except as otherwise
contemplated hereby; (b) knowingly take any action or knowingly fail to take any
action, which action or failure to act is reasonably likely to prevent the
Combination from qualifying as a "reorganization" within the meaning of Section
368(a) of the Code; (c) take any action that would materially impede or delay
the ability of the Parties to obtain any necessary approvals of any Regulatory
Agency or Governmental Entity required for the transactions contemplated by this
Agreement; (d) take any action that is intended or is reasonably likely to
result in any of its representations or warranties set forth in Article IV of
this Agreement being or becoming untrue in any material respect at any time
prior to the Effective Time, or in any of the conditions to the Combination set
forth in Article VII not being satisfied or in a violation of any provision of
this Agreement, except, in every case, as may be required by applicable law; (e)
take any action that would materially impede or delay the ability of the Parties
to obtain any necessary Consents of any Regulatory Agency or Governmental Entity
required for the transactions contemplated by this Agreement; or (f) agree to
take, make any commitments to take, or adopt any resolutions of its Board of
Directors in support of, any of the actions prohibited by this Section 5.03.
ARTICLE VI.
ADDITIONAL COVENANTS AND AGREEMENTS
Section 6.01. Best Efforts; Cooperation.
-------------------------
Subject to the terms and conditions herein provided, each of the Parties hereto
agrees to use its best efforts promptly to take, or cause to be taken, all
actions and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations, or otherwise, including
attempting to obtain all necessary Consents, to consummate and make effective,
as soon as practicable, the transactions contemplated by this Agreement.
Section 6.02. Regulatory Matters.
------------------
(a) Bancorp and Allaire shall use their best efforts to cause to be
prepared and filed within forty-five (45) days from the date hereof all required
applications and filings with the Regulatory Authorities which are necessary for
the obtaining of the necessary Consents of the Regulatory Authorities for the
consummation of the transactions contemplated herein. Such applications and
filings shall be in such form as may be prescribed by the respective Regulatory
Authorities and shall contain such information as they may require. The Parties
hereto will cooperate with each other and use their best efforts to prepare and
execute all documentation, to effect all filings and to obtain all permits,
Consents, approvals, rulings and authorizations of the Regulatory Authorities
and third parties which are necessary to consummate the transactions
contemplated herein. Each of the Parties shall have the right to review and
approve in advance,
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which approval shall not be unreasonably withheld, any filing made with, or
written material submitted to, any Regulatory Authority in connection with the
transactions contemplated herein.
(b) Each Party hereto will furnish the other Party with all information
concerning itself, its Subsidiaries, directors, trustees, officers, shareholders
or stockholders and depositors, as applicable, and such other matters as may be
necessary or advisable in connection with any statement or application made by
or on behalf of any such Party to any governmental body in connection with the
transactions, applications or filings contemplated herein. Upon request, the
Parties hereto will promptly furnish each other with copies of written
communications received by them or their respective Subsidiaries from, or
delivered by any of the foregoing to, any Governmental Entity or Regulatory
Authority in respect of the transactions contemplated hereby.
(c) Each of Allaire and Bancorp shall, and shall cause its Subsidiaries
to, use their reasonable best efforts (i) to take, or cause to be taken, all
actions necessary, proper or advisable to comply promptly with all legal
requirements that may be imposed on such Party or its Subsidiaries with respect
to the Combination and, subject to the conditions set forth in Article VII, to
consummate the transactions contemplated herein, and (ii) to obtain (and to
cooperate with the other Party to obtain) any material consent, authorization,
order or approval of, or any exemption by, any Governmental Entity or Regulatory
Authority and any other third party that is required to be obtained by Allaire
or Bancorp or any of their respective Subsidiaries in connection with the
Combination and the other transactions contemplated herein.
(d) Each of Allaire and Bancorp shall promptly advise the other upon
receiving any communication from any Governmental Entity or Regulatory
Authority, Consent of which is required for consummation of the transactions
contemplated by this Agreement, that causes such Party to believe that there is
a reasonable likelihood that any requisite Consent will not be obtained or that
the receipt of any such Consent may be materially delayed.
Section 6.03. Employment and Employee Benefits Matters.
----------------------------------------
(a) The Parties acknowledge that nothing in this Agreement shall be
construed as (i) constituting an employment agreement between Bancorp or any of
its Affiliates and any officer or employee of Allaire or any of the Allaire
Subsidiaries or an obligation on the part of Bancorp or any of its Affiliates to
employ any such officers or employees, and (ii) constituting an employment
agreement between Allaire or any of its Affiliates and any officer or employee
of Bancorp or any of the Bancorp Subsidiaries or an obligation on the part of
Allaire or any of its Affiliates to employ any such officers or employees.
(b) Allaire and Bancorp shall honor and assume the liabilities arising out
of Allaire's employees' rights in respect of accrued paid time off and time
accrued for illness bank and give each employee credit therefor and recognize
the tenure of each employee while an employee of Allaire prior to the Closing
Date for purposes of determining benefits available to employees under Allaire's
or Bancorp's employee benefit plans subsequent to the Closing Date (which will
include a waiver of pre-existing condition exclusions for employees and their
dependents and recognition of or credit for all deductibles paid by such
employees during the current period while in the employ of Allaire). Without
limiting the foregoing, Allaire and Bancorp shall provide credit for
eligibility, benefit accrual and vesting for all such employees' periods of
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service with Allaire for purposes of any of Allaire's or Bancorp's employee
benefit plans subsequent to the Closing Date, including all qualified and
non-qualified retirement or saving programs, vacation, sick leave, holiday and
severance benefits. Nothing contained herein shall be construed to or shall
create any right to continued employment on the part of any employee of Allaire
or alter the "at will" status of any employee of Allaire. After the Closing,
Bancorp intends to form a joint committee with equal representatives of Allaire
and Bancorp in order to solicit recommendations to management concerning the
types of benefits that may be offered to employees of both companies consistent
with the types of benefits offered in the industry or marketplace. Until such
time as Allaire and Bancorp implement their joint employee benefit plans, the
existing employee benefit plans of each respective Party shall remain in effect.
(c) Subsequent to the Closing Date, Allaire shall continue to comply with
the coverage obligations (within the meaning of code Section 4980B and Part 6 of
Subtitle B of Title 1 of ERISA) in respect of any former employee of Allaire who
is eligible to receive continuation coverage.
Section 6.04. Indemnification.
---------------
(a) For a period of six (6) years after the Effective Time, Bancorp shall
indemnify, defend and hold harmless each Person entitled to indemnification from
Allaire (each an "Indemnified Party") against all liability arising out of
actions or omissions occurring at or prior to the Effective Time (including,
without limitation, transactions contemplated by this Agreement) to the same
extent and subject to the conditions set forth in Allaire's Certificate of
Incorporation or By-laws, in each case as in effect as of the date hereof.
(b) Bancorp shall use its best efforts (and Allaire shall cooperate prior
to the Effective Time) to maintain in effect for a period of six (6) years after
the Effective Time Allaire's existing directors' and officers' liability
insurance policy (provided the Bancorp may substitute therefor (i) policies with
comparable coverage and amounts containing terms and conditions which are
substantially no less advantageous or (ii) with the consent of Allaire (given
prior to the Effective Time) any other policy with respect to claims arising
from facts or events which occurred prior to the Effective Time and covering
persons who are currently covered by such insurance; provided, however, that
Bancorp shall not be obligated to make premium payments for such six (6) year
period in respect of such policy (or coverage replacing such policy) which
exceed, for the portion related to Allaire's directors and officers, 150% of the
annual premium payments on Allaire's current policy, as in effect as of the date
of this Agreement (the "Maximum Amount"). If the amount of premium that is
necessary to maintain or procure such insurance coverage exceeds the Maximum
Amount, Bancorp shall use its reasonable efforts to maintain the most
advantageous policies of directors' and officers' liability insurance obtainable
for a premium equal to the Maximum Amount.
(c) If Bancorp or any of its successors or assigns shall consolidate with
or merge into any other person and shall not be continuing or surviving person
of such consolidation or merger, or shall transfer all or substantially all of
its assets to any person, then, and in each case, proper provision shall be made
so that the successors and assigns of Bancorp shall assume the obligations set
forth in this Section 6.04.
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Section 6.05. Registration Statement.
----------------------
Bancorp shall use its best efforts to cause the Form S-4 to be filed with the
SEC within the forty-five (45) days of the date hereof and shall use its best
efforts to cause such Form S-4 to be declared effective under the Securities
Act, which Form S-4, at the time it becomes effective, and at the Effective
Time, shall in all material respects conform to the requirements of the
Securities Act and the general rules and regulations of the SEC promulgated
thereunder. The Form S-4 shall include the form of Joint Proxy Statement for the
meeting(s) of Bancorp's shareholders and Allaire's stockholders to be held for
the purpose of having such shareholders and stockholders vote upon the approval
of this Agreement. Allaire will furnish to Bancorp the information required to
be included in the Form S-4 with respect to its business and affairs before it
is filed with the SEC and again before any amendments are filed. Bancorp shall
take all actions required to qualify or obtain exemptions from such
qualifications for the Bancorp Common Stock to be issued in connection with the
transactions contemplated by this Agreement under applicable "Blue Sky" laws, as
appropriate. Bancorp and Allaire also shall submit the Joint Proxy Statement
and, if required, the Form S-4 to the FDIC for review and approval
Section 6.06. Section 16 Matters.
------------------
Prior to the Effective Time, the Boards of Directors of Allaire and Bancorp (or
appropriate committees thereof) shall adopt (if necessary) a resolution
consistent with the interpretive guidance of the SEC so that the disposition by
any officer or director of Allaire, who is a covered Person of Allaire for
purposes of Section 16 under the Exchange Act (together with the rules and
regulations promulgated thereunder, "Section 16"), of Allaire Common Stock or
Allaire Stock Options pursuant to this Agreement and the Combination shall be an
exempt transaction for purposes of Section 16.
Section 6.07. Affiliate and Voting Agreements.
-------------------------------
Allaire shall use its best efforts to cause each director, executive officer and
other person who is an "affiliate" (for purposes of Rule 145 under the
Securities Act) of Allaire to deliver to Bancorp contemporaneously with the
execution of this Agreement,, an Affiliate Agreement in form and substance as
set forth at Exhibit B. In addition, each of Allaire and Bancorp shall use its
best efforts to cause each of its directors and executive officers to deliver to
Bancorp and Allaire contemporaneously with the execution of this Agreement a
Voting Agreement in form and substance as set forth at Exhibit A, pursuant to
which such director and/or executive officer will agree to vote their shares of
Allaire Common Stock or Bancorp Common Stock, as the case may be, in favor of
this Agreement and the transactions contemplated hereby. It being understood by
the Parties, that in the event any Person required to deliver an Affiliate
Agreement or Voting Agreement contemporaneously with the execution hereof does
not deliver such agreement, each Party will use its best efforts to cause such
Person to do so within ten (10) days of the date of this Agreement.
Section 6.08. No Other Bids.
-------------
(a) Except with respect to this Agreement and the transactions
contemplated hereby, neither Allaire nor Bancorp, nor any investment banker,
attorney, accountant or other
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representative (collectively, "representative") retained by Allaire or Bancorp
shall directly or indirectly initiate, solicit, encourage or otherwise
facilitate any inquiries or the making of any proposal or offer that
constitutes, or may reasonably be expected to lead to, any "takeover proposal"
(as defined below) by any other party. Except to the extent necessary to comply
with the fiduciary duties of Allaire's Board of Directors or Bancorp's Board of
Directors, as the case may be, as advised in writing by counsel to such Board of
Directors, neither Allaire nor Bancorp or a representative thereof shall furnish
any non-public information that it is not legally obligated to furnish or
negotiate or enter into any agreement or contract with respect to any takeover
proposal, and shall direct and use its reasonable efforts to cause its
representatives not to engage in any of the foregoing, but Allaire or Bancorp
may communicate information about such a takeover proposal to its stockholders
or shareholders, as the case may be, if and to the extent it is required to do
so in order to comply with its legal obligations as advised in writing by
counsel. Allaire shall promptly notify Bancorp and Bancorp shall promptly notify
Allaire, orally and in writing, in the event that it receives any inquiry or
proposal relating to any such transaction. Allaire and Bancorp shall immediately
cease and cause to be terminated as of the date of this Agreement any existing
activities, discussions or negotiations with any other parties conducted
heretofore with respect to any of the foregoing. As used in this Section 6.08,
"takeover proposal" shall mean (i) any proposal for a merger or other business
combination involving Allaire or any Allaire Subsidiary or for the acquisition
of a significant equity interest in Allaire or any Allaire Subsidiary or for the
acquisition of a significant portion of the assets or liabilities of Allaire or
any Allaire Subsidiary, or (ii) any proposal for a merger or other business
combination involving Bancorp or any Bancorp Subsidiary or for the acquisition
of a significant equity interest in Bancorp or any Bancorp Subsidiary or for the
acquisition of a significant portion of the assets or liabilities of Bancorp or
any Bancorp Subsidiary.
(b) Allaire and Bancorp shall ensure that their representatives are aware
of the restrictions described in this Section 6.08 as reasonably necessary to
avoid violations thereof. It is understood that any violation of the
restrictions set forth in this Section 6.08 by any representative of Allaire or
Bancorp, at the direction of or with the consent of Allaire or Bancorp, as the
case may be, shall be deemed to be a breach of this Section 6.08 by Allaire or
Bancorp, as the case may be.
Section 6.09. Transaction Expenses of Allaire.
-------------------------------
(a) (i) For planning purposes, Allaire will provide Bancorp with its
estimated budget of transaction-related expenses reasonably anticipated to be
payable by Allaire in connection with this Agreement and the transactions
contemplated hereby based on facts and circumstances then currently known,
including the fees and expenses of counsel, accountants, investment bankers and
other professionals. Allaire shall use its best efforts to maintain expenses
within the budget, provided that in the event the actual facts and circumstances
differ from the assumptions upon which the budget is based, then the budget
shall be adjusted to reasonably correspond to such change.
(ii) For planning purposes, Bancorp will provide Allaire with its
estimated budget of transaction-related expenses reasonably anticipated to be
payable by Bancorp in connection with this Agreement and the transactions
contemplated hereby based on facts and circumstances then currently known,
including the fees and expenses of counsel, accountants,
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investment bankers and other professionals. Bancorp shall use its best efforts
to maintain expenses within the budget, provided that in the event the actual
facts and circumstances differ from the assumptions upon which the budget is
based, then the budget shall be adjusted to reasonably correspond to such
change.
(b) Bancorp and Allaire shall agree on all arrangements with respect to
the printing and mailing of the Joint Proxy Statement. Each Party shall be
responsible for their proportionate expenses with respect to the printing of the
Joint Proxy Statement.
(c) (i) Not later then two (2) business days prior to the Closing Date,
Allaire shall provide Bancorp with an accounting of all transaction related
expenses incurred by it through the Closing Date, including a good faith
estimate of such expenses incurred or to be incurred through the Closing Date
but as to which invoices have not yet been submitted. Allaire shall detail any
variance of such transaction expenses to the budget provided pursuant to Section
6.09(a)(i).
(ii) Not later then two (2) business days prior to the Closing Date, Bancorp
shall provide Allaire with an accounting of all transaction related expenses
incurred by it through the Closing Date, including a good faith estimate of such
expenses incurred or to be incurred through the Closing Date but as to which
invoices have not yet been submitted. Bancorp shall detail any variance of such
transaction expenses to the budget provided pursuant to Section 6.09(a)(ii).
Section 6.10. Press Releases.
--------------
Bancorp and Allaire agree that they will not issue any press release or other
public disclosure related to this Agreement or the transactions contemplated
hereby, without first consulting with the other Party as to the timing, form and
substance of such disclosures which may relate to the transactions contemplated
by this Agreement, provided, however, that nothing contained herein shall
prohibit either Party, following notification to the other Party, from making
any disclosure which is required by applicable law or regulation.
Section 6.11. Prior Notice and Approval Before Payment to be Made.
---------------------------------------------------
(a) (i) No payments shall be made by Allaire or any Allaire Subsidiary to
any director, officer or employee in accordance with any agreement, contract,
plan or arrangement (including, but not limited to, any employment agreement,
severance arrangement, stock option, deferred compensation plan, vacation or
leave plan or other compensation or benefits program), upon the termination of
such agreement, contract, plan or arrangement or upon the termination of
employment or service of such recipient with Allaire or an Allaire Subsidiary,
except to the extent that such intended payments (i) have been set forth in the
Schedules hereto, (ii) with prior written notice to Bancorp of such intended
payment, (iii) delivery of a written acknowledgement and release executed by the
recipient and Allaire or the Allaire Subsidiary satisfactory to Bancorp in form
and substance, and (iv) the written consent of Bancorp.
(ii) No payments shall be made by Bancorp or any Bancorp Subsidiary
to any director, officer or employee in accordance with any agreement, contract,
plan or arrangement (including, but not limited to, any employment agreement,
severance arrangement, stock option, deferred compensation plan, vacation or
leave plan or other compensation or benefits program), upon the termination of
such agreement, contract, plan or arrangement or upon the termination of
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employment or service of such recipient with Bancorp or an Bancorp Subsidiary,
except to the extent that such intended payments (i) have been set forth in the
Schedules hereto, (ii) with prior written notice to Allaire of such intended
payment, (iii) delivery of a written acknowledgement and release executed by the
recipient and Bancorp or the Bancorp Subsidiary satisfactory to Allaire in form
and substance, and (iv) the written consent of Allaire.
(b) (i) Prior to the Effective Time, Allaire, with the assistance of its
tax accountants, shall determine if any payments made or to be made by Allaire
or any of the Allaire Subsidiaries shall constitute an "excess parachute
payment" in accordance with Section 280G of the Code, shall furnish Bancorp with
a schedule of any non-deductible payments in accordance with Section 280G of the
Code, and take such steps as are necessary so that the IRS Forms 1099 and W-2
and related forms shall properly report the non-deductible status of any such
payments.
(ii) Prior to the Effective Time, Bancorp, with the assistance of
its tax accountants, shall determine if any payments made or to be made by
Bancorp or any of the Bancorp Subsidiaries shall constitute an "excess parachute
payment" in accordance with Section 280G of the Code, shall furnish Allaire with
a schedule of any non-deductible payments in accordance with Section 280G of the
Code, and take such steps as are necessary so that the IRS Forms 1099 and W-2
and related forms shall properly report the non-deductible status of any such
payments.
Section 6.12. NASDAQ SmallCap Market Listing.
------------------------------
Bancorp shall use its reasonable best efforts to cause the Bancorp Common
Stock to be issued in the Combination to be approved for listing on the NASDAQ
SmallCap Market, subject to official notice of issuance, as of the Effective
Time. It being understood by Bancorp that the listing of the Bancorp Common
Stock to be issued in the Combination is a condition precedent to Closing.
Section 6.13. Current Information on Bancorp.
------------------------------
During the period from the date of this Agreement to the Effective Time or the
time of termination or abandonment of this Agreement, Bancorp will cause one or
more of its designated representatives to confer on a regular and frequent basis
with representatives of Allaire and to report the general status of the ongoing
operations of Bancorp. Bancorp will promptly notify Allaire of any material
change in the normal course of business or the operations or the properties of
Bancorp or any Bancorp Subsidiary, any governmental complaints, investigations
or hearings (or communications indicating that the same may be contemplated)
affecting Bancorp or a Bancorp Subsidiary, the institution or the threat of
material litigation, claims, threats or causes of action involving Bancorp or
any Bancorp Subsidiary, and will keep Allaire fully informed of such events.
Section 6.14. Current Information on Allaire.
------------------------------
During the period from the date of this Agreement to the Effective Time or the
time of termination or abandonment of this Agreement, Allaire will cause one or
more of its designated representatives to confer on a regular and frequent basis
with representatives of Bancorp and to report the general status of the ongoing
operations of Allaire. Allaire will promptly notify
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Bancorp of any material change in the normal course of business or the
operations or the properties of Allaire or any Allaire Subsidiary, any
governmental complaints, investigations or hearings (or communications
indicating that the same may be contemplated) affecting Allaire or any Allaire
Subsidiary, the institution or the threat of material litigation, claims,
threats or causes of action involving Allaire or any Allaire Subsidiary, and
will keep Bancorp fully informed of such events.
Section 6.15. Access to Information.
---------------------
Upon reasonable notice and subject to applicable laws relating to the exchange
of information, each of Allaire and Bancorp shall, and shall cause each of its
Subsidiaries to, afford to the officers, employees accountants, counsel and
other representative of the other, reasonable access, during normal business
hours during the period prior to the Effective Time, to all its properties,
books, contracts, commitments and records, and, during such period, each Party
shall, and shall cause its Subsidiaries to, make available to the other Party
(i) a copy of each report, schedule, registration statement and other document
filed or received by it during such period pursuant to the requirements of
federal securities laws or federal or state banking laws (other than reports or
documents that such Party is not permitted to disclose under applicable law) and
(ii) all other information concerning its business, properties and personnel as
the other may reasonably request. Neither Allaire nor Bancorp nor any of their
Subsidiaries shall be required to provide access to or to disclose information
where such access or disclosure would jeopardize the attorney-client privilege
of such Party or its Subsidiaries or contravene any law, rule, regulation,
order, judgment, decree, fiduciary duty or binding agreement entered into prior
to the date of this Agreement. The Parties shall make appropriate substitute
disclosure arrangements under circumstances in which the restrictions of the
preceding sentence apply.
Section 6.16. Access to Properties; Personnel and Records; Systems
----------------------------------------------------
Integration.
-----------
(a) (i) For so long as this Agreement shall remain in effect, Allaire and
the Allaire Subsidiaries shall permit Bancorp or its agents full access; during
normal business hours, to the properties of Allaire and the Allaire
Subsidiaries, and shall disclose and make available (together with the right to
copy) to Bancorp and to its internal auditors, loan review officers, attorneys,
accountants and other representatives, all books, papers and records relating to
the assets, stock, properties, operations, obligations and liabilities of
Allaire or the Allaire Subsidiaries, including all books of account (including
the general ledger), Tax records, minute books of directors' and stockholders'
meetings, organizational documents, By-laws, contracts and agreements, filings
with any regulatory agency, examination reports, correspondence with regulatory
or taxing authorities, documents relating to assets, titles, abstracts,
appraisals, consultant's reports, plans affecting employees, securities transfer
records and stockholder lists, and any other assets, business activities or
prospects in which Bancorp may have a reasonable interest, and Allaire and the
Allaire Subsidiaries shall use their reasonable best efforts to provide Bancorp
and its representatives access to the work papers of Allaire's accountants.
Allaire and the Allaire Subsidiaries shall not be required to provide access to
or to disclose information where such access or disclosure would violate or
prejudice the rights of any customer, would contravene any law, rule,
regulation, order or judgment or would violate any confidentiality agreement;
provided, however, that Allaire and the Allaire Subsidiaries shall cooperate
with
A-66
Bancorp in seeking to obtain Consents from appropriate parties under whose
rights or authority access is otherwise restricted. The foregoing rights granted
to Bancorp shall not, whether or not and regardless of the extent to which the
same are exercised, affect the representations and warranties made in this
Agreement by Allaire.
(ii) For so long as this Agreement shall remain in effect, Bancorp
and the Bancorp Subsidiaries shall permit Allaire or its agents full access;
during normal business hours, to the properties of Bancorp and the Bancorp
Subsidiaries, and shall disclose and make available (together with the right to
copy) to Allaire and to its internal auditors, loan review officers, attorneys,
accountants and other representatives, all books, papers and records relating to
the assets, stock, properties, operations, obligations and liabilities of
Bancorp or the Bancorp Subsidiaries, including all books of account (including
the general ledger), Tax records, minute books of directors' and shareholders'
meetings, organizational documents, By-laws, contracts and agreements, filings
with any regulatory agency, examination reports, correspondence with regulatory
or taxing authorities, documents relating to assets, titles, abstracts,
appraisals, consultant's reports, plans affecting employees, securities transfer
records and shareholder lists, and any other assets, business activities or
prospects in which Allaire may have a reasonable interest, and Bancorp and the
Bancorp Subsidiaries shall use their reasonable best efforts to provide Allaire
and its representatives access to the work papers of Bancorp's accountants.
Bancorp and the Bancorp Subsidiaries shall not be required to provide access to
or to disclose information where such access or disclosure would violate or
prejudice the rights of any customer, would contravene any law, rule,
regulation, order or judgment or would violate any confidentiality agreement;
provided, however, that Bancorp and the Bancorp Subsidiaries shall cooperate
with Allaire in seeking to obtain Consents from appropriate parties under whose
rights or authority access is otherwise restricted. The foregoing rights granted
to Allaire shall not, whether or not and regardless of the extent to which the
same are exercised, affect the representations and warranties made in this
Agreement by Bancorp.
(b) (i) From and after the date hereof, Allaire shall cause its directors,
officers and employees to, and shall make all reasonable efforts to cause
Allaire's data processing service providers to, cooperate and assist Bancorp in
connection with an electronic and systematic conversion of all applicable data
regarding Allaire to an agreed upon system by Allaire and MCBNA of electronic
data processing.
(ii) From and after the date hereof, Bancorp shall cause its
directors, officers and employees to, and shall make all reasonable efforts to
cause Bancorp's data processing service providers to, cooperate and assist
Allaire in connection with an electronic and systematic conversion of all
applicable data regarding Bancorp to an agreed upon system by Allaire and MCBNA
of electronic data processing.
(c) No investigation by either of the Parties or their respective
representative, under this Section 6.16 or any other provision of this
Agreement, shall affect the representations and warranties of the other set
forth in this Agreement.
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Section 6.17. Confidentiality of Information.
------------------------------
All information furnished by the Parties hereto pursuant to this Agreement shall
be treated as the sole property of the Party providing such information until
the consummation of the Combination contemplated hereby and, if such transaction
shall not occur, the Party receiving the information shall return to the Party
which furnished such information, all documents or other materials containing,
reflecting or referring to such information, shall use its best efforts to keep
confidential all such information, and shall not directly or indirectly use such
information for any competitive or other commercial purposes. The obligation to
keep such information confidential shall continue indefinitely but shall not
apply to (a) any information which (i) the Party receiving the information was
already in possession of prior to disclosure thereof by the Party furnishing the
information, (ii) was then available to the public, or (iii) became available to
the public through no fault of the Party receiving the information; or (b)
disclosures pursuant to a legal requirement or in accordance with an order of a
court of competent jurisdiction or regulatory agency; provided, however, the
Party which is the subject of any such legal requirement or order shall use its
best efforts to give the other Party at least ten (10) business days' prior
notice thereof. Each Party hereto acknowledges and agrees that a breach of any
of its obligations under this Section 6.17 would cause the other Party
irreparable harm for which there is no adequate remedy at law, and that,
accordingly, each Party is entitled to injunctive and other equitable relief for
the enforcement thereof in addition to damages or any other relief available at
law. Without the consent of the other Party, neither Party shall not use
information furnished to such Party other than for the purposes of the
transactions contemplated hereby.
Section 6.18. Notice of Deadlines.
-------------------
(a) Schedule 6.18(a) lists the deadlines for extensions or terminations
occurring in 2004 of any material leases, agreements or licenses (including
specifically real property leases and data processing agreements) to which
Allaire or any Allaire Subsidiary is a party.
(b) Schedule 6.18(b) lists the deadlines for extensions or terminations
occurring in 2004 of any material leases, agreements or licenses (including
specifically real property leases and data processing agreements) to which
Bancorp or any Bancorp Subsidiary is a party.
Section 6.19. Maintenance of Properties; Certain Remediation and
--------------------------------------------------
Capital Improvements.
--------------------
Allaire and the Allaire Subsidiaries will maintain their respective properties
and assets in satisfactory condition and repair for the purposes for which they
are intended, ordinary wear and tear excepted. Bancorp and the Bancorp
Subsidiaries will maintain their respective properties and assets in
satisfactory condition and repair for the purposes for which they are intended,
ordinary wear and tear excepted.
Section 6.20. Compliance Matters.
------------------
Prior to the Effective Time of the Combination, each Party shall take, or cause
to be taken, all steps reasonably requested by the other Party to cure any
deficiencies in regulatory compliance by such Party or any of its Subsidiaries;
provided, however, neither Party shall be responsible for
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discovering or have any obligation to disclose the existence of such defects to
the other Party nor shall it have any liability resulting from such deficiencies
or attempts to cure them.
Section 6.21. Approval of Stockholders and Shareholders.
-----------------------------------------
Bancorp and Allaire will take all steps necessary under applicable laws to call,
give notice of, convene and hold one or more meetings of their respective
shareholders and stockholders at such time(s) as may be mutually agreed to by
the Parties for the purpose of approving this Agreement and the transactions
contemplated hereby and for such other purposes consistent with the complete
performance of this Agreement as may be necessary or desirable. The Board of
Directors of Allaire will recommend to its stockholders and the Board of
Directors of Bancorp will recommend to its shareholders the approval of this
Agreement and the transactions contemplated hereby and Bancorp and Allaire will
use their reasonable best efforts to obtain the necessary approvals by their
respective shareholders and stockholders of this Agreement and the transactions
contemplated hereby.
Section 6.22. Registration of Bancorp Common Stock related to
-----------------------------------------------
Assumed Options.
---------------
As soon as practicable after the Effective Time, Bancorp shall register pursuant
to a registration statement on Form S-8, the shares of Bancorp Common Stock
subject to issuance upon the exercise of Allaire Stock Options exchanged in
accordance with Section 1.05.
Section 6.23. Notification of Certain Matters.
-------------------------------
Each Party shall give prompt notice to the other of (a) any event, condition,
change, occurrence, act or omission which causes any of its representations
hereunder to cease to be true in all material respects (or, with respect to any
such representation which is qualified as to materiality, causes such
representation to cease to be true in all respects); and (b) any event,
condition, change, occurrence, act or omission which individually or in the
aggregate has, or which, so far as reasonably can be foreseen at the time of its
occurrence, is reasonably likely to have, a Material Adverse Effect on such
Party. Each of Allaire and Bancorp shall give prompt notice to the other Party
of any notice or other communication from any third party alleging that the
Consent of such third party is or may be required in connection with the
transactions contemplated by this Agreement. No such notification shall affect
the representations, warranties, covenants or agreements of the Parties (or
remedies with respect thereto) or the conditions to the obligations of the
Parties under this Agreement. A failure to comply with this Section 6.23 shall
not constitute the failure of any condition set forth in Article VII to be
satisfied unless the underlying Material Adverse Effect of such failure would
result in the failure of a condition set forth in Article VII to be satisfied.
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ARTICLE VII.
CONDITIONS PRECEDENT
Section 7.01. Conditions to Each Party's Obligation to Effect the
---------------------------------------------------
Combination.
-----------
The respective obligations of the Parties to effect the Combination shall be
subject to the satisfaction at or prior to the Effective Time of the following
conditions:
(a) Shareholder and Stockholder Approval.
------------------------------------
This Agreement shall have been approved and adopted by the requisite affirmative
vote of the holders of Allaire Common Stock entitled to vote thereon and by the
requisite affirmative vote of the holders of Bancorp Common Stock entitled to
vote thereon.
(b) NASDAQ SmallCap Listing.
-----------------------
The shares of Bancorp Common Stock to be issued to the holders of Allaire Common
Stock upon consummation of the Combination shall have been authorized for
listing on the NASDAQ SmallCap Market, subject to official notice of issuance.
(c) Regulatory Approvals.
--------------------
All Requisite Regulatory Approvals and other Consents required to consummate the
transactions contemplated by this Agreement, including the Combination, shall
have been obtained and shall remain in full force and effect, and all statutory
waiting periods in respect thereof shall have expired.
(d) Form S-4.
--------
The Form S-4 shall have become effective under the Securities Act and no stop
order suspending the effectiveness of the Form S-4 shall have been issued and no
proceedings for that purpose shall have been initiated or threatened by the SEC
or FDIC. Bancorp shall have received all state securities laws, or "Blue Sky"
permits or other authorizations, or confirmations as to the availability of
exemptions from registration requirements, as may be necessary to issue the
Bancorp Common Stock pursuant to the terms of this Agreement.
(e) Stock Split.
-----------
The Stock Split contemplated by Section 1.09 shall have been effectuated as
provided therein.
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(f) No Injunctions or Restraints; Illegality.
----------------------------------------
No order, injunction or decree issued by any Governmental Entity of competent
jurisdiction or other legal restraint or prohibition (an "Injunction")
preventing the consummation of the Combination or any of the other transactions
contemplated by this Agreement shall be in effect. No statute rule, regulation,
order, Injunction or decree shall have been enacted, entered, promulgated or
enforced by any Governmental Entity that prohibits or makes illegal the
consummation of the Combination.
(g) Name Change of Bancorp to Central Jersey Bancorp.
------------------------------------------------
Bancorp's Certificate of Incorporation will be amended to change Bancorp's name
to "Central Jersey Bancorp."
(h) Application for Name Change of MCBNA to "Central Jersey Bank,
-------------------------------------------------------------
National Association."
--------------------
Subject to the rules and regulations of the OCC and any other applicable
Regulatory Authority, MCBNA shall have filed with the OCC and such other
applicable Regulatory Authority such documentation a is necessary and required
to change its name to "Central Jersey Bank, National Association," or such other
name agreed to by the Parties, after the Closing Date but before the Bank
Merger. It is understood that such filings will be made as soon as practicable
after the execution of this Agreement.
(i) The Bank Merger.
---------------
Subject to the rules and regulations of the OCC and any other applicable
Regulatory Authority, the Parties will take all actions that may be taken before
the Closing Date to effectuate the Bank Merger after the Closing Date.
Section 7.02. Conditions to Obligations of Bancorp.
------------------------------------
The obligation of Bancorp to consummate the Combination is also subject to the
satisfaction by Allaire, or waiver by Bancorp, at or prior to the Effective
Time, of the following conditions:
(a) Representations and Warranties.
------------------------------
The representations and warranties of Allaire set forth in this Agreement and in
any certificate or document delivered pursuant hereto shall be true and correct
in all material respects as of the date of this Agreement and as of all times up
to and including the Effective Time as though made on and as of the Effective
Time, except that representations and warranties are by their express provisions
made as of a specified date shall be true and correct as of such date. Bancorp
shall have received a certificate signed on behalf of Allaire by the Chief
Executive Officer or the Chief Financial Officer of Allaire to the foregoing
effect.
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(b) Performance of Obligations of Allaire.
-------------------------------------
Allaire shall have performed in all material respects all covenants, obligations
and agreements required to be performed by it under this Agreement at or prior
to the Closing Date. Bancorp shall have received a certificate signed on behalf
of Allaire by the Chief Executive Officer or the Chief Financial Officer of
Allaire to such effect.
(c) Opinion of Counsel.
------------------
Bancorp shall have received an opinion of counsel from Frieri Conroy & Lombardo,
LLC, counsel to Allaire, satisfactory to Bancorp and its counsel, dated as of
the Effective Time, to the effect set forth in Exhibit C hereof.
(d) Consents Under Agreements.
-------------------------
Allaire shall have obtained the Consent or approval of each Person (other than
the Consents of the Regulatory Authorities) whose Consent or approval shall be
required under any loan or credit agreement, note, mortgage, indenture, lease,
license, or other agreement or instrument relating to Allaire, except those for
which failure to obtain such Consents and approvals would not in the opinion of
Bancorp, individually or in the aggregate, have a Material Adverse Effect on
Allaire or upon the consummation of the transactions contemplated by this
Agreement.
(e) Material Condition.
------------------
There shall not be any action taken, or any statute, rule, regulation or order
enacted, entered, enforced or deemed applicable to the Combination by any
Regulatory Authority which, in connection with the grant of any Consent by any
Regulatory Authority, imposes, in the judgment of Bancorp, any material adverse
requirement upon Bancorp or any of the Bancorp Subsidiaries, including, without
limitation, any requirement that Bancorp sell or dispose of any significant
amount of the assets of Bancorp.
(f) Certification of Claims.
-----------------------
Allaire shall have delivered a certificate to Bancorp that Allaire is not aware
of any pending or threatened claim under the directors and officers insurance
policy or the fidelity bond coverage of Allaire.
(g) Dissenting Shares.
-----------------
No more than 2% of the issued and outstanding shares of Allaire Common Stock
shall be Dissenting Allaire Shares (as defined in Section 2.03) and no more than
2% of the issued and outstanding shares of Bancorp Common Stock shall be
Dissenting Bancorp Shares (as defined in Section 2.04).
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(h) Affiliate Agreements.
--------------------
The Affiliate Agreement delivered by each director and executive officer of
Allaire in connection with the execution of this Agreement, shall remain in full
force and effect.
Section 7.03. Conditions to Obligations of Allaire.
------------------------------------
The obligation of Allaire to consummate the Combination is also subject to the
satisfaction by Bancorp, or waiver by Allaire, at or prior to the Effective
Time, of the following conditions:
(a) Representations and Warranties.
------------------------------
The representations and warranties of Bancorp set forth in this Agreement and in
any certificate or document delivered pursuant hereto shall be true and correct
in all material respects as of the date of this Agreement and as of all times up
to and including the Effective Time as though made on and as of the Effective
Time, except that representations and warranties are by their express provisions
made as of a specified date shall be true and correct as of such date. Allaire
shall have received a certificate signed on behalf of Bancorp by the Chief
Executive Officer or the Chief Financial Officer of Bancorp to the foregoing
effect.
(b) Performance of Obligations of Bancorp.
-------------------------------------
Bancorp shall have performed in all material respects all covenants, obligations
and agreements required to be performed by it under this Agreement at or prior
to the Closing Date. Allaire shall have received a certificate signed on behalf
of Bancorp by the Chief Executive Officer or the Chief Financial Officer of
Bancorp to such effect.
(c) Opinions of Counsel.
-------------------
Allaire shall have received an opinion of counsel from Giordano, Halleran &
Ciesla, P.C., counsel to Bancorp, satisfactory to Allaire and its counsel, dated
as of the Effective Time, to the effect set forth in Exhibit D hereof. In
addition, Allaire shall have received an opinion of counsel from Giordano,
Halleran & Ciesla, P.C., counsel to Bancorp, satisfactory to Allaire and its
counsel, that the exchange of the shares of Bancorp Common Stock for the shares
of Allaire Common Stock as a result of the Combination shall be a Tax free
exchange.
(d) Consents Under Agreements.
-------------------------
Bancorp shall have obtained the Consent or approval of each Person (other than
the Consents of the Regulatory Authorities) whose Consent or approval shall be
required under any loan or credit agreement, note, mortgage, indenture, lease,
license, or other agreement or instrument relating to Bancorp, except those for
which failure to obtain such Consents and approvals would not in the opinion of
Allaire, individually or in the aggregate, have a Material Adverse Effect on
Bancorp or upon the consummation of the transactions contemplated by this
Agreement.
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(e) Material Condition.
------------------
There shall not be any action taken, or any statute, rule, regulation or order
enacted, entered, enforced or deemed applicable to the Combination by any
Regulatory Authority which, in connection with the grant of any Consent by any
Regulatory Authority, imposes, in the judgment of Allaire, any material adverse
requirement upon Allaire or any of the Allaire Subsidiaries, including, without
limitation, any requirement that Allaire sell or dispose of any significant
amount of the assets of Allaire.
(f) Certification of Claims.
-----------------------
Bancorp shall have delivered a certificate to Allaire that Bancorp is not aware
of any pending or threatened claim under the directors and officers insurance
policy or the fidelity bond coverage of Bancorp.
(g) Dissenting Shares.
-----------------
No more than 2% of the issued and outstanding shares of Allaire Common Stock
shall be Dissenting Allaire Shares (as defined in Section 2.03) and no more than
2% of the issued and outstanding shares of Bancorp Common Stock shall be
Dissenting Bancorp Shares (as defined in Section 2.04).
ARTICLE VIII.
TERMINATION, WAIVER AND AMENDMENT
Section 8.01. Termination.
-----------
This Agreement may be terminated and the Combination abandoned at any time prior
to the Effective Time, whether before or after approval of the matters presented
in connection with the Combination by the stockholders of Allaire or the
shareholders of Bancorp:
(a) by the mutual consent in writing of the Board of Directors of Bancorp
and the Board of Directors Allaire, if the Board of Directors of each so
determines by a vote of a majority of the members of its respective entire Board
of Directors; or
(b) by the Board of Directors of Bancorp or the Board of Directors Allaire
if the Combination shall not have occurred on or prior to December 31, 2004;
provided, however, that the failure to consummate the Combination on or before
such date is not caused by any breach of any of the representations, warranties,
covenants or other agreements contained herein by the Party electing to
terminate pursuant to this Section 8.01(b); or
(c) by the Board of Directors of Bancorp or the Board of Directors Allaire
(provided that the terminating Party is not then in breach of any representation
or warranty contained in this Agreement under the applicable standard set forth
in Section 9.02 of this Agreement or in breach of any covenant or agreement
contained in this Agreement) in the event of an inaccuracy of any representation
or warranty of the other Party contained in this Agreement which cannot be or
has not been cured within thirty (30) days after the giving of written notice to
the breaching Party of
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such inaccuracy and which inaccuracy would provide the terminating Party the
ability to refuse to consummate the Combination under the applicable standard
set forth in Section 9.02 of this Agreement; or
(d) by the Board of Directors of Bancorp or the Board of Directors of
Allaire (provided that the terminating Party is not then in breach of any
representation or warranty contained in this Agreement under the applicable
standard set forth in Section 9.02 of this Agreement or in breach of any
covenant or agreement contained in this Agreement) in the event of a material
breach by the other Party of any covenant or agreement contained in this
Agreement which cannot be or has not been cured within thirty (30) days after
the giving of written notice to the breaching Party of such breach; or
(e) by the Board of Directors of Bancorp or the Board of Directors of
Allaire in the event (i) any Consent of any Regulatory Authority required for
consummation of the Combination and the other transactions contemplated hereby
shall have been denied by final nonappealable action of such authority or if any
action taken by such authority is not appealed within the time limit for appeal,
or (ii) the stockholders of Allaire or the shareholders of Bancorp fail to vote
their approval of this Agreement and the Combination and the transactions
contemplated hereby as required by applicable law at their respective meetings
where the transactions were presented to such stockholders or shareholders for
approval and voted upon; or
(f) by the Board of Directors of Bancorp, (i) if Allaire fails to hold its
stockholder meeting to vote on the Agreement within sixty (60) days of the Form
S-4 being declared effective by the SEC, except in the event such delay is
caused by the FDIC or other Regulatory Authority and provided Allaire has been
provided adequate notice of such declaration from Bancorp or its counsel, or
(ii) if Allaire's Board of Directors either (A) fails to recommend, or fails to
continue its recommendation, that the stockholders of Allaire vote in favor of
the adoption of this Agreement, or (B) modifies, withdraws or changes in any
manner adverse to Bancorp its recommendation that the stockholders of Allaire
vote in favor of the adoption of this Agreement; or
(g) by the Board of Directors of Allaire, (i) if Bancorp fails to hold its
shareholder meeting to vote on the Agreement within sixty (60) days of the Form
S-4 being declared effective by the SEC, except in the event such delay is
caused by the FDIC or other Regulatory Authority, or (ii) if Bancorp's Board of
Directors either (A) fails to recommend, or fails to continue its
recommendation, that the shareholders of Bancorp vote in favor of the adoption
of this Agreement, or (B) modifies, withdraws or changes in any manner adverse
to Allaire its recommendation that the shareholders of Bancorp vote in favor of
the adoption of this Agreement; or
(h) (i) by the Board of Directors of Allaire, in the event the Board of
Directors, after receipt of the written legal opinion from counsel detailing
that such action of accepting such Acquisition Transaction (as defined below)
and terminating this Agreement is required in order for the Board of Directors
to comply with its fiduciary duties under applicable laws of the State of New
Jersey; or
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(ii) by the Board of Directors of Bancorp, in the event the Board of
Directors, after receipt of the written legal opinion from counsel detailing
that such action of accepting such Acquisition Transaction and terminating this
Agreement is required in order for the Board of Directors to comply with its
fiduciary duties under applicable laws of the State of New Jersey.
"Acquisition Transaction" shall, (i) with respect to Allaire, mean any of the
following: (a) a merger or consolidation, or any similar transaction (other than
the Combination) of any company with either Allaire or an Allaire Subsidiary,
(b) a purchase, lease or other acquisition of all or substantially all the
assets of Allaire, (c) a purchase or other acquisition of "beneficial ownership"
by any "person" or "group" (as such terms are defined in Section 13(d)(3) of the
Exchange Act) (including by way of merger, consolidation, share exchange, or
otherwise) which would cause such person or group to become the beneficial owner
of securities representing twenty-five percent (25%) or more of the voting power
of Allaire, or (d) a tender or exchange offer to acquire securities representing
twenty-five percent (25%) or more of the voting power of Allaire, and (ii) with
respect to Bancorp, mean any of the following: (a) a merger or consolidation, or
any similar transaction (other than the Combination) of any company with either
Bancorp or a Bancorp Subsidiary, (b) a purchase, lease or other acquisition of
all or substantially all the assets of Bancorp, (c) a purchase or other
acquisition of "beneficial ownership" by any "person" or "group" (as such terms
are defined in Section 13(d)(3) of the Exchange Act) (including by way of
merger, consolidation, share exchange, or otherwise) which would cause such
person or group to become the beneficial owner of securities representing
twenty-five percent (25%) or more of the voting power of Bancorp, or (d) a
tender or exchange offer to acquire securities representing twenty-five percent
(25%) or more of the voting power of Bancorp.
Section 8.02. Effective of Termination; Termination Fee.
-----------------------------------------
In the event of the termination and abandonment of this Agreement pursuant to
Section 8.01 of this Agreement, this Agreement shall terminate and have no
effect, except as otherwise provided herein and except that the provisions of
Section 6.17, Section 9.06 and this Section 8.02 shall survive any such
termination and abandonment.
If, after the date of this Agreement, Allaire terminates this Agreement in
accordance with Section 8.01(h)(i), then immediately upon any such termination
and in addition to any other rights and remedies of Bancorp, Allaire shall pay
Bancorp a cash amount of $1,500,000 as an agreed-upon termination fee plus
reimbursement to Bancorp for its expenses incurred in negotiation and pursuit of
this Agreement and the transactions contemplated hereunder, including, but not
limited to, fees and expenses of its attorneys, investment advisors, accountants
and related professionals and costs associated with such transaction
(collectively, the "Termination Fee").
If, after the date of this Agreement, Bancorp terminates this Agreement in
accordance with Section 8.01(h)(ii), then immediately upon any such termination
and in addition to any other rights and remedies of Allaire, Bancorp shall pay
Allaire the Termination Fee.
Allaire and Bancorp agree that the Termination Fee is fair and reasonable in the
circumstances. If a court of competent jurisdiction shall nonetheless, by a
final, nonappealable judgment, determine that the amount of any such Termination
Fee exceeds the maximum amount permitted by law, then the amount of such
Termination Fee shall be reduced to the maximum amount permitted
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by law in the circumstances, as determined by such court of competent
jurisdiction.
Section 8.03. Amendments.
----------
To the extent permitted by law, this Agreement may be amended by a subsequent
writing signed by each of Bancorp and Allaire.
Section 8.04. Waivers.
-------
Prior to or at the Effective Time of the Combination, Bancorp, on the one hand,
and Allaire, on the other hand, shall have the right to waive any default in the
performance of any term of this Agreement by the other, to waive or extend the
time for the compliance or fulfillment by the other of any and all of the
other's obligations under this Agreement and to waive any or all of the
conditions to its obligations under this Agreement, except any condition, which,
if not satisfied, would result in the violation of any law or any applicable
governmental regulation.
Section 8.05. Non-Survival of Representations, Warranties and
-----------------------------------------------
Covenants.
---------
The representations, warranties, covenants or agreements in this Agreement or in
any instrument delivered by Bancorp or Allaire shall not survive the Effective
Time, except for those set forth in Sections 1.10, 6.03, 6.04 and 6.17, and any
representation, warranty or agreement in any agreement, contract, report,
opinion, undertaking or other document or instrument delivered hereunder in
whole or in part by any Person other than Bancorp or Allaire (or directors and
officers thereof in their capacities as such) shall survive the Effective Time;
provided, however, that no representation or warranty of Bancorp or Allaire
contained herein shall be deemed to be terminated or extinguished so as to
deprive Bancorp, on the one hand, and Allaire, on the other hand, of any defense
at law or in equity which any of them otherwise would have to any claim against
them by any Person, including, without limitation, any shareholder or former
shareholder of either Party. No representation or warranty in this Agreement
shall be affected or deemed waived by reason of the fact that Bancorp or Allaire
and/or its representatives knew or should have known that any such
representation or warranty was, is, might be or might have been inaccurate in
any respect.
ARTICLE IX.
MISCELLANEOUS
Section 9.01. Closing.
-------
On the terms and subject to conditions set forth in this Agreement, the closing
of the Combination (the "Closing") shall take place at 10:00 a.m. on a date and
at a place to be specified by the Parties, which date shall be no later than
five (5) business days after the satisfaction or waiver (subject to applicable
law) of the latest to occur of the conditions set forth in Article VII (other
than those conditions that by their nature are to be satisfied or waived at the
Closing), unless extended by mutual agreement of the Parties (the "Closing
Date").
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Section 9.02. Standard.
--------
No representation or warranty of Allaire contained in Article III or of Bancorp
contained in Article IV shall be deemed untrue or incorrect for any purpose
under this Agreement, and no Party hereto shall be deemed to have breached a
representation or warranty for any purpose under this Agreement, in any case as
a consequence of the existence or absence of any fact, circumstance or event
unless such fact, circumstance or event, individually or when taken together
with all other facts, circumstances or events inconsistent with any
representations or warranties contained in Article III, in the case of Allaire,
or Article IV, in the case of Bancorp, has had or would be reasonably likely to
have a Material Adverse Effect with respect to Allaire or Bancorp, respectively
(disregarding for purposes of this Section 9.02 any materiality or Material
Adverse Effect qualification contained in any representations or warranties).
Section 9.03. Entire Agreement.
----------------
This Agreement, the Confidentiality Agreement dated as of May 4, 2004 between
the Parties and the documents referred to herein contain the entire agreement
among Bancorp and Allaire with respect to the transactions contemplated
hereunder and this Agreement supersedes all prior arrangements or understandings
with respect thereto, whether written or oral, except for the terms of the
Confidentiality Agreement.
Section 9.04. Notices.
-------
All notices or other communications which are required or permitted hereunder
shall be in writing and sufficient if delivered personally, sent by commercial
overnight courier with written verification of receipt, mailed by first class or
registered or certified mail, postage prepaid, or sent by telegram or telex or
other facsimile transmission (with confirmation of receipt) addressed as
follows:
If to Allaire:
Allaire Community Bank
2200 Highway 35
Sea Girt, New Jersey 08750
Fax: (732) 292-1240
Attention: George Callas, Chairman
Carl F. Chirico, President and CEO
With a copy to:
Frieri Conroy & Lombardo, LLC
777 Walnut Avenue
Cranford, New Jersey 07016
Fax: (908) 653-9101
Attention: Donna M. Conroy, Esq.
A-78
If to Bancorp:
Monmouth Community Bancorp
627 Second Avenue
Long Branch, New Jersey 07740
Fax: (732) 571-1037
Attention: James S. Vaccaro, Chairman and CEO
With a copy to:
Giordano, Halleran & Ciesla, PC
125 Half Mile Road
P.O. Box 190
Middletown, New Jersey 07748
Fax: (732) 224-6599
Attention: Paul T. Colella, Esq.
All such notices or other communications shall be deemed to have been delivered
(i) upon receipt when delivery is made by hand or by overnight courier, (ii) on
the third (3rd) business day after deposit in the United States mail when
delivery is made by first class, registered or certified mail, and (iii) upon
transmission when made by telegram, telex or other facsimile transmission if
evidenced by a sender transmission completed confirmation.
Section 9.05. Severability.
------------
If any term, provision, covenant or restriction contained in this Agreement is
held by a court of competent jurisdiction or other competent authority to be
invalid, void or unenforceable or against public or regulatory policy, the
remainder of the terms, provisions, covenants and restrictions contained in this
Agreement shall remain in full force and effect and in no way shall be affected,
impaired or invalidated, if, but only if, pursuant to such remaining terms,
provisions, covenants and restrictions the Combination may be consummated in
substantially the same manner as set forth in this Agreement as of the later of
the date this Agreement was executed or last amended.
Section 9.06. Costs and Expenses.
------------------
Expenses incurred by Allaire on the one hand and Bancorp on the other hand, in
connection with or related to the authorization, preparation and execution of
this Agreement, the solicitation of stockholder or shareholder approval and all
other matters related to the Closing of the transactions contemplated hereby,
including all fees and expenses of agents, representatives, counsel and
accountants employed by either such Party or its Affiliates, shall be shared
equally by the Parties in the event of a termination of this Agreement for any
reason other than those set forth in Section 8.02.
Section 9.07. Captions.
--------
The captions as to contents of particular articles, sections or paragraphs
contained in this Agreement and the table of contents hereto are inserted only
for convenience and are in no way
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to be construed as part of this Agreement or as a limitation on the scope of the
particular articles, sections or paragraphs to which they refer.
Section 9.08. Counterparts.
------------
This Agreement may be executed in any number of counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same document with the same force and effect as though all Parties had
executed the same document.
Section 9.09. Persons Bound; No Assignment; No Third-Party
--------------------------------------------
Beneficiaries.
-------------
This Agreement shall be binding upon and shall inure to the benefit of the
Parties hereto and their respective successors and assigns, but notwithstanding
the foregoing, this Agreement may not be assigned by any Party hereto, by
operation of law or otherwise, unless the prior written consent of the other
Party is first obtained. Except as specifically provided herein, this Agreement
(including the documents and instruments referred to in this Agreement) is not
intended to and does not confer upon any Person other than the Parties hereto
any rights or remedies under this Agreement.
Section 9.10. Governing Law.
-------------
This Agreement is made and shall be governed by and construed in accordance with
the laws of the State of New Jersey (without respect to its conflicts of laws
principles) except to the extent federal law may apply.
Section 9.11. Recitals, Exhibits and Schedules.
--------------------------------
Each of the recitals set forth on the introductory pages of this Agreement and
each of the Exhibits and Schedules attached hereto is an integral part of this
Agreement and shall be applicable as if set forth in full.
Section 9.12. Waiver.
------
The waiver by any Party of the performance of any agreement, covenant, condition
or warranty contained herein shall not invalidate this Agreement, nor shall it
be considered a waiver of any other agreement, covenant, condition or warranty
contained in this Agreement. A waiver by either Party of the time for performing
any act shall not be deemed a waiver of the time for performing any other act or
an act required to be performed at a later time. The exercise of any remedy
provided by law, equity or otherwise and the provisions in this Agreement for
any remedy shall not exclude any other remedy unless it is expressly excluded.
The waiver of any provision of this Agreement must be signed by the Party or
Parties against whom enforcement of the waiver is sought. This Agreement and any
Exhibit, memorandum or Schedule hereto or delivered in connection herewith may
be amended only by a writing signed on behalf of each Party hereto.
A-80
Section 9.13. Construction of Terms.
---------------------
Whenever used in this Agreement, the singular number shall include the plural
and the plural the singular. Pronouns of one gender shall include all genders.
Accounting terms used and not otherwise defined in this Agreement shall have the
meanings determined by, and all calculations with respect to accounting or
financial matters unless otherwise provided for herein, shall be computed in
accordance with GAAP, consistently applied. References herein to articles,
sections, paragraphs, subparagraphs or the like shall refer to the corresponding
articles, sections, paragraphs, subparagraphs or the like of this Agreement. The
words "hereof," "herein," and terms of similar import shall refer to this entire
Agreement. Unless the context clearly requires otherwise, the use of the terms,
"including," "included," "such as," or terms of similar meaning, shall not be
construed to imply the exclusion of any other particular elements.
Section 9.14. Representations and Warranties.
------------------------------
Each Party has the authority to make the representations and warranties made by
the Party on behalf of any Subsidiary thereof.
IN WITNESS WHEREOF, Allaire and Bancorp have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the date
first written above.
ATTEST: ALLAIRE COMMUNITY BANK
/s/ Robert S. Vuono By: /s/ Carl F. Chirico
- ----------------------------- ---------------------------------
Name: Carl F. Chirico
Title: President and Chief Executive Officer
ATTEST: MONMOUTH COMMUNITY BANCORP
/s/ Anthony Giordano, III By: /s/ James S. Vaccaro
- ----------------------------- ---------------------------------
Name: James S. Vaccaro
Title: Chairman and Chief Executive Officer
A-81
APPENDIX B
FAIRNESS OPINION
OF
JANNEY MONTGOMERY SCOTT LLC
June 30, 2004
The Board of Directors
Allaire Community Bank
2200 Route 35
Sea Girt, NJ 08750
Members of the Board:
Allaire Community Bank ("Allaire") and Monmouth Community Bancorp ("Bancorp")
have entered into an Agreement and Plan of Acquisition ("Merger Agreement")
providing for the merger of Allaire with and into Monmouth Community Bank which
contemporaneously will be changing its name to Central Jersey Bank (the
"Merger"). The proposed merger consideration is outlined in the Merger Agreement
dated June 30, 2004. You have asked our opinion, as of the date hereof, whether
the merger consideration pursuant to the Merger Agreement is fair, from a
financial point of view, to the shareholders of Allaire. Pursuant to the Merger
Agreement, each share of Allaire will be exchanged for one share of Bancorp
common stock ("Common Stock").
Janney Montgomery Scott LLC, as part of its investment banking business, is
engaged in the valuation of financial institutions and their securities in
connection with mergers and acquisitions. We have acted as financial advisor to
Allaire in connection with the Merger and will receive a fee for our services, a
portion if which is contingent upon the consummation of the Merger. Allaire has
agreed to indemnify us for certain liabilities arising out of rendering this
opinion. In addition, in the ordinary course of our business as a broker-dealer,
we may, from time to time, have a long or short position in, and buy or sell,
debt or equity securities of Allaire or Bancorp for our own account or for the
accounts of our customers.
In rendering our opinion, we have, among other things:
(a) reviewed the historical financial performances, current financial
positions and general prospects of Allaire and Monmouth;
(b) considered the proposed financial terms of the Merger and have examined
the projected consequences of the Merger with respect to, among other
things, market value, earnings and tangible book value per share of
Bancorp Common Stock;
(c) to the extent deemed relevant, analyzed selected public information of
certain other banks and bank holding companies and compared Allaire and
Bancorp from a financial point of view to these other banks and bank
holding companies;
(d) reviewed the historical market price ranges and trading activity
performance of the Common Stock of Allaire and Bancorp;
(e) reviewed publicly - available information such as annual reports,
quarterly reports and SEC filings;
(f) compared the terms of the Merger with the terms of certain other
comparable merger transactions to the extent information concerning such
acquisitions was publicly available;
B-1
(g) discussed with certain members of senior management of Allaire and Bancorp
the strategic aspects of the Merger, including estimated cost savings from
the Merger;
(h) reviewed the Merger Agreement; and
(i) performed such other analyses and examinations as we deemed necessary.
In performing our review, we have relied upon the accuracy and completeness of
all of the financial and other information that was available to us from public
sources, that was provided to us by Allaire or Bancorp or their respective
representatives or that was otherwise reviewed by us and have assumed such
accuracy and completeness for purposes of rendering this opinion. We have
further relied on the assurances of management of Allaire and Bancorp that they
are not aware of any facts or circumstances that would make any of such
information inaccurate or misleading. We have not been asked to and have not
undertaken any independent verification of any of such information and we do not
assume any responsibility or liability for the accuracy or completeness thereof.
We did not make an independent evaluation or appraisal of the specific assets,
the collateral securing assets or the liabilities (contingent or otherwise) of
Allaire or Bancorp or any of their subsidiaries, or the collectibility of any
such assets, nor have we been furnished with any such evaluations or appraisals.
We did not make any independent evaluation of the adequacy of the allowance for
loan losses of Allaire or Bancorp or any of their subsidiaries nor have we
reviewed any individual credit files and have assumed that their respective
allowance for loan losses are adequate to cover such losses. With respect to the
financial projections, Allaire's and Bancorp's management have confirmed that
they reflect the best currently available estimates and judgments of such
management of the future financial performance of Allaire and Bancorp
respectively, and we have assumed that such performance will be achieved. We
express no opinion as to such financial projections or the assumptions on which
they are based. We have also assumed that there has been no change in Allaire's
or Bancorp's assets, financial condition, results of operations, business or
prospects since the date of the most recent financial statements made available
to us. We have assumed in all respects material to our analysis that Allaire and
Bancorp will remain as going concerns for all periods relevant to our analysis,
that all of the representations and warranties contained in the Merger Agreement
and all related agreements are true and correct, that each party to such
agreements will perform all of the covenants required to be performed by such
party under such agreements and that the conditions precedent to the Merger
Agreement are not waived.
Our conclusion is rendered on the basis of market, economic and other conditions
prevailing as of the date hereof and on the conditions and prospects, financial
and otherwise, of Allaire and Bancorp as they exist and are known to us on the
date hereof. Furthermore, this opinion does not represent our opinion as to what
the value of Bancorp necessarily will be when the Bancorp Common Stock is issued
to Allaire shareholders upon consummation of the Merger. In addition, we express
no recommendation as to how the shareholders of Allaire should vote at the
shareholders meeting held in connection with the Merger.
On the basis of and subject to the foregoing, we are of the opinion that as of
the date hereof, the Merger Consideration pursuant to the Merger Agreement is
fair, from a financial point of view, to the shareholders of Allaire.
Very truly yours,
/s/ Janney Montgomery Scott LLC
JANNEY MONTGOMERY SCOTT LLC
B-2
APPENDIX C
FAIRNESS OPINION
OF
SANDLER O'NEILL & PARTNERS, L.P.
June 30, 2004
Board of Directors
Monmouth Community Bancorp
627 Second Avenue
Long Branch, New Jersey 07740
Ladies and Gentlemen:
Monmouth Community Bancorp ("Monmouth Community") and Allaire Community
Bank ("Allaire"), have entered into an Agreement and Plan of Acquisition, dated
as of June 30, 2004 (the "Agreement"), pursuant to which Monmouth Community will
acquire all of the outstanding capital stock of Allaire (the "Acquisition").
Under the terms of the Agreement, upon consummation of the Acquisition, each
share of Allaire common stock, par value $3.33333 per share, issued and
outstanding immediately prior to the Acquisition (the "Allaire Shares"), other
than certain shares specified in the Agreement, will be converted into the right
to receive 1.00 share (the "Exchange Ratio") of common stock, par value $.01 per
share, of Monmouth Community. Prior to consummation of the Acquisition, Monmouth
Community will effect a 6:5 stock split. The terms and conditions of the
Acquisition are more fully set forth in the Agreement. You have requested our
opinion as to the fairness, from a financial point of view, of the Exchange
Ratio to Monmouth Community.
Sandler O'Neill & Partners, L.P., as part of its investment banking
business, is regularly engaged in the valuation of financial institutions and
their securities in connection with mergers and acquisitions and other corporate
transactions. In connection with this opinion, we have reviewed, among other
things: (i) the Agreement; (ii) certain publicly available financial statements
and other historical financial information of Monmouth Community that we deemed
relevant; (iii) certain audited financial statements and other historical
financial information of Allaire that we deemed relevant; (iv) internal
financial projections for Monmouth Community for the years ending December 31,
2004 through 2007 prepared by and reviewed with management of Monmouth
Community; (v) internal financial projections for Allaire for the years ending
December 31, 2004 through 2008 prepared by and reviewed with management of
Allaire; (vi) the pro forma financial impact of the Merger on Monmouth Community
and Allaire, based on assumptions relating to transaction expenses, purchase
accounting adjustments and cost savings determined by the senior management of
Monmouth Community and Allaire; (vii) the relative contributions of assets,
liabilities, equity and earnings of Monmouth Community and Allaire to the
resulting institution and the relative pro forma ownership of the shareholders
of Monmouth Community and Allaire in the combined company; (viii) the publicly
reported historical price and trading activity for Monmouth Community's and
Allaire's common stock,
C-1
Board of Directors
Monmouth Community Bancorp
June 30, 2004
Page 2
including a comparison of certain financial and stock market information for
Monmouth Community and Allaire with similar publicly available information for
certain other companies the securities of which are publicly traded; (ix) the
financial terms of certain recent business combinations in the commercial
banking industry, to the extent publicly available; (x) the current market
environment generally and the banking environment in particular; and (xi) such
other information, financial studies, analyses and investigations and financial,
economic and market criteria as we considered relevant. We also discussed with
certain members of senior management of Monmouth Community the business,
financial condition, results of operations and prospects of Monmouth and held
similar discussions with certain members of senior management of Allaire
regarding the business, financial condition, results of operations and prospects
of Allaire.
In performing our review, we have relied upon the accuracy and
completeness of all of the financial and other information that was available to
us from public sources, that was provided to us by Monmouth Community or Allaire
or their respective representatives or that was otherwise reviewed by us and
have assumed such accuracy and completeness for purposes of rendering this
opinion. We have further relied on the assurances of management of Monmouth
Community and Allaire that they are not aware of any facts or circumstances that
would make any of such information inaccurate or misleading. We have not been
asked to and have not undertaken an independent verification of any of such
information and we do not assume any responsibility or liability for the
accuracy or completeness thereof. We did not make an independent evaluation or
appraisal of the specific assets, the collateral securing assets or the
liabilities (contingent or otherwise) of Monmouth Community or Allaire or any of
their subsidiaries, or the collectibility of any such assets, nor have we been
furnished with any such evaluations or appraisals. We did not make an
independent evaluation of the adequacy of the allowance for loan losses of
Monmouth Community or Allaire nor have we reviewed any individual credit files
relating to Monmouth Community or Allaire. We have assumed, with your consent,
that the respective allowances for loan losses for both Monmouth Community and
Allaire are adequate to cover such losses and will be adequate on a combined
basis for the combined entity. With respect to the internal financial
projections for Monmouth Community and Allaire and all projections of
transaction costs, purchase accounting adjustments and expected cost savings
prepared by and/or reviewed with the managements of Monmouth Community and
Allaire and used by Sandler O'Neill in its analyses, the managements of Monmouth
Community and Allaire confirmed to us that they reflected the best currently
available estimates and judgments of the respective managements of the
respective future financial performances of Monmouth Community and Allaire and
we assumed that such performances would be achieved. We express no opinion as to
such financial projections or the assumptions on which they are based. We have
also assumed that there has been no material change in Monmouth Community's or
Allaire's assets, financial condition, results of operations, business or
prospects since the date of the most recent financial statements made available
to us. We have assumed in all respects material to our analysis that Monmouth
Community and Allaire will remain as going concerns for all periods relevant to
our analyses, that all of the representations and warranties contained in the
Agreement and all related agreements are true and correct, that each party to
such agreements will perform all of the covenants required to be
C-2
Board of Directors
Monmouth Community Bancorp
June 30, 2004
Page 3
performed by such party under such agreements, that the conditions precedent in
the Agreement are not waived and that the Merger will qualify as a tax-free
reorganization for federal income tax purposes. Finally, with your consent, we
have relied upon the advice Monmouth Community has received from its legal,
accounting and tax advisors as to all legal, accounting and tax matters relating
to the Merger and the other transactions contemplated by the Agreement.
Our opinion is necessarily based on financial, economic, market and other
conditions as in effect on, and the information made available to us as of, the
date hereof. Events occurring after the date hereof could materially affect this
opinion. We have not undertaken to update, revise, reaffirm or withdraw this
opinion or otherwise comment upon events occurring after the date hereof. We are
expressing no opinion herein as to what the value of Monmouth Community's common
stock will be when issued to Allaire's shareholders pursuant to the Agreement or
the prices at which Monmouth Community's or Allaire's common stock may trade at
any time.
We have acted as Monmouth Community's financial advisor in connection with
the Merger and will receive a fee for our services, a portion of which is
contingent upon consummation of the Merger. Monmouth Community has also agreed
to indemnify us against certain liabilities arising out of our engagement.
As you are aware, we have provided certain other investment banking
services to Monmouth Community in the past and have received compensation for
such services and we may provide, and receive compensation for, such services in
the future, including during the period prior to the closing of the Merger.
In the ordinary course of our business as a broker-dealer, we may purchase
securities from and sell securities to Monmouth Community and Allaire and their
affiliates. We may also actively trade the debt and/or equity securities of
Monmouth Community and Allaire and their affiliates for our own account and for
the accounts of our customers and, accordingly, may at any time hold a long or
short position in such securities.
Our opinion is directed to the Board of Directors of Monmouth Community in
connection with its consideration of the Merger. Our opinion is directed only to
the fairness of the Exchange Ratio to Monmouth Community from a financial point
of view and does not address the underlying business decision of Monmouth
Community to engage in the Merger, the relative merits of the Merger as compared
to any other alternative transactions or business strategies that might exist
for Monmouth Community or the effect of any other transaction in which Monmouth
Community might engage. Our opinion is not to be quoted or referred to, in whole
or in part, in a registration statement, prospectus, proxy statement or in any
other document, nor shall this opinion be used for any other purposes, without
Sandler O'Neill's prior written consent.
C-3
Board of Directors
Monmouth Community Bancorp
June 30, 2004
Page 4
Based upon and subject to the foregoing, it is our opinion, as of the date
hereof, that the Exchange Ratio is fair to Monmouth Community from a financial
point of view.
Very truly yours,
/s/ Sandler O'Neill & Partners, L.P.
Board of Directors
Monmouth Community Bancorp
June 30, 2004
Page 5
::ODMA\PCDOCS\GHCDOCS\429458\1
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APPENDIX D
SECTIONS 14A:11-1 THROUGH 14A:11-11 OF THE NEW JERSEY
BUSINESS CORPORATION ACT
"RIGHTS OF DISSENTING BANCORP SHAREHOLDERS"
14A:11-1 RIGHT OF SHAREHOLDERS TO DISSENT.
- ------------------------------------------
(1) Any shareholder of a domestic corporation shall have the right to
dissent from any of the following corporate actions:
(a) Any plan of merger or consolidation to which the corporation is
a party, provided that, unless the certificate of incorporation otherwise
provides:
(i) a shareholder shall not have the right to dissent from any
plan of merger or consolidation with respect to shares (A) of a class or series
which is listed on a national securities exchange or is held of record by not
less than 1,000 holders on the record date fixed to determine the shareholders
entitled to vote upon the plan of merger or consolidation; or (B) for which,
pursuant to the plan of merger or consolidation, he will receive (x) cash, (y)
shares, obligations or other securities which, upon consummation of the merger
or consolidation, will either be listed on a national securities exchange or
held of record by not less than 1,000 holders, or (z) cash and such securities;
(ii) a shareholder of a surviving corporation shall not have
the right to dissent from a plan of merger, if the merger did not require for
its approval the vote of such shareholders as provided in section 14A:10-5.1 or
in subsections 14A:10-3(4), 14A:10-7(2) or 14A:10-7(4); or
(iii) a shareholder of a corporation shall not have the right
to dissent from a plan of merger, if the merger did not require, for its
approval, the vote of the shareholders as provided in subsection (6) of N.J.S.
14AA:10-3; or
(b) Any sale, lease, exchange or other disposition of all or
substantially all of the assets of a corporation not in the usual or regular
course of business as conducted by such corporation, other than a transfer
pursuant to subsection (4) of N.J.S. 14A:10-11, provided that, unless the
certificate of incorporation otherwise provides, the shareholder shall not have
the right to dissent:
(i) with respect to share of a class or series which, at the
record date fixed to determine the shareholders entitled to vote upon such
transaction, is listed on a national securities exchange or is held of record by
not less than 1,000 holders; or
(ii) from a transaction pursuant to a plan of dissolution of
the corporation which provides for distribution of substantially all of its net
assets to shareholders in accordance with their respective interests within one
year after the date of such transaction, where such transaction is wholly for
(A) cash; or (B) shares, obligations or other securities which, upon
consummation or the plan of dissolution will either be listed on a national
securities exchange or held of record by not less than 1,000 holders; or (C)
cash and such securities; or
(iii) from a sale pursuant to an order of a court having
jurisdiction.
D-1
(2) Any shareholder of a domestic corporation shall have the right to
dissent with respect to any shares owned by him which are to be acquired to
section 14A:10-9.
(3) A shareholder may not dissent as to less than all of the shares owned
beneficially by him and with respect to which a right of dissent exists. A
nominee or fiduciary may not dissent on behalf of any beneficial owner as to
less than all of the shares of such owner with respect to which the right of
dissent exists.
(4) A corporation may provide in its certificate of incorporation that
holders of all its shares, or of a particular class or series thereof, shall
have the right to dissent from specified corporate actions in addition to those
enumerated in subsection 14A:11-1(1), in which case the exercise of such right
to dissent shall be governed by the provisions of this Chapter.
14A:11-2 NOTICE OF DISSENT; DEMAND FOR PAYMENT; ENDORSEMENT OF CERTIFICATES.
- ---------------------------------------------------------------------------
(1) Whenever a vote is to be taken, either at a meeting of shareholders or
upon written consents in lieu of a meeting pursuant to section 14A:5-6, upon a
proposed corporate action from which a shareholder may dissent under section
14A:11-1, any shareholder electing to dissent from such action shall file with
the corporation before the taking of the vote of the shareholders on such
corporate action, or within the time specified in paragraphs 14A:5-6(2)(b) or
14A:5-6(2)(c), as the case may be, if no meeting of shareholders is to be held,
a written notice of such dissent stating that he intends to demand payment for
his shares if the action is taken.
(2) Within 10 days after the date on which such corporate action takes
effect, the corporation, or, in the case of a merger or consolidation, the
surviving or new corporation, shall give written notice of the effective date of
such corporate action, by certified mail to each shareholder who filed written
notice of dissent pursuant to subsection 14A:11-2(1), except any who voted for
or consented in writing to the proposed action.
(3) Within 20 days after the mailing of such notice, any shareholder to
whom the corporation was required to give such notice and who has filed a
written notice of dissent pursuant to this section may make written demand on
the corporation, or, in the case of a merger or consolidation, on the surviving
or new corporation, for the payment of the fair value of his shares.
(4) Whenever a corporation is to be merged pursuant to section 14A:10-5.1
or subsection 14A:10-7(4) and shareholder approval is not required under
subsections 14A:10-5.1(5) and 14A:10-5.1(6), a shareholder who has the right to
dissent pursuant to section 14A:11-1 may, not later than 20 days after a copy or
summary of the plan of such merger and the statement required by subsection
14A:10-5.1(2) is mailed to such shareholder, make written demand on the
corporation or on the surviving corporation, for the payment of the fair value
of his shares.
(5) Whenever all the shares, or all the shares of a class or series, are
to be acquired by another corporation pursuant to section 14A:10-9, a
shareholder of the corporation whose shares are to be acquired may, not later
than 20 days after the mailing of notice by the acquiring
D-2
corporation pursuant to paragraph 14A:10-9(3)(b), make written demand on the
acquiring corporation for the payment of the fair value of his shares.
(6) Not later than 20 days after demanding payment for his shares pursuant
to this section, the shareholder shall submit the certificate or certificates
representing his shares to the corporation upon which such demand has been made
for notation thereon that such demand has been made, whereupon such certificate
or certificates shall be returned to him. If shares represented by a certificate
on which notation has been made shall be transferred, each new certificate
issued therefor shall bear similar notation, together with the name of the
original dissenting holder of such shares, and a transferee of such shares shall
acquire by such transfer no rights in the corporation other than those which the
original dissenting shareholder had after making a demand for payment of the
fair value thereof.
(7) Every notice or other communication required to be given or made by a
corporation to any shareholder pursuant to this Chapter shall inform such
shareholder of all dates prior to which action must be taken by such shareholder
in order to perfect his rights as a dissenting shareholder under this Chapter.
14A: 11-3 "DISSENTING SHAREHOLDER" DEFINED; DATE FOR DETERMINATION OF FAIR
- --------------------------------------------------------------------------
VALUE.
- -----
(1) A shareholder who has made demand for the payment of his shares in the
manner prescribed by subsections 14A:11-2(3), 14A:11-2(4) or 14A: 11-2(5) is
hereafter in this Chapter referred to as a "dissenting shareholder."
(2) Upon making such demand, the dissenting shareholder shall cease to
have any of the rights of a shareholder except the right to be paid the fair
value of his shares and any other rights of a dissenting shareholder under this
Chapter.
(3) "Fair value" as used in this Chapter shall be determined
(a) As of the day prior to the day of the meeting of shareholders at
which the proposed action was approved or as of the day prior to the day
specified by the corporation for the tabulation of consents to such action if no
meeting of shareholders was held; or
(b) In the case of a merger pursuant to section 14A:10-5.1 or
subsequent 14A:10-7(4) in which shareholder approval is not required, as of the
day prior to the day on which the board of directors approved the plan of
merger; or
(c) In the case of an Combination of all the shares or all the
shares of a class or series by another corporation pursuant to section 14A:10-9,
as of the day prior to the day on which the board of directors of the acquiring
corporation authorized the Combination, or, if a shareholder vote was taken
pursuant to section 14A:10-12, as of the day provided in paragraph
14A:11-3(3)(a).
D-3
In all cases, "fair value" shall exclude any appreciation or depreciation
resulting from the proposed action.
14A:11-4 TERMINATION OF RIGHT OF SHAREHOLDER TO BE PAID THE FAIR VALUE OF HIS
- -----------------------------------------------------------------------------
SHARES.
- ------
(1) The right of a dissenting shareholder to be paid the fair value of his
shares under this Chapter shall cease if:
(a) he has failed to present his certificates for notation as
provided by subsection 14A:11-2(6), unless a court having jurisdiction, for good
and sufficient cause shown, shall otherwise direct;
(b) his demand for payment is withdrawn with the written consent of
the corporation;
(c) the fair value of the shares is not agreed upon as provided in
this Chapter and no action for the determination of fair value by the Superior
Court is commenced within the time provided in this Chapter;
(d) the Superior Court determines that the shareholder is not
entitled to payment for his shares;
(e) the proposed corporate action is abandoned or rescinded; or
(f) a court having jurisdiction permanently enjoins or sets aside
the corporate action.
(2) In any case provided for in subsection 14A:11-4(1), the rights of the
dissenting shareholder as a shareholder shall be reinstated as of the date of
the making of a demand for payment pursuant to subsections 14A:11-2(3),
14A:11-2(4) or 14A:11-2(5) without prejudice to any corporate action which has
taken place during the interim period. In such event, he shall be entitled to
any intervening preemptive rights and the right to payment of any intervening
dividend or other distribution, or, if any such rights have expired or any such
dividend or distribution other than in cash has been completed, in lieu thereof,
at the election of the board, the fair value thereof in cash as of the time of
such expiration or completion.
14A:11-5 RIGHTS OF DISSENTING SHAREHOLDER.
- -----------------------------------------
(1) A dissenting shareholder may not withdraw his demand for payment of
the fair value of his shares without the written consent of the corporation.
(2) The enforcement by a dissenting shareholder of his right to receive
payment for his shares shall exclude the enforcement by such dissenting
shareholder of any other right to which he might otherwise be entitled by virtue
of share ownership, except as provided in subsection 14A:11-4(2) and except that
this subsection
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shall not exclude the right of such dissenting shareholder to bring or maintain
an appropriate action to obtain relief on the ground that such corporate action
will be or is ultra vires, unlawful or fraudulent as to such dissenting
shareholder.
14A:11-6 DETERMINATION OF FAIR VALUE BY AGREEMENT.
- -------------------------------------------------
(1) Not later than 10 days after the expiration of the period within which
shareholders may make written demand to be paid the fair value of their shares,
the corporation upon which such demand has been made pursuant to subsections,
14A:11-2(3), 14A:11-2(4) or 14A:11-2(5) shall mail to each dissenting
shareholder the balance sheet and the surplus statement of the corporation whose
shares he holds, as of the latest available date which shall not be earlier than
12 months prior to the making of such offer and a profit and loss statement or
statements for not less than a 12-month period ended on the date of such balance
sheet or, if the corporation was not in existence for such 12-month period, for
the portion thereof during which it was in existence. The corporation may
accompany such mailing with a written offer to pay each dissenting shareholder
for his shares at a specified price deemed by such corporation to be the fair
value thereof. Such offer shall be made at the same price per share to all
dissenting shareholders of the same class, or, if divided into series, of the
same series.
(2) If, not later than 30 days after the expiration of the 10-day period
limited by sub-section 14A:11-6(1), the fair value of the shares is agreed upon
between any dissenting shareholder and the corporation, payment therefor shall
be made upon surrender of the certificate or certificates representing such
shares.
14A:11-7 PROCEDURE ON FAILURE TO AGREE UPON FAIR VALUE; COMMENCEMENT OF ACTION
- ------------------------------------------------------------------------------
TO DETERMINE FAIR VALUE.
- -----------------------
(1) If the fair value of the shares is not agreed upon within the 30-day
period limited by subsection 14A:11-6(2), the dissenting shareholder may serve
upon the corporation upon which such demand has been made pursuant to
subsections 14A:11-2(3), 14A:11-2(4) or 14A:11-2(5) a written demand that it
commence an action in the Superior Court for the determination of the fair value
of the shares. Such demand shall be served not later than 30 days after the
expiration of the 30-day period so limited and such action shall be commenced by
the corporation not later than 30 days after receipt by the corporation of such
demand, but nothing herein shall prevent the corporation from commencing such
action at any earlier time.
(2) If a corporation fails to commence the action as provided in
subsection 14A:11-7(1), a dissenting shareholder may do so in the name of the
corporation, not later than 60 days after the expiration of the time limited by
subsection 14A:11-7(1) in which the corporation may commence such an action.
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14A:11-8 ACTION TO DETERMINE FAIR VALUE; JURISDICTION OF COURT; APPOINTMENT OF
- ------------------------------------------------------------------------------
APPRAISER.
- ---------
In any action to determine the fair value of shares pursuant to this Chapter:
(a) The Superior Court shall have jurisdiction and may proceed in
the action in a summary manner or otherwise;
(b) All dissenting shareholders, wherever residing, except those who
have agreed with the corporation upon the price to be paid for their shares,
shall be made parties thereto as an action against their shares quasi in rem;
(c) The court in its discretion may appoint an appraiser to receive
evidence and report to the court on the question of fair value, who shall have
such power and authority as shall be specified in the order of his appointment;
and
(d) The court shall render judgment against the corporation and in
favor of each shareholder who is a party to the action for the amount of the
fair value of his shares.
14A:11-9 JUDGMENT IN ACTION TO DETERMINE FAIR VALUE.
- ---------------------------------------------------
(1) A judgment for the payment of the fair value of shares shall be
payable upon surrender to the corporation of the certificate or certificates
representing such shares.
(2) The judgment shall include an allowance for interest at such rate as
the court finds to be equitable, from the date of the dissenting shareholder's
demand for payment under subsections 14A:11-2(3), 14A:11-2(4) or 14A:11-2(5) to
the day of payment. If the court finds that the refusal of any dissenting
shareholder to accept any offer of payment, made by the corporation under
section 14A:11-6, was arbitrary, vexatious or otherwise not in good faith, no
interest shall be allowed to him.
14A:11-10 COSTS AND EXPENSES OF ACTION.
- --------------------------------------
The costs and expenses of bringing an action pursuant to section 14A:11-8
shall be determined by the court and shall be apportioned and assessed as the
court may find equitable upon the parties or any of them. Such expenses shall
include reasonable compensation for and reasonable expenses of the appraiser, if
any, but shall exclude the fees and expenses of counsel for and experts employed
by any party; but if the court finds that the offer of payment made by the
corporation under section 14A:11-6 was not made in good faith, or if no such
offer was made, the court in its discretion may award to any dissenting
shareholder who is a party to the action reasonable fees and expenses of his
counsel and of any experts employed by the dissenting shareholder.
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14A:11-11 DISPOSITION OF SHARES ACQUIRED BY CORPORATION.
- -------------------------------------------------------
(1) The shares of a dissenting shareholder in a transaction described in
subsection 14A:11-1(1) shall become reacquired by the corporation which issued
them or by the surviving corporation, as the case may be, upon the payment of
the fair value of shares.
(2) In an Combination of shares pursuant to section 14A:10-9 or section
14A:10-13, the shares of a dissenting shareholder shall become the property of
the acquiring corporation upon the payment by the acquiring corporation of the
fair value of such shares. Such payment may be made, with the consent of the
acquiring corporation, by the corporation which issued the shares, in which case
the shares so paid for shall become reacquired by the corporation which issued
them and shall be cancelled.
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APPENDIX E
SECTIONS 17:9A-360 THROUGH 17:9A-369 OF THE NEW
JERSEY BANKING ACT OF 1948, AS AMENDED
"RIGHTS OF DISSENTING ALLAIRE STOCKHOLDERS"
17:9A-360. Notice of dissent; "dissenting stockholder" defined
(1) Any stockholder of a participating bank electing to dissent from the
plan of acquisition may do so by filing with the participating bank of which he
is a stockholder, a written notice of such dissent, stating that he intends to
demand payment for his shares if the plan of acquisition becomes effective. Such
dissent shall be filed before the taking of the vote of the stockholders on the
plan of acquisition pursuant to section 5.
(2) Within 10 days after the date on which the plan of acquisition is
approved by stockholders of a participating bank as provided in section 5
hereof, such bank shall give notice of such approval by certified mail to each
stockholder who has filed written notice of dissent pursuant to subsection (1)
of this section, except any who voted for or consented in writing to such plan
of acquisition.
(3) Within 20 days after the mailing of such notice, any stockholder to
whom the participating bank was required to give such notice, may make written
demand on the participating bank for the payment of the fair value of his
shares. A stockholder who makes a demand pursuant to this subsection (3) is
hereafter in this act referred to as a "dissenting stockholder." Upon making
such demand, the dissenting stockholder shall cease to have any rights of a
stockholder except the right to be paid the fair value of his shares and any
other rights of a dissenting stockholder under this act.
(4) Not later than 20 days after demanding payment for his shares pursuant
to this section, the stockholder shall submit the certificate or certificates
representing such shares to the participating bank of which he is a stockholder
for notation thereon that such demand has been made, whereupon such certificate
or certificates shall be returned to him. If shares represented by a certificate
on which such notation has been made shall be transferred, each new certificate
issued therefor shall bear similar notation, together with the name of the
original dissenting holder of such shares, and a transferee of such shares shall
acquire by such transfer no rights other than those which the original
dissenting stockholder had after making a demand for payment of the fair value
thereof.
(5) A stockholder may not dissent as to less than all of the shares owned
beneficially by him. A nominee or fiduciary may not dissent on behalf of any
beneficial owner as to less than all of the shares of such owner.
17:9A-361. Valuation date of fair value
For the purposes of this act, fair value of the shares of a participating
bank shall be determined as of the day before the day on which the vote of
stockholders of such bank was taken as provided in section 5. In determining
fair value, there shall be excluded any appreciation or depreciation in value
resulting from the consummation of the plan of acquisition.
17:9A-362. Termination of right of stockholder to be paid the fair value of his
shares
(1) The right of a dissenting stockholder to be paid the fair value of his
shares shall cease if:
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(a) He has failed to present his certificates for notation as
provided by subsection (4) of section 6, unless a court having jurisdiction, for
good and sufficient cause shown, shall otherwise direct;
(b) His demand for payment is withdrawn with the written consent of
the participating bank;
(c) The fair value of the shares is not agreed upon as provided in
this act, and no action for the determination of fair value by the Superior
Court is commenced within the time provided in this act;
(d) The Superior Court determines that the stockholder is not
entitled to payment for his shares;
(e) The plan of acquisition of shares is abandoned, rescinded, or
otherwise terminated in respect to the participating bank of which he is a
stockholder; or
(f) A court having jurisdiction permanently enjoins or sets aside
the acquisition of shares.
(2) In any case provided for in subsection (1) of this section the rights
of the dissenting stockholder as a stockholder shall be reinstated as of the
date of the making of a demand for payment pursuant to section 6 without
prejudice to any corporate action which has taken place during the interim
period. In such event, he shall be entitled to any intervening pre-emptive
rights and the right to payment of any intervening dividend or other
distribution, or if any such rights have expired or any such dividend or
distribution other than in cash has been completed, in lieu thereof, at the
election of the participating bank, the fair value thereof in cash as of the
time of such expiration or completion.
17:9A-363. Rights of dissenting stockholder
(1) A dissenting stockholder may not withdraw his demand for payment of
the fair value of his shares without the written consent of the participating
bank.
(2) The enforcement by a dissenting stockholder of his right to receive
payment for his shares shall exclude the enforcement by such dissenting
stockholder of any other right to which he might otherwise be entitled by virtue
of share ownership, except as provided in subsection (2) of section 8 and except
that this subsection shall not exclude the right of such dissenting stockholder
to bring or maintain an appropriate action to obtain relief on the ground that
consummation of the plan of acquisition will be or is ultra vires, unlawful or
fraudulent as to such dissenting stockholder.
17:9A-364. Determination of fair value by agreement
(1) Within 10 days after the expiration of the period within which
stockholders may make written demand to be paid the fair value of their shares,
or within 10 days after the plan of acquisition becomes effective, whichever is
later, the participating bank shall mail to each dissenting stockholder the
balance sheet and the surplus statement of the participating bank as of
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the latest available date, which shall not be earlier than 12 months prior to
the making of the offer of payment hereinafter referred to in this subsection,
and a profit and loss statement or statements for not less than a 12-month
period ended on the date of such balance sheet or, if the participating bank was
not in existence for such 12-month period, for the portion thereof during which
it was in existence. The participating bank may accompany such mailing with a
written offer to pay each dissenting stockholder for his shares at a specified
price deemed by such bank to be the fair value thereof. Such offer shall be made
at the same price per share to all dissenting stockholders of the same class,
or, if divided into series, of the same series.
(2) If, not later than 30 days after the expiration of the 10-day period
limited by subsection (1) of this section, the fair value of the shares is
agreed upon between any dissenting stockholder and the participating bank,
payment therefor shall be made upon surrender of the certificate or certificates
representing such shares.
17:9A-365. Procedure on failure to agree upon fair value; commencement of action
to determine fair value
(1) If the fair value of the shares in not agreed upon within the 30-day
period limited by subsection (2) of section 10, the dissenting stockholder may
serve upon the participating bank a written demand that it commence an action in
the Superior Court for the determination of such fair value. Such demand shall
be served not later than 30 days after the expiration of the 30-day period so
limited and such action shall be commenced by the participating bank not later
than 30 days after receipt by such bank of such demand, but nothing herein shall
prevent such bank from commencing such action at any earlier time.
(2) If a participating bank fails to commence the action as provided in
subsection (1) of this section a dissenting stockholder may do so in the name of
such bank, not later than 60 days after the expiration of the time limited by
subsection (1) of this section in which such bank may commence such an action.
17:9A-366. Action to determine fair value; jurisdiction of court; appointment of
appraiser
In any action to determine the fair value of shares pursuant to this act:
(a) The Superior Court shall have jurisdiction and may proceed in
the action in a summary manner or otherwise;
(b) All dissenting stockholders, wherever residing, except those who
have agreed with the participating bank upon the price to be paid for their
shares, shall be made parties thereto as an action against their shares quasi in
rem;
(c) The court in its discretion may appoint an appraiser to receive
evidence and report to the court on the question of fair value, who shall have
such power and authority as shall be specified in the order of his appointment;
and
(d) The court shall render judgment against the participating bank
and in favor of each stockholder who is a party to the action for the amount of
the fair value of his shares.
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17:9A-367. Judgment in action to determine fair value
(1) A judgment for the payment of the fair value of shares shall be
payable upon surrender to the participating bank of the certificate or
certificates representing such shares.
(2) The judgment shall include an allowance for interest at such rate as
the court finds to be equitable, from the day of the meeting of stockholders of
the participating bank at which the plan of acquisition was approved to the day
of payment. If the court finds that the refusal of any dissenting stockholder to
accept any offer of payment made by the participating bank under section 10 was
arbitrary, vexatious or otherwise not in good faith, no interest shall be
allowed to him.
17:9A-368. Costs and expenses of action
The costs and expenses of bringing an action pursuant to section 11 shall
be determined by the court and shall be apportioned and assessed as the court
may find equitable upon the parties or any of them. Such expenses shall include
reasonable compensation for and reasonable expenses of the appraiser, if any,
but shall exclude the fees and expenses of counsel for and experts employed by
any party; but if the court finds that the offer of payment made by the
participating bank under section 10 was not made in good faith, or if no such
offer was made, the court in its discretion may award to any dissenting
stockholder who is a party to the action reasonable fees and expenses of his
counsel and of any experts employed by the dissenting stockholder.
17:9A-369. Disposition of shares
Upon payment for shares pursuant to subsection (2) of section 10, or upon
payment of a judgment pursuant to subsection (1) of section 13, the
participating bank making such payment shall acquire all the right, title and
interest in and to such shares, notwithstanding any other provision of law.
Shares so acquired by the participating bank shall be disposed of as a stock
dividend as provided by section 212 of the Banking Act of 1948, P.L.1948,
chapter 67.
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APPENDIX F
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
CENTRAL JERSEY BANCORP
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
CENTRAL JERSEY BANCORP
Central Jersey Bancorp, incorporated under the laws of the State of New
Jersey as Monmouth Community Bancorp on March 7, 2000 (the "Corporation"), does
hereby restate its Certificate of Incorporation pursuant to Section 14A:9-5 of
the New Jersey Business Corporation Act (the "Act"), to embody in one document
its original Certificate of Incorporation and the amendments thereto contained
herein.
The Corporation hereby certifies the following, which (i) sets forth in
full its Certificate of Incorporation as of this date, and (ii) supercedes and
replaces its original Certificate of Incorporation:
ARTICLE I
NAME OF CORPORATION
The name of the Corporation is Central Jersey Bancorp.
ARTICLE II
PURPOSE OF CORPORATION
The purpose for which the Corporation is organized is to engage in any
activity within the purposes for which corporations may be organized under the
Act.
ARTICLE III
CAPITAL STOCK
The aggregate number of shares of capital stock which the Corporation
shall have the authority to issue is one hundred million (100,000,000) shares of
common stock, par value $.01 per share.
ARTICLE IV
REGISTERED OFFICE AND AGENT
The address of the Corporation's registered office in the State of New
Jersey is 627 Second Avenue, Long Branch, New Jersey 07740, and the
Corporation's registered agent at such address is James S. Vaccaro.
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ARTICLE V
BOARD OF DIRECTORS
The current Board of Directors of the Corporation consists of twelve (12)
directors, and the names and addresses of the directors are set forth below:
James G. Aaron William H. Jewett
10 Muncy Drive 807 Schoolhouse Road
West Long Branch, NJ 07764 Brielle, NJ 08730-1731
Nicholas A. Alexander John F. McCann
79 West River Road 135 Bingham Avenue
Rumson, NJ 07760 Rumson, NJ 07760
John A. Brockriede Paul A. Larson, Jr.
2 Van Court Avenue 3221 Allaire Road
Long Branch, NJ 07740 Wall, NJ 07719
George S. Callas Mark G. Solow
632 Valley Road 15 Page Drive
Brielle, NJ 08730 Red Bank, NJ 07701
Carl F. Chirico James S. Vaccaro
631 Bayview Drive 613 N. Edgemere Drive
Toms River, NJ 08752 West Allenhurst, NJ 07711
M. Claire French Robert S. Vuono
3420 Belmar Boulevard 2162 Hidden Brook Drive
Neptune, NJ 07753 Wall, NJ 07719
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ARTICLE VI
LIMITATION ON LIABILITY OF DIRECTORS AND OFFICERS
To the fullest extent permitted by the laws of the State of New Jersey, as
they exist or may hereafter be amended, the directors and officers of the
Corporation shall not be personally liable to the Corporation or to any of its
shareholders for breach of any duty owed to the Corporation or its shareholders,
except that the provisions of this Article VI shall not relieve a director or
officer from liability for any breach of duty based upon an act or omission (a)
in breach of such person's duty of loyalty to the Corporation or its
shareholders, (b) not in good faith or involving a knowing violation of law, or
(c) resulting in receipt by such person of an improper personal benefit. Any
amendment to this Certificate of Incorporation, or change in law, shall not
adversely affect any then existing right or protection of a director or officer
of the Corporation as provided for herein.
IN WITNESS WHEREOF, Central Jersey Bancorp has caused this Amended and
Restated Certificate of Incorporation to be executed on the __ day of
_____________, 2004, by a duly authorized officer.
ATTEST: CENTRAL JERSEY BANCORP
By: ________________________________ By: _____________________________
Name: Robert S. Vuono Name: James S. Vaccaro
Title: Senior Executive Vice President, Title: President and Chief Executive
Chief Operating Officer and Officer
Secretary
Filed By:
Paul T. Colella, Esq.
Giordano, Halleran & Ciesla, P.C.
P.O. Box 190
Middletown, New Jersey 07748
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APPENDIX G
AMENDED AND RESTATED BY-LAWS
OF
CENTRAL JERSEY BANCORP
AMENDED AND RESTATED
BY-LAWS
OF
CENTRAL JERSEY BANCORP
ARTICLE I
OFFICES
Section 1. Principal Office. The principal office of Central Jersey
Bancorp (the "Corporation") shall be located at 627 Second Avenue, Long Branch,
New Jersey 07740, or at such other location as is designated by the
Corporation's Board of Directors (the "Board" or "Board of Directors").
Section 2. Other Offices. The Corporation may also have offices at such
other places, both within and without the State of New Jersey, as the Board of
Directors may from time to time determine or as the business of the Corporation
may require.
ARTICLE II
SHAREHOLDERS
Section 1. Place of Meeting. All meetings of the shareholders for the
election of directors and for any other purpose may be held at such time and
place, within or without the State of New Jersey, as shall be stated in the
notice of the meeting or in a duly executed waiver of notice thereof.
Section 2. Annual Meeting. Annual meetings of shareholders shall be held
in the month of April, May or June, on such day and at such time as the Board of
Directors shall designate, at which the shareholders shall elect a Board of
Directors and transact such other business as may properly be brought before the
meeting.
Section 3. Notice of Annual Meeting. Notice of the annual meeting shall be
given by mailing, not more than sixty (60) days nor less than ten (10) days
prior thereto, a written notice stating the time and place thereof, directed to
each shareholder of record entitled to vote at the meeting at his, her or its
address as the same appears upon the records of the Corporation.
Section 4. List of Shareholders. Prior to each annual or special meeting
of the shareholders, the officer who has charge of the stock ledger of the
Corporation shall prepare and make a complete list of the shareholders entitled
to vote at said meeting, which shall be arranged in alphabetical order and
include the address of and the number of shares registered in the name of each
shareholder. The list shall be produced and kept at the time and place of the
meeting during the whole time thereof and may be inspected by any shareholder
who may be present.
Section 5. Special Meetings. Special meetings of the shareholders, for any
purpose or purposes, unless otherwise prescribed by statute or by the
Certificate of Incorporation of the
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Corporation, as may be amended from time to time (the "Certificate of
Incorporation"), may be called by the Chairman of the Board, any Vice Chairman
of the Board, the Chief Executive Officer or the President, and shall be called
by the Chief Executive Officer, the President or the Secretary at the request in
writing of a majority of the Board of Directors. Such request shall state the
purpose or purposes of the proposed meeting.
Section 6. Notice of Special Meeting. Written or telegraphic notice of a
special meeting of shareholders, stating the time, place and object thereof,
shall be given to each shareholder entitled to vote thereat, not more than sixty
(60) nor less than ten (10) days before the date fixed for the meeting.
Section 7. Business Transacted at a Special Meeting. Business transacted
at any special meeting of shareholders shall be limited to the purposes stated
in the notice.
Section 8. Quorum. Except as otherwise provided in the Certificate of
Incorporation, a majority of the issued and outstanding shares of the
Corporation's common stock, par value $.01 per share ("Common Stock"), present
in person or by proxy, shall constitute a quorum for the transaction of business
at any meeting of the shareholders; provided, that when a specified matter is
required to be voted on by a class or series of capital stock, voting as a
separate class, the holders of a majority of the issued and outstanding shares
of such class or series shall constitute a quorum for the transaction of
business with respect to such matter.
Section 9. Method of Voting. Each holder of Common Stock shall, at every
meeting of the shareholders, be entitled to one vote for each share of Common
Stock held by such shareholder.
Every shareholder entitled to vote at a meeting of shareholders or to
express consent without a meeting may authorize another person or persons to act
for him, her or it by proxy. Every proxy shall be executed in writing by the
shareholder or his, her or its agent, except that a proxy may be given by a
shareholder or his, her or its agent by telegram or cable or its equivalent. No
proxy shall be valid for more than 11 months, unless a longer time is expressly
provided therein. Unless it is coupled with an interest, a proxy shall be
revocable at will. A proxy shall not be revoked by the death or incapacity of a
shareholder but such proxy shall continue in force until revoked by the personal
representative or guardian of the shareholder. The presence at any meeting of
any shareholder who has given a proxy shall not revoke such proxy unless the
shareholder shall file written notice of such revocation with the secretary of
the meeting prior to the voting of such proxy.
A person named in a proxy as the attorney or agent of a shareholder may,
if the proxy so provides, substitute another person to act in his, her or its
place, including any other person named as an attorney or agent in the same
proxy. The substitution shall not be effective until an instrument effecting it
is filed with the Secretary of the Corporation.
Section 10. Action by Shareholders Without a Meeting. Whenever the vote of
shareholders at a meeting thereof is required or permitted to be taken in
connection with any corporate action by any provision of the New Jersey Business
Corporation Act or the Certificate of Incorporation, the meeting and the vote of
shareholders may be dispensed with if all the
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shareholders who would have been entitled to vote upon the action if such
meeting were held shall consent in writing to such corporate action being taken,
and in the case of any action to be taken pursuant to Chapter 10 of Title 14A of
the Revised Statutes of the State of New Jersey, the Corporation provides to all
other shareholders the advance notification required by Section 14A:5-6(2)(b) of
the New Jersey Business Corporation Act.
Subject to the provisions of Section 14A:5-6(2) of the New Jersey Business
Corporation Act, whenever the vote of shareholders at a meeting thereof is
required or permitted to be taken in connection with any corporate action by any
provision of the New Jersey Business Corporation Act or the Certificate of
Incorporation, other than the election of directors, the meeting and vote of
shareholders may be dispensed with and the action may be taken without a meeting
upon the written consent of shareholders who would have been entitled to cast
the minimum number of votes which would be necessary to authorize such action at
a meeting at which all shareholders entitled to vote thereon were present and
voting.
Section 11. Conduct at Meetings. At each meeting of shareholders, the
Chairman of the Board of Directors, or in his or her absence any Vice Chairman
of the Board, or in his or her absence the Chief Executive Officer of the
Corporation, or in his or her absence the President of the Corporation, or in
his or her absence any Vice President of the Corporation, or in his or her
absence a chairman chosen by the vote of a majority in interest of the
shareholders present in person or represented by proxy and entitled to vote at
the meeting, shall act as chairman. The Secretary or in his or her absence an
Assistant Secretary or in the absence of the Secretary and all Assistant
Secretaries a person whom the chairman of the meeting shall appoint shall act as
secretary of the meeting and keep a record of the proceedings thereof. The Board
of Directors shall be entitled to make such rules or regulations for the conduct
of meetings of shareholders as it shall deem necessary, appropriate or
convenient. Subject to such rules and regulations, the chairman shall have the
authority to prescribe such rules, regulations and procedures and to do all such
acts as, in the judgment of such chairman, are necessary, appropriate or
convenient for the proper conduct of the meeting, including, without limitation,
establishing: an agenda or order of business for the meeting; rules and
procedures for maintaining order at the meeting and the safety of those present;
limitations on participation in such meeting to shareholders of record of the
Corporation and their duly authorized and constituted proxies, and such other
persons as the chairman shall permit; restrictions on entry at the meeting after
the time fixed for the commencement thereof; limitations on the time allotted to
questions or comments by participants; and regulations with respect to the
opening and closing of the polls for balloting on matters which are to be voted
on by ballot. The chairman shall have absolute authority over matters of
procedure and there shall be no appeal from the ruling of the chairman. The
chairman may rule that a resolution, nomination or motion not be submitted to
the shareholders for a vote unless seconded by a shareholder or a proxy for a
shareholder. The chairman may require that any person who is neither a bona fide
shareholder nor a proxy for a bona fide shareholder leave the meeting, and upon
the refusal of a shareholder to comply with a procedural ruling of the chairman
which the chairman deems necessary for the proper conduct of the meeting, may
require that such shareholder leave the meeting. The chairman may, on his or her
own motion, summarily adjourn any meeting for any period he or she deems
necessary if he or she rules that orderly procedures cannot be maintained at the
meeting. Unless, and to the extent, determined by the Board of Directors or the
chairman of the meeting, meetings of shareholders shall not be required to be
held in accordance with rules of parliamentary procedure.
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Section 12. Procedure Necessary to Bring Business Before an Annual
Meeting. To be properly brought before an annual meeting of shareholders,
business must be either (a) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors, (b)
properly brought before the meeting by or at the direction of the Board, or (c)
properly brought before the meeting by a shareholder. In addition to any other
applicable requirements, for business to be properly brought before an annual
meeting by a shareholder, the shareholder must have given timely notice thereof
in writing, either by personal delivery or by United States mail, postage
prepaid, to the Secretary of the Corporation not less than one hundred and
twenty (120) days in advance of the date of the Corporation's proxy statement
released to shareholders in connection with the previous year's annual meeting
of shareholders; provided, however, that if the Corporation did not release a
proxy statement in connection with the previous year's annual meeting, then the
shareholder must give such notice not later than one hundred and twenty (120)
days prior to the anniversary date of the immediately preceding annual meeting.
A shareholder's notice to the Secretary shall set forth as to each matter the
shareholder proposes to bring before the annual meeting (i) a brief description
of the business desired to be brought before the annual meeting and the reasons
for conducting such business at the annual meeting, (ii) the name and record
address of the shareholder proposing such business, (iii) the class and number
of shares of the Corporation which are beneficially owned by the shareholder,
and (iv) any material interest of the shareholder in such business.
Notwithstanding anything in these By-laws to the contrary, no business
shall be conducted at the annual meeting except in accordance with the
procedures set forth in this Section 12 of this Article II and any other
applicable requirements; provided, however, that nothing in this Section 12 of
this Article II shall be deemed to preclude discussion by any shareholder of any
business properly brought before the annual meeting.
The chairman of an annual meeting shall, if the facts warrant, determine
and declare to the meeting that business was not properly brought before the
meeting in accordance with the provisions of this Section 12 of this Article II
or any other applicable requirements, which determination shall be conclusive,
and, as a result, any such business shall not be transacted.
ARTICLE III
DIRECTORS
Section 1. Number and Election of Directors. The number of directors which
shall constitute the whole Board shall be not less than three (3) nor more than
fifteen (15) directors. The Board, upon adoption of these By-laws, as amended
and restated as of ___________ ___, 2004, shall consist of twelve (12)
directors, and thereafter the number of directors which shall constitute the
whole Board may be increased or decreased by resolution of the Board of
Directors, but shall in no case be less than three (3) directors. The directors
shall be elected at the annual meeting of the shareholders, except as provided
in Section 9 of this Article III, and each director elected shall hold office
until his or her successor is elected and qualifies. Directors need not be
shareholders.
Section 2. Regular Meetings. Regular meetings of the Board of Directors
may be held on five (5) days written notice, at such time as shall be from time
to time determined by the Board, or, if the Chief Executive Officer is also a
member of the Board, the Chief Executive
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Officer. Written notice for any such meeting shall state the place, date and
hour of the meeting and shall be delivered either personally or by first class
mail or overnight courier service.
Section 3. Special Meetings. Special meetings of the Board of Directors
may be called by the Chairman of the Board, any Vice Chairman of the Board, the
Chief Executive Officer or the President and shall be called by the Chief
Executive Officer, the President or the Secretary at the request in writing of
at least three (3) directors. Written notice of any special meeting shall state
the place, date and hour of the meeting and shall be delivered, either
personally or by first class mail or overnight courier service, to each director
at least two (2) days prior to the date thereof.
Section 4. Place of Meeting; Waiver of Notice. Meetings of the Board of
Directors shall be held at such place as shall be designated in the notice of
meeting if notice is required. Notice of any meeting, if required, need not be
given to any director who signs a waiver of notice before or after the meeting.
The attendance of any director at any meeting without the director protesting
prior to the conclusion of such meeting the lack of notice thereof shall
constitute a waiver of notice by such director.
Section 5. Quorum. Except as otherwise provided in the Certificate of
Incorporation, a majority of the directors then in office shall constitute a
quorum for the transaction of business at any meeting of the Board of Directors.
Section 6. Manner of Acting. Except as otherwise provided in the
Certificate of Incorporation or herein, the act of a majority of the directors
present at a meeting at which a quorum is present shall be the act of the Board
of Directors.
Section 7. Action Without a Meeting. Any action required or permitted to
be taken by the Board of Directors or by a committee thereof may be taken
without a meeting if, prior to such action, all of the members of the Board or
committee consent in writing to a resolution authorizing the action. Such
written consents may be executed in counterparts, and shall be filed with the
minutes of the Corporation.
Section 8. Telephonic Attendance at Meeting. Any or all directors may
participate in a meeting of the Board of Directors or a committee of the Board
by means of conference telephone or any means of communication by which all
persons participating in the meeting are able to hear each other.
Section 9. Vacancies. If the office of any director becomes vacant for any
reason, such vacancy shall be filled by a majority vote of the directors
remaining in office.
Section 10. Chairman and Vice Chairmen of the Board. A Chairman of the
Board and one or more Vice Chairmen of the Board may be elected by the Board of
Directors from among its members.
Section 11. Compensation of Directors. The directors may be paid their
expenses, if any, relating to their attendance at meetings of the Board of
Directors, and directors who are not full-time employees of the Corporation may
be paid a fixed sum for attendance at meetings of the Board of Directors or a
stated salary as a director. No such payment shall preclude any
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director from serving the Corporation in any other capacity and receiving
compensation therefor. Members of special or standing committees may be allowed
like compensation for attending committee meetings.
Section 12. Committees of Directors. The Board of Directors may, by
resolution passed by a majority of the Board, designate one or more committees
of the Board of Directors, including an executive committee, each committee to
consist of three (3) or more directors of the Corporation. The Board may
designate one or more directors as alternative members of any committee who may
replace any absent or disqualified member at any meeting of the committee. Any
such committee, to the extent provided in the enabling resolution and permitted
under Section 14A:6-9 of the New Jersey Business Corporation Act, shall have and
may exercise the powers of the Board of Directors in the management of the
business and affairs of the Corporation, and may authorize the seal of the
Corporation to be affixed to all papers which may require it. Such committee or
committees shall have such name or names as may be determined from time to time
by resolution adopted by the Board of Directors. Each committee shall keep
regular minutes of its meetings and report them to the Board of Directors when
required.
ARTICLE IV
OFFICERS
Section 1. Officers. The Corporation's officers shall be a Chief Executive
Officer, a President, a Chief Operating Officer, a Chief Financial Officer and
Treasurer, a Secretary and, if desired, one or more Vice Presidents or such
other officers or agents as the Board of Directors deems necessary or desirable.
The officers shall be elected by the Board of Directors. One person may hold two
(2) or more offices, but the person serving as President may not serve
simultaneously as Secretary.
Section 2. Term; Removal. The officers of the Corporation shall hold
office until their successors are chosen and qualify. The Board of Directors may
remove any officer at any time by the affirmative vote of a majority of the
directors at any meeting of the Board at which there is a quorum, without the
necessity of specifying any cause therefor and without any prior notice of such
action to the person removed.
Section 3. Vacancies. Any vacancy in the Office of the Chief Executive
Officer, the Office of the President or any other office shall be filled by the
Board of Directors.
Section 4. Chief Executive Officer. The Chief Executive Officer shall, in
general, subject to the control of the Board of Directors, supervise and control
all of the business and affairs of the Corporation. All other officers shall be
subject to the authority and supervision of the Chief Executive Officer. The
Chief Executive Officer may enter into and execute in the name of the
Corporation contracts or other instruments not in the regular course of business
which are authorized, either generally or specifically, by the Board of
Directors.
Section 5. President. The President shall, subject to the control of the
Board of Directors and the Chief Executive Officer, supervise and manage the day
to day operations of the Corporation. With the exception of the Chief Executive
Officer, all other officers shall be subject to the authority and supervision of
the President. The President may enter into and
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execute in the name of the Corporation contracts or other instruments not in the
regular course of business which are authorized, either generally or
specifically, by the Board of Directors. The President shall have the general
powers and duties of management usually vested in the office of president of a
corporation.
Section 6. Chief Operating Officer. The Chief Operating Officer shall
perform such duties and possess such powers as shall be assigned him or her by
the Board of Directors or the Chief Executive Officer.
Section 7. Vice Presidents. The Board of Directors may appoint one or more
Vice Presidents, each of whom shall perform such duties and possess such powers
as shall be assigned him or her by the Board of Directors.
Section 8. Chief Financial Officer, Treasurer and Assistant Treasurer. The
Chief Financial Officer, who shall be the Treasurer, shall have charge and
custody of, and be responsible for, all funds and securities of the Corporation,
shall keep or cause to be kept regular books of account for the Corporation and
shall perform such other duties and possess such other powers as are incident to
the office of treasurer or as shall be assigned to him or her by the Board of
Directors. The Assistant Treasurer, or if there shall be more than one, the
Assistant Treasurers, in the order determined by the Board of Directors, shall,
in the absence or disability of the Chief Financial Officer (Treasurer), perform
the duties and exercise the powers of the Chief Financial Officer (Treasurer)
set forth herein and as the Board of Directors from time to time may prescribe.
Section 9. Secretary and Assistant Secretary. The Secretary shall cause
notices of all meetings to be served as prescribed in these By-laws or by
statute, shall keep or cause to be kept the minutes of all meetings of the
shareholders and the Board of Directors, shall have charge of the corporate
records and seal of the Corporation and shall keep a register of the post-office
address of each shareholder which shall be furnished to the Secretary by such
shareholder. The Secretary shall perform such other duties and possess such
other powers as are incident to the office of the secretary or as are assigned
by the Board of Directors. The Assistant Secretary, or if there shall be more
than one, the Assistant Secretaries, in the order determined by the Board of
Directors, shall, in the absence or disability of the Secretary, perform the
duties and exercise the powers of the Secretary set forth herein and as the
Board of Directors from time to time may prescribe.
Section 10. Subordinate officers and Agents. The Board of Directors may
elect or appoint such other officers and agents as the Board shall deem
necessary or desirable, who shall hold their offices for such terms and shall
exercise such powers and perform such duties as shall be determined from time to
time by the Board of Directors.
ARTICLE V
EXECUTION OF DOCUMENTS
Section 1. Commercial Paper and Contracts. All checks, notes, drafts and
other commercial paper of the Corporation shall be signed by the Chief Executive
Officer, the
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President or the Chief Financial Officer (Treasurer) of the Corporation or by
such other person or persons as the Board of Directors may from time to time
designate.
Section 2. Other Instruments. All contracts, deeds, mortgages and other
instruments shall be executed by the Chief Executive Officer, the President, the
Chief Operating Officer, any Vice President or any such other person or persons
as the Board of Directors may from time to time designate, and, if necessary, by
the Secretary or any Assistant Secretary.
ARTICLE VI
FISCAL YEAR
The fiscal year of the Corporation shall end on December 31st of each
year.
ARTICLE VII
CERTIFICATES REPRESENTING SHARES
Certificates representing shares of capital stock of the Corporation shall
be in such form as shall be determined by the Board of Directors and shall be
executed by the Chief Executive Officer, the President or any Vice President and
by the Secretary or the Treasurer, unless the Board of Directors shall direct
otherwise.
ARTICLE VIII
RECORD DATE
For the purpose of determining the shareholders entitled to notice of or
to vote at any meeting of shareholders or any adjournment thereof, or to express
consent to or dissent from any proposal without any meeting or for the purpose
of determining shareholders entitled to receive payment of any dividend or
allotment of any right, or in order to make a determination of shareholders for
any other purpose, the Board of Directors shall fix, in advance, a date as the
record date for any such determination of shareholders. Such date shall not be
more than sixty (60) nor less than ten (10) days before the date of such
meeting, nor more than sixty (60) days prior to any other action or event to
which it relates. When a determination of shareholders of record for a
shareholders' meeting has been made as provided in this Article VIII, such
determination shall apply to any adjournment thereof, unless the Board of
Directors fixes a new record date for the adjourned meeting.
ARTICLE IX
DIVIDENDS
To the extent permitted by applicable laws and regulations, the Board of
Directors may from time to time declare, and the Corporation may pay, dividends
or make other distributions on its outstanding shares of capital stock in the
manner and upon the terms and conditions provided by the Certificate of
Incorporation and by statute.
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ARTICLE X
AMENDMENT
These By-laws may be altered, amended or repealed, or new by-laws may be
adopted by the Board of Directors, at any regular meeting of the Board of
Directors or of any special meeting of the Board of Directors. These By-laws, or
any new By-laws adopted by the Board, may also be altered, amended, or repealed,
or new by-laws may be adopted, by the holders of Common Stock, at any annual or
special meeting if notice of such alteration, amendment, repeal or adoption of
new by-laws is contained in the notice of such meeting.
ARTICLE XI
INDEMNIFICATION
Section 1. The Corporation shall indemnify a corporate agent against his
or her expenses and liabilities actually and reasonably incurred in connection
with the defense of any proceeding involving the corporate agent by reason of
his or her being or having been such a corporate agent, other than a proceeding
by or in the right of the Corporation, if (a) such corporate agent acted in good
faith and in a manner he or she reasonably believed to be in or not opposed to
the best interests of the Corporation and (b) with respect to any criminal
proceeding, such corporate agent had no reasonable cause to believe his or her
conduct was unlawful. The termination of any proceeding by judgment, order,
settlement, conviction or upon a plea of nolo contendere or its equivalent,
shall not of itself create a presumption that such corporate agent did not meet
the applicable standards of conduct set forth in subparagraphs (a) and (b)
herein.
Section 2. The Corporation shall indemnify a corporate agent against his
or her liabilities and expenses, actually or reasonably incurred by him or her
in connection with the defense, in any proceeding, by or in the right of the
Corporation to procure a judgment in its favor which involves the corporate
agent by reason of his or her being or having been such corporate agent, if he
or she acted in good faith and in a manner he or she reasonably believed to be
in or not opposed to the best interests of the Corporation. However, in such
proceeding no indemnification shall be provided in respect of any claim, issue
or matter as to which such corporate agent shall have been adjudged liable to
the Corporation unless and only to the extent that the New Jersey Superior Court
or the court in which such proceeding was brought shall determine upon
application that despite the adjudication of liability, but in view of all
circumstances of the case, such corporate agent is fairly and reasonably
entitled to indemnity for such expenses or liabilities as the New Jersey
Superior Court or such other court shall deem proper.
Section 3. The Corporation shall indemnify a corporate agent against
expenses (including attorneys fees) to the extent that such corporate agent has
been successful on the merits or otherwise in any proceeding referred to in
Sections 1 and 2 of this Article XI or in defense of any claim, issue or matter
therein.
Section 4. Any indemnification under Section 1 of this Article and, unless
ordered by a court, under Section 2 of this Article XI, may be made by the
Corporation only as authorized in
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a specific case upon a determination that indemnification is proper in the
circumstances because the corporate agent met the applicable standard of conduct
set forth in Section 1 or 2 of this Article XI. Such determination shall be
made: (a) by the Board of Directors by a majority vote of a quorum consisting of
directors who were not parties to or otherwise involved in the proceeding; (b)
if such a quorum is not obtainable, or, even if obtainable and such quorum of
the Board of Directors by a majority vote of the disinterested directors so
directs, by independent legal counsel in a written opinion, such counsel to be
designated by the Board of Directors; or (c) by the shareholders.
Section 5. Expenses incurred by a corporate agent in connection with a
proceeding may be paid by the Corporation in advance of the final disposition of
the proceeding, as authorized by the Board of Directors, upon receipt of an
undertaking by or on behalf of the corporate agent to repay such amount unless
it shall ultimately be determined that he or she is entitled to be indemnified
as provided in this Article XI.
Section 6. The indemnification and advancement of expenses provided by or
granted pursuant to the other sections of this Article XI shall not exclude any
other rights to which a corporate agent may be entitled under the Corporation's
Certificate of Incorporation, a By-law, agreement, vote of shareholders, or
otherwise; provided, that no indemnification shall be made to or on behalf of a
corporate agent if a judgment or other final adjudication adverse to the
corporate agent establishes that his or her acts or omissions (a) were in breach
of his or her duty of loyalty to the Corporation or its shareholders, (b) were
not in good faith or involved a knowing violation of law, or (c) resulted in
receipt by the corporate agent of an improper personal benefit.
Section 7. The Corporation shall have the power to purchase and maintain
insurance on behalf of any corporate agent against any expenses incurred in any
proceeding and any liabilities asserted against him or her by reason of his or
her being or having been a corporate agent, whether or not the Corporation would
have the power to indemnify him or her against such expenses and liabilities
under the provisions of this section. The Corporation may purchase such
insurance from, or such insurance may be reinsured in whole or in part by, an
insurer owned by or otherwise affiliated with the Corporation, whether or not
such insurer does business with other insureds.
Section 8. For purposes of this Article XI the following definitions, as
well as all other definitions set forth in N.J.S.A. 14A:3-5 shall apply:
(a) "corporate agent" shall mean any person who is or was a
director, officer, employee or agent of the indemnifying corporation or of any
constituent corporation absorbed by the indemnifying corporation in
consolidation or merger and any person who is or was a director, officer,
trustee, employee or agent of any other enterprise, serving as such at the
request of the indemnifying corporation, or of any such constituent corporation,
or the legal representative of any such director, officer, trustee, employee or
agent. Furthermore, any corporate agent also serving as a "fiduciary" of an
employee benefit plan governed by the Act of Congress entitled "Employee
Retirement Income Security Act of 1974" (ERISA) as amended from time to time,
shall serve in such capacity as a corporate agent, if the Corporation shall have
requested any such person to serve. Additionally, the Corporation shall be
deemed to have requested such person to
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serve as a fiduciary of an employee benefit plan, only where the performance by
such person of his or her duties to the Corporation also imposes duties on, or
otherwise involves services by, such person to the plan or participants or
beneficiaries of the plan.
(b) "other enterprise" shall mean any domestic or foreign
corporation other than the indemnifying corporation, and any partnership, joint
venture, sole proprietorship, trust or other enterprise (including employee
benefit plans governed by ERISA), whether or not for profit, served by a
corporate agent.
ARTICLE XII
LOANS TO AND GUARANTEES OF OBLIGATIONS
OF OFFICERS, DIRECTORS AND EMPLOYEES
To the extent permitted by applicable federal and state laws and
regulations, including corporate and securities laws and regulations, the
Corporation may lend money to, or guarantee any obligation of, or otherwise
assist, any officer or other employee of the Corporation or of any subsidiary,
even if said officer or other employee is also a director of the Corporation or
of any subsidiary, whenever, in the judgment of the Board of Directors, such
loan, guarantee or assistance may reasonably be expected to benefit the
Corporation; such loan, guarantee or assistance, if made to an officer or
employee who is also a director, must be authorized by a majority of the
directors then in office; any such loan, guarantee or other assistance may be
made with or without interest, and may be unsecured, or secured in such manner
as the Board of Directors shall approve, including, without limitation, a pledge
of shares of this Corporation, and may be made upon such other terms and
conditions as the Board may determine; and the proceeds of any such loan may be
applied to the purchase of shares of the Corporation and any shares so purchased
shall be deemed to be fully paid and non-assessable.
ARTICLE XIII
SEAL
The Corporate Seal shall have inscribed thereon the following: "Central
Jersey Bancorp, Incorporated 2000, New Jersey." The seal may be used by causing
it or a facsimile thereof to be impressed or affixed or reproduced or otherwise.
Amended and Restated as of ______________ __, 2004
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
------------------------------------------
Section 14A:2-7 of the New Jersey Business Corporation Act permits a
corporation organized under the laws of the State of New Jersey to limit in the
corporation's certificate of incorporation the personal liability of the
corporation's directors and officers to the corporation and its shareholders.
Monmouth Community Bancorp (the "Registrant") has limited in its Certificate of
Incorporation the personal liability of its directors and officers to the
Registrant and its shareholders to the extent permitted by Section 14A:2-7 of
the New Jersey Business Corporation Act. The Registrant's Certificate of
Incorporation specifically provides that a director or officer of the Registrant
shall have no personal liability to the Registrant or its shareholders for
damages for a breach of fiduciary duty, provided that liability shall not be
eliminated for breaches of the duty of loyalty to the Registrant and its
shareholders, for acts or omissions not in good faith or which involve a knowing
violation of law, or for any transactions from which the director or officer
derived an improper personal benefit.
See Article VI of the Registrant's Certificate of Incorporation, filed as
Exhibit 3.1 to the Registrant's Registration Statement on Form SB-2
(Registration No. 333-87352), effective July 23, 2002, for a complete
description of the limitation on the personal liability of the Registrant's
directors and officers to the Registrant and its shareholders.
Section 14A:3-5 of the New Jersey Business Corporation Act permits a
corporation organized under the laws of the State of New Jersey to indemnify
corporate agents, including directors and officers, against expenses and
liabilities incurred in connection with proceedings brought against any such
person in his or her capacity as an agent of the corporation. In order to be
eligible for indemnification, the corporate agent must have acted in good faith
and with the belief that his or her actions were consistent with the best
interests of the corporation, and in the case of criminal proceedings, the agent
must have acted without reason to believe that his or her actions were unlawful.
Prior to any final determination against the corporate agent, the corporation
may advance funds to pay for the agent's expenses, provided that the agent
agrees to repay the funds if it is ultimately determined that the agent is not
entitled to indemnification. The Registrant's By-laws expressly authorize us to
provide this indemnification to our directors and officers.
The Registrant's By-laws also permit us to purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee or agent of
the Registrant, or is or was serving at the Registrant's request as a director,
officer, employee or agent of another entity, against any liability asserted
against or incurred by such person, in any such capacity or arising from his or
her status as such, whether or not the Registrant would have the power to
indemnify the person against such liability under the By-laws. In that
connection, the Registrant maintains a liability insurance policy providing
coverage for the directors and officers of the Registrant and Monmouth Community
Bank in an amount up to an aggregate limit of $10,000,000 for any single
occurrence.
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See Article XI of the Registrant's By-laws, filed as Exhibit 3.2 to the
Registrant's Registration Statement on Form SB-2 (Registration No. 333-87352),
effective July 23, 2002, for a complete description of the indemnification
provided by the Registrant to its directors and officers.
Item 21. Exhibits and Financial Statement Schedules.
-------------------------------------------
(a) Exhibit Index
Exhibit No. Description of Exhibit
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2.1 Plan of Combination of all of the outstanding stock of
Monmouth Community Bank by the Registrant, entered into as of
March 16, 2000 by Monmouth Community Bank and the Registrant
(Incorporated by reference to Exhibit 2.1 to the Registrant's
Registration Statement on Form SB-2 (Registration No.
333-87352), effective July 23, 2002).
2.2 Agreement and Plan of Acquisition, dated as of June 30, 2004,
by and between the Registrant and Allaire Community Bank
("Allaire"): Upon the request of the Securities and Exchange
Commission, the Registrant agrees to furnish a copy of Exhibit
A - Voting Agreement of Allaire Stockholders and Voting
Agreement of the Registrant's Shareholders; Exhibit B -
Allaire Affiliate Agreement, Exhibit C - Opinion of Giordano,
Halleran & Ciesla, P.C., as counsel to the Registrant, and
Exhibit D - Opinion of Frieri Conroy & Lombardo, LLC, as
counsel to Allaire, and the following Schedules: Schedule
1.10(a) - Composition of the Registrant's Board of Directors;
Schedule 1.10(b) - Composition of Allaire and Monmouth
Community Bank Boards of Directors; Schedule 1.10(c) -
Executive Officers of the Registrant, Allaire and Monmouth
Community Bank; Schedule 3.02(a) - Stock Options (Allaire);
Schedule 3.02(b) - Subsidiaries (Allaire); Schedule 3.08 -
Absence of Changes or Events (Allaire); Schedule 3.09 - Loan
Portfolio (Allaire); Schedule 3.10 - Legal Proceedings
(Allaire); Schedule 3.11 - Tax Information (Allaire); Schedule
3.12(a) - Employee Benefit Plans (Allaire); Schedule 3.12(b) -
Defined Benefit Plans (Allaire); Schedule 3.12(h) - Payments
or Obligations (Allaire); Schedule 3.12(m) - Grantor or
"Rabbi" Trusts (Allaire); Schedule 3.12(n) - Retirement
Benefits (Allaire); Schedule 3.13(c) - Buildings and
Structures (Allaire); Schedule 3.14(a) - Real Estate
(Allaire); Schedule 3.14(b) - Leases (Allaire); Schedule
3.16(a) - Material Contracts (Allaire); Schedule 3.16(c) -
Certain Other Contracts (Allaire); Schedule 3.16(d) - Effect
on Contracts and Consents (Allaire); Schedule 3.18 -
Registration Obligations (Allaire); Schedule 3.20 - Insurance
(Allaire); Schedule 3.21(b) - Benefit or Compensation Plans
(Allaire); Schedule 3.21(d) - Labor Relations (Allaire);
Schedule 3.22 - Compliance with Applicable Laws (Allaire);
Schedule 3.23 - Transactions with Management (Allaire);
Schedule 3.25 - Deposits (Allaire); Schedule 4.02(a) - Stock
Options (Registrant); Schedule 4.02(b) - Subsidiaries
(Registrant); Schedule 4.08 - Absence of Changes or Events
(Registrant); Schedule 4.09 - Loan Portfolio (Registrant);
Schedule 4.10 - Legal
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Proceedings (Registrant); Schedule 4.11 - Tax Information
(Registrant); Schedule 4.12(a) - Employee Benefit Plans
(Registrant); Schedule 4.12(b) - Defined Benefit Plans
(Registrant); Schedule 4.12(g) - Payments or Obligations
(Registrant); Schedule 4.12(l) - Grantor or "Rabbi" Trusts
(Registrant); Schedule 4.12(m) - Retirement Benefits
(Registrant); Schedule 4.13(c) - Buildings and Structures;
(Registrant) Schedule 4.14(a) and 4.14(b) - Real Estate and
Leases (Registrant); Schedule 4.16(a) - Material Contracts
(Registrant); Schedule 4.16(c) - Certain Other Contracts
(Registrant); Schedule 4.16(d) - Effect on Contracts and
Consents (Registrant); Schedule 4.18 - Registration
Obligations (Registrant); Schedule 4.20 - Insurance
(Registrant); Schedule 4.21(b) - Benefit or Compensation Plans
(Registrant); Schedule 4.21(d) - Labor Relations (Registrant);
Schedule 4.22 - Compliance with Applicable Laws (Registrant);
Schedule 4.23 - Transactions with Management (Registrant);
Schedule 4.25 - Deposits (Registrant); Schedule 6.18(a) -
Notice of Deadlines (Allaire); and Schedule 6.18(b) - Notice
of Deadlines (Registrant) (Incorporated by reference to
Exhibit 2.2 to the Registrant's Quarterly Report on Form
10-QSB for the quarter ended June 30, 2004).
3.1 Certificate of Incorporation of the Registrant (Incorporated
by reference to Exhibit 3.1 to the Registrant's Registration
Statement on Form SB-2 (Registration No. 333-87352), effective
July 23, 2002).
3.2 By-laws of the Registrant (Incorporated by reference to
Exhibit 3.2 to the Registrant's Registration Statement on Form
SB-2 (Registration No. 333-87352), effective July 23, 2002).
3.3 Form of Amended and Restated Certificate of Incorporation of
Central Jersey Bancorp (Incorporated by reference to Appendix
F to this Registration Statement on Form S-4).
3.4 Form of Amended and Restated By-Laws of Central Jersey Bancorp
(Incorporated by Reference to Appendix G to this Registration
Statement on Form S-4).
4.1 Specimen certificate representing the Registrant's common
stock, par value $0.01 per share (Incorporated by reference to
Exhibit 4 to the Registrant's Registration Statement on Form
SB-2 (Registration No. 333-87352), effective July 23, 2002).
5.1 Opinion of Giordano Halleran & Ciesla, a Professional
Corporation, including consent of such counsel, regarding the
legality of the securities to be registered.
8.1 Opinion of Giordano Halleran & Ciesla, a Professional
Corporation, including consent of such counsel, regarding
certain tax matters.
II-3
10.1 Registrant's Stock Option Plan (Incorporated by reference to
Exhibit 10.1 to the Registrant's Registration Statement on
Form SB-2 (Registration No. 333-87352), effective July 23,
2002).
x10.2 Lease Agreement between Monmouth Community Bank, as Tenant,
and Anthony S. Amoscato and Geraldine R. Amoscato, as
Landlord, dated December 22, 1998, for the premises located at
700 Allaire Road, Spring Lake Heights, New Jersey
(Incorporated by reference to Exhibit 10.3 to the Registrant's
Registration Statement on Form SB-2 (Registration No.
333-87352), effective July 23, 2002).
x10.3 Lease between Monmouth Community Bank, as Tenant, and MCB
Associates, L.L.C., as Landlord, dated April 1, 1999, for the
premises located at 6 West End Court, Long Branch, New Jersey,
as amended by Addenda dated November 1, 1999, February 1,
2000, April 1, 2000, and July 15, 2000 (Incorporated by
reference to Exhibit 10.4 to the Registrant's Registration
Statement on Form SB-2 (Registration No. 333-87352), effective
July 23, 2002).
x10.4 Shopping Center Lease, Net Building and Land Lease, between
Monmouth Community Bank, as Tenant, and Neptune Realty
Associates, as Landlord, dated September 29, 2000, for the
premises located at the Neptune City Shopping Center, Neptune
City, New Jersey (Incorporated by reference to Exhibit 10.5 to
the Registrant's Registration Statement on Form SB-2
(Registration No. 333-87352), effective July 23, 2002).
x10.5 Lease Agreement (Business and Commercial) between Monmouth
Community Bank, as Tenant, and Frank Santangelo, as Landlord,
dated June 22, 2001, for the premises located at 700 Branch
Avenue, Little Silver, New Jersey (Incorporated by reference
to Exhibit 10.6 to the Registrant's Registration Statement on
Form SB-2 (Registration No. 333-87352), effective July 23,
2002).
x10.6 Services Agreement between Monmouth Community Bank and Bisys,
Inc., dated April 27, 1998, with Additional Services
Agreements and Addenda (Incorporated by reference to Exhibit
10.7 to the Registrant's Registration Statement on Form SB-2
(Registration No. 333-87352), effective July 23, 2002).
x10.7 QuestPoint Check Services Agreement between Monmouth Community
Bank and QuestPoint Check Services, L.P., dated as of August
1, 1998 (Incorporated by reference to Exhibit 10.8 to the
Registrant's Registration Statement on Form SB-2 (Registration
No. 333-87352), effective July 23, 2002).
II-4
10.8 Lease Agreement between Monmouth Community Bank, as Tenant,
and The Ocean Grove Camp Meeting Association of United
Methodist Church, as Landlord, dated July 1, 2002, for the
premises located at 61 Main Avenue, Ocean Grove, New Jersey
(Incorporated by reference to Exhibit 10.9 to the Registrant's
Annual Report on Form 10-KSB for the year ended December 31,
2002).
10.9 Net Lease between Monmouth Community Bank, as Tenant, and
Medical Realty, Inc., as Landlord, dated June 15, 2002, for
the premises located at 3636 Highway 33, Neptune, New Jersey
(Incorporated by reference to Exhibit 10.10 to the
Registrant's Form 10-KSB for the year ended December 31,
2002).
10.10 Indenture between the Registrant and Wilmington Trust Company,
dated March 25, 2004 (Incorporated by reference to Exhibit
10.10 to the Registrant's Form 10-KSB for the year ended
December 31, 2003).
10.11 Amended and Restated Declaration of Trust of MCBK Capital
Trust I, dated March 25, 2004 (Incorporated by reference to
Exhibit 10.11 to the Registrant's Form 10-KSB for the year
ended December 31, 2003).
10.12 Guarantee Agreement by the Registrant and Wilmington Trust
Company, dated March 25, 2004 (Incorporated by reference to
Exhibit 10.12 to the Registrant's Form 10-KSB for the year
ended December 31, 2003).
10.13 Ground Lease, dated March 1, 2004, between J.J.U.D. Inc., as
Lessor, and Monmouth Community Bank, as Lessee, for the
premises located at Ursula Plaza, 444 Ocean Avenue North, Long
Branch, New Jersey.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Giordano Halleran & Ciesla, a Professional
Corporation (included in Exhibit 5.1).
23.2 Consent of Giordano Halleran & Ciesla, a Professional
Corporation, regarding certain tax matters (included in
Exhibit 8.1).
23.3 Consent of KPMG LLP, as to the Registrant's consolidated
financial statements for the years ended December 31, 2003 and
2002.
23.4 Consent of KPMG LLP, as to Allaire's consolidated financial
statements for the years ended December 31, 2003, 2002 and
2001.
23.5 Consent of Sandler O'Neill & Partners, L.P. as to Registrant.
23.6 Consent of Janney Montgomery Scott, LLC as to Allaire.
II-5
24.1 Powers of Attorney of officers and directors of the Registrant
(included in the signature page of this Registration
Statement).
99.1 Voting Agreement of Allaire Stockholders, dated June 30, 2004.
99.2 Voting Agreement of the Registrant's Shareholders, dated June
30, 2004.
99.3 Form of Allaire Affiliate Agreement.
99.4 Consent of George S. Callas to be named as a director.
99.5 Consent of Carl F. Chirico to be named as a director.
99.6 Consent of Robert S. Vuono to be named as a director.
99.7 Consent of Paul A. Larson, Jr. to be named as a director.
99.8 Consent of William H. Jewett to be named as a director.
99.9 Consent of M. Claire French to be named as a director.
99.10 Form of Proxy to be used by Registrant.
99.11 Form of Proxy to be used by Allaire.
- ----------
x Filed with Amendment No. 1 to the Registrant's Registration Statement on
Form SB-2 (Registration No. 333-87352) on June 19, 2002.
II-6
(b) Financial Statement Schedules
-----------------------------
Not applicable.
Item 22. Undertakings.
-------------
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most
recent post effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement.
Notwithstanding the foregoing, any increase or decrease in the
amount of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the Securities and Exchange Commission
pursuant to Rule 424(b) under the Securities Act of 1933, as
amended, if, in the aggregate, the changes in amount and price
represent no more than a 20% change in the maximum aggregate
offering price set forth in the "Calculation of Registration
Fee" table in the effective Registration Statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, as amended, each such post effective
amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
(3) To remove from registration by means of a post effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b)(1) The undersigned Registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons
II-7
who may be deemed underwriters, in addition to the information called for by the
other items of the applicable form.
(2) The Registrant undertakes that every prospectus (i) that is filed pursuant
to paragraph (b)(1) immediately preceding, or (ii) that purports to meet the
requirements of Section 10(a)(3) of the Securities Act of 1933, as amended, and
is used in connection with an offering of securities subject to Rule 415, will
be filed as part of an amendment to the Registration Statement and will not be
used until such amendment is effective, and that, for purposes of determining
any liability under the Securities Act of 1933, as amended, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended, may be permitted to directors, officers, and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act of 1933, as amended, and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment of the Registrant of expenses incurred or paid by a director,
officer, or controlling person of the Registrant in the successful defense of
any action, suit, or proceeding) is asserted by such director, officer, or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by the Registrant is against public
policy as expressed in the Securities Act of 1933, as amended, and will be
governed by the final adjudication of such issue.
(d) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through the
date of responding to the request.
(e) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
II-8
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant has duly caused this Registration Statement on Form S-4 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Long Branch, the State of New Jersey, on September 30, 2004.
MONMOUTH COMMUNITY BANCORP
By: /s/ James S. Vaccaro
------------------------------------
Name: James S. Vaccaro
Title: Chairman and Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints James S. Vaccaro and Richard O. Lindsey and each
of them, his true and lawful attorneys-in-fact and agents for him and in his
name, place an stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement on Form
S-4, and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as they might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signatures Title Date
---------- ----- ----
/s/ James S. Vaccaro Chairman of the Board of September 30, 2004
------------------------------------- Directors and Chief Executive
James S. Vaccaro Officer (Principal Executive
Officer)
/s/ Anthony Giordano, III Executive Vice President, Chief September 30, 2004
------------------------------------- Financial Officer, Treasurer and
Anthony Giordano, III Secretary (Principal Financial
and Accounting Officer)
/s/ Richard O. Lindsey President and Director September 30, 2004
-------------------------------------
Richard O. Lindsey
II-9
Signatures Title Date
---------- ----- ----
/s/ John A. Brockriede Director September 30, 2004
-------------------------------------
John A. Brockriede
/s/ James G. Aaron Director September 30, 2004
-------------------------------------
James G. Aaron
/s/ Mark R. Aikins Director September 30, 2004
-------------------------------------
Mark R. Aikins
/s/ Nicholas A. Alexander Director September 30, 2004
-------------------------------------
Nicholas A. Alexander
/s/ John F. McCann Director September 30, 2004
-------------------------------------
John F. McCann
/s/ Harold M. Miller, Jr. Director September 30, 2004
-------------------------------------
Harold M. Miller, Jr.
/s/ Carmen M. Penta Director September 30, 2004
-------------------------------------
Carmen M. Penta
/s/ Mark G. Solow Director September 30, 2004
-------------------------------------
Mark G. Solow
II-10
EXHIBIT INDEX
Exhibit No. Description of Exhibit
----------- ----------------------
2.1 Plan of Combination of all of the outstanding stock of Monmouth
Community Bank by the Registrant, entered into as of March 16, 2000
by Monmouth Community Bank and the Registrant (Incorporated by
reference to Exhibit 2.1 to the Registrant's Registration Statement
on Form SB-2 (Registration No. 333-87352), effective July 23, 2002).
2.2 Agreement and Plan of Acquisition, dated as of June 30, 2004, by and
between the Registrant and Allaire Community Bank ("Allaire"): Upon
the request of the Securities and Exchange Commission, the
Registrant agrees to furnish a copy of Exhibit A - Voting Agreement
---------
of Allaire Stockholders and Voting Agreement of the Registrant's
Shareholders; Exhibit B - Allaire Affiliate Agreement, Exhibit C -
--------- ---------
Opinion of Giordano, Halleran & Ciesla, P.C., as counsel to the
Registrant, and Exhibit D - Opinion of Frieri Conroy & Lombardo,
---------
LLC, as counsel to Allaire, and the following Schedules: Schedule
--------
1.10(a) - Composition of the Registrant's Board of Directors;
-------
Schedule 1.10(b) - Composition of Allaire and Monmouth Community
----------------
Bank Boards of Directors; Schedule 1.10(c) - Executive Officers of
the Registrant, Allaire and Monmouth Community Bank; Schedule
--------
3.02(a) - Stock Options (Allaire); Schedule 3.02(b) - Subsidiaries
-------
(Allaire); Schedule 3.08 - Absence of Changes or Events (Allaire);
-------------
Schedule 3.09 - Loan Portfolio (Allaire); Schedule 3.10 - Legal
------------- -------------
Proceedings (Allaire); Schedule 3.11 - Tax Information (Allaire);
-------------
Schedule 3.12(a) - Employee Benefit Plans (Allaire); Schedule
---------------- ---------
3.12(b) - Defined Benefit Plans (Allaire); Schedule 3.12(h) -
------- ----------------
Payments or Obligations (Allaire); Schedule 3.12(m) - Grantor or
----------------
"Rabbi" Trusts (Allaire); Schedule 3.12(n) - Retirement Benefits
----------------
(Allaire); Schedule 3.13(c) - Buildings and Structures (Allaire);
----------------
Schedule 3.14(a) - Real Estate (Allaire); Schedule 3.14(b) - Leases
---------------- ----------------
(Allaire); Schedule 3.16(a) - Material Contracts (Allaire); Schedule
---------------- --------
3.16(c) - Certain Other Contracts (Allaire); Schedule 3.16(d) -
------- ----------------
Effect on Contracts and Consents (Allaire); Schedule 3.18 -
-------------
Registration Obligations (Allaire); Schedule 3.20 - Insurance
-------------
(Allaire); Schedule 3.21(b) - Benefit or Compensation Plans
----------------
(Allaire); Schedule 3.21(d) - Labor Relations (Allaire); Schedule
---------------- --------
3.22 - Compliance with Applicable Laws (Allaire); Schedule 3.23 -
---- -------------
Transactions with Management (Allaire); Schedule 3.25 - Deposits
-------------
(Allaire); Schedule 4.02(a) - Stock Options (Registrant); Schedule
--------------- --------
4.02(b) - Subsidiaries (Registrant); Schedule 4.08 - Absence of
------- -------------
Changes or Events (Registrant); Schedule 4.09 - Loan Portfolio
-------------
(Registrant); Schedule 4.10 - Legal Proceedings (Registrant);
-------------
Schedule 4.11 - Tax Information (Registrant); Schedule 4.12(a) -
------------- ----------------
Employee Benefit Plans (Registrant); Schedule 4.12(b) - Defined
----------------
Benefit Plans (Registrant); Schedule 4.12(g) - Payments or
----------------
Obligations (Registrant); Schedule 4.12(l) - Grantor or "Rabbi"
----------------
Trusts (Registrant); Schedule 4.12(m) - Retirement Benefits
----------------
(Registrant); Schedule 4.13(c) - Buildings and Structures;
---------------
(Registrant) Schedule 4.14(a) and 4.14(b) -
------------------------------
Real Estate and Leases (Registrant); Schedule 4.16(a) - Material
----------------
Contracts (Registrant); Schedule 4.16(c) - Certain Other Contracts
----------------
(Registrant); Schedule 4.16(d) - Effect on Contracts and Consents
---------------
(Registrant); Schedule 4.18 - Registration Obligations (Registrant)
-------------;
Schedule 4.20 - Insurance (Registrant); Schedule 4.21(b) - Benefit
------------- ----------------
or Compensation Plans (Registrant); Schedule 4.21(d) - Labor
----------------
Relations (Registrant); Schedule 4.22 - Compliance with Applicable
-------------
Laws (Registrant); Schedule 4.23 - Transactions with Management
-------------
(Registrant); Schedule 4.25 - Deposits (Registrant); Schedule
------------- --------
6.18(a) - Notice of Deadlines (Allaire); and Schedule 6.18(b) -
------ ------------------
Notice of Deadlines (Registrant) (Incorporated by reference to
Exhibit 2.2 to the Registrant's Quarterly Report on Form 10-QSB for
the quarter ended June 30, 2004).
3.1 Certificate of Incorporation of the Registrant (Incorporated by
reference to Exhibit 3.1 to the Registrant's Registration Statement
on Form SB-2 (Registration No. 333-87352), effective July 23, 2002).
3.2 By-laws of the Registrant (Incorporated by reference to Exhibit 3.2
to the Registrant's Registration Statement on Form SB-2
(Registration No. 333-87352), effective July 23, 2002).
3.3 Form of Amended and Restated Certificate of Incorporation of Central
Jersey Bancorp (Incorporated by reference to Appendix F to this
Registration Statement on Form S-4).
3.4 Form of Amended and Restated By-Laws of Central Jersey Bancorp
(Incorporated by Reference to Appendix G to this Registration
Statement on Form S-4).
4.1 Specimen certificate representing the Registrant's common stock, par
value $0.01 per share (Incorporated by reference to Exhibit 4 to the
Registrant's Registration Statement on Form SB-2 (Registration No.
333-87352), effective July 23, 2002).
5.1 Opinion of Giordano Halleran & Ciesla, a Professional Corporation,
including consent of such counsel, regarding the legality of the
securities to be registered.
8.1 Opinion of Giordano Halleran & Ciesla, a Professional Corporation,
including consent of such counsel, regarding certain tax matters.
10.1 Registrant's Stock Option Plan (Incorporated by reference to Exhibit
10.1 to the Registrant's Registration Statement on Form SB-2
(Registration No. 333-87352), effective July 23, 2002).
x10.2 Lease Agreement between Monmouth Community Bank, as Tenant, and
Anthony S. Amoscato and Geraldine R. Amoscato, as Landlord, dated
December 22, 1998, for the premises located at 700 Allaire Road,
Spring Lake Heights, New Jersey (Incorporated by reference to
Exhibit 10.3 to the Registrant's Registration Statement on Form SB-2
(Registration No. 333-87352), effective July 23, 2002).
x10.3 Lease between Monmouth Community Bank, as Tenant, and MCB
Associates, L.L.C., as Landlord, dated April 1, 1999, for the
premises located at 6 West End Court, Long Branch, New Jersey, as
amended by Addenda dated November 1, 1999, February 1, 2000, April
1, 2000, and July 15, 2000 (Incorporated by reference to Exhibit
10.4 to the Registrant's Registration Statement on Form SB-2
(Registration No. 333-87352), effective July 23, 2002).
x10.4 Shopping Center Lease, Net Building and Land Lease, between
Monmouth Community Bank, as Tenant, and Neptune Realty Associates,
as Landlord, dated September 29, 2000, for the premises located at
the Neptune City Shopping Center, Neptune City, New Jersey
(Incorporated by reference to Exhibit 10.5 to the Registrant's
Registration Statement on Form SB-2 (Registration No. 333-87352),
effective July 23, 2002).
x10.5 Lease Agreement (Business and Commercial) between Monmouth
Community Bank, as Tenant, and Frank Santangelo, as Landlord, dated
June 22, 2001, for the premises located at 700 Branch Avenue, Little
Silver, New Jersey (Incorporated by reference to Exhibit 10.6 to the
Registrant's Registration Statement on Form SB-2 (Registration No.
333-87352), effective July 23, 2002).
x10.6 Services Agreement between Monmouth Community Bank and Bisys,
Inc., dated April 27, 1998, with Additional Services Agreements and
Addenda (Incorporated by reference to Exhibit 10.7 to the
Registrant's Registration Statement on Form SB-2 (Registration No.
333-87352), effective July 23, 2002).
x10.7 QuestPoint Check Services Agreement between Monmouth Community
Bank and QuestPoint Check Services, L.P., dated as of August 1, 1998
(Incorporated by reference to Exhibit 10.8 to the Registrant's
Registration Statement on Form SB-2 (Registration No. 333-87352),
effective July 23, 2002).
10.8 Lease Agreement between Monmouth Community Bank, as Tenant, and The
Ocean Grove Camp Meeting Association of United Methodist Church, as
Landlord, dated July 1, 2002, for the premises located at 61 Main
Avenue, Ocean Grove, New Jersey (Incorporated by reference to
Exhibit 10.9 to the Registrant's Annual Report on Form 10-KSB for
the year ended December 31, 2002).
10.9 Net Lease between Monmouth Community Bank, as Tenant, and Medical
Realty, Inc., as Landlord, dated June 15, 2002, for the premises
located at 3636 Highway 33, Neptune, New Jersey (Incorporated by
reference to Exhibit 10.10 to the Registrant's Form 10-KSB for the
year ended December 31, 2002).
10.10 Indenture between the Registrant and Wilmington Trust Company, dated
March 25, 2004 (Incorporated by reference to Exhibit 10.10 to the
Registrant's Form 10-KSB for the year ended December 31, 2003).
10.11 Amended and Restated Declaration of Trust of MCBK Capital Trust I,
dated March 25, 2004 (Incorporated by reference to Exhibit 10.11 to
the Registrant's Form 10-KSB for the year ended December 31, 2003).
10.12 Guarantee Agreement by the Registrant and Wilmington Trust Company,
dated March 25, 2004 (Incorporated by reference to Exhibit 10.12 to
the Registrant's Form 10-KSB for the year ended December 31, 2003).
10.13 Ground Lease, dated March 1, 2004, between J.J.U.D. Inc., as
Lessor, and Monmouth Community Bank, as Lessee, for the premises
located at Ursula Plaza, 444 Ocean Avenue North, Long Branch, New
Jersey.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Giordano Halleran & Ciesla, a Professional Corporation
(included in Exhibit 5.1).
23.2 Consent of Giordano Halleran & Ciesla, a Professional Corporation,
regarding certain tax matters (included in Exhibit 8.1).
23.3 Consent of KPMG LLP, as to the Registrant's consolidated financial
statements for the years ended December 31, 2003 and 2002.
23.4 Consent of KPMG LLP, as to Allaire's consolidated financial
statements for the years ended December 31, 2003, 2002 and 2001.
23.5 Consent of Sandler O'Neill & Partners, L.P. as to Registrant.
23.6 Consent of Janney Montgomery Scott, LLC as to Allaire.
24.1 Powers of Attorney of officers and directors of the Registrant
(included in the signature page of this Registration Statement).
99.1 Voting Agreement of Allaire Stockholders, dated June 30, 2004.
99.2 Voting Agreement of the Registrant's Shareholders, dated June 30,
2004.
99.3 Form of Allaire Affiliate Agreement.
99.4 Consent of George S. Callas to be named as a director.
99.5 Consent of Carl F. Chirico to be named as a director.
99.6 Consent of Robert S. Vuono to be named as a director.
99.7 Consent of Paul A. Larson, Jr. to be named as a director.
99.8 Consent of William H. Jewett to be named as a director.
99.9 Consent of M. Claire French to be named as a director.
99.10 Form of Proxy to be used by Registrant.
99.11 Form of Proxy to be used by Allaire.
- ------------------------------------------------
x Filed with Amendment No. 1 to the Registrant's Registration Statement on Form
SB-2 (Registration No. 333-87352) on June 19, 2002.