SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (MARK ONE) |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended March 31, 2003 OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File No. 001-16197 PEAPACK-GLADSTONE FINANCIAL CORPORATION (Exact name of registrant as specified in its charter) New Jersey 22-3537895 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 158 Route 206 North, Gladstone, New Jersey 07934 (Address of principal executive offices, including zip code) (908) 234-0700 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_|. Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-d). Yes |X| No |_|. Number of shares of Common stock outstanding as of May 1, 2003: 6,803,219
PEAPACK-GLADSTONE FINANCIAL CORPORATION PART 1 FINANCIAL INFORMATION <TABLE> <CAPTION> Item 1 Financial Statements: <S> <C> Consolidated Statements of Condition March 31, 2003 and December 31, 2002 Page 3 Consolidated Statements of Income for the three months ended March 31, 2003 and 2002 Page 4 Consolidated Statements of Changes in Shareholders' Equity for the three months ended March 31, 2003 and 2002 Page 5 Consolidated Statements of Cash Flows for the three months ended March 31, 2003 and 2002 Page 6 Notes to the Consolidated Financial Statements Page 7 Item 2 Management Discussion and Analysis of Financial Condition and Results of Operations Page 8 Item 3 Quantitative and Qualitative Disclosures about Market Risk Page 11 Item 4 Controls and Procedures Page 11 PART 2 OTHER INFORMATION Item 6 Exhibits and Reports on Form 8-K Page 11 </TABLE> 2
PEAPACK-GLADSTONE FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF CONDITION (Dollars in thousands) (Unaudited) <TABLE> <CAPTION> March 31, December 31, 2003 2002 ------------ ------------ <S> <C> <C> ASSETS Cash and due from banks $ 24,746 $ 17,920 Federal funds sold 13,928 20,400 ------------ ------------ Total cash and cash equivalents 38,674 38,320 Interest-earning deposits 698 549 Investment Securities:(approximate market value $165,967 in 2003 and $171,290 in 2002) 162,912 168,066 Securities Available for Sale 263,172 212,259 Loans: Loans secured by real estate 369,775 379,150 Other loans 30,288 30,610 ------------ ------------ Total loans 400,063 409,760 Less: Allowance for loan losses 4,983 4,798 ------------ ------------ Net loans 395,080 404,962 Premises and equipment, net 14,613 14,371 Accrued interest receivable 4,901 4,606 Cash surrender value 15,948 15,747 Other assets 1,282 928 ------------ ------------ TOTAL ASSETS $ 897,280 $ 859,808 ============ ============ LIABILITIES Deposits: Noninterest-bearing demand deposits $ 134,059 $ 126,107 Interest-bearing deposits: Checking 124,117 136,956 Savings 102,275 94,142 Money market accounts 199,838 173,973 Certificates of deposit over $100,000 61,883 59,607 Certificates of deposit less than $100,000 175,323 178,903 ------------ ------------ Total deposits 797,495 769,688 Borrowed Funds 11,000 5,000 Accrued expenses and other liabilities 9,390 7,962 ------------ ------------ TOTAL LIABILITIES 817,885 782,650 SHAREHOLDERS' EQUITY Common stock (no par value; stated value $0.83 per share; authorized 20,000,000 shares; issued shares, 6,802,823 at March 31, 2003 and 6,800,041 at December 31, 2002; outstanding shares, 6,704,984 at March 31, 2003 and 6,702,523 at December 31, 2002) 5,664 5,661 Surplus 38,536 38,385 Treasury Stock at cost, 97,839 shares in 2003 and 97,518 shares in 2002 (2,031) (2,020) Retained Earnings 32,946 30,290 Accumulated other comprehensive income, net of income tax 4,280 4,842 ------------ ------------ TOTAL SHAREHOLDERS' EQUITY 79,395 77,158 ------------ ------------ TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 897,280 $ 859,808 ============ ============ </TABLE> See accompanying notes to consolidated financial statements. 3
PEAPACK-GLADSTONE FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF INCOME (Dollars in thousands, except share data) (Unaudited) Three months ended March 31, 2003 2002 ---------- ---------- INTEREST INCOME Interest and fees on loans $ 6,538 $ 7,320 Interest on investment securities: Taxable 1,406 649 Tax-exempt 110 91 Interest on securities available for sale: Taxable 2,430 2,389 Tax-exempt 89 80 Interest-earning deposits 1 132 Interest on federal funds sold 28 29 ---------- ---------- Total interest income 10,602 10,690 INTEREST EXPENSE Interest on savings account deposits 972 958 Interest on certificates of deposit over $100,000 430 556 Interest on other time deposits 1,226 1,409 Interest on borrowed funds 56 58 ---------- ---------- Total interest expense 2,684 2,981 ---------- ---------- NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES 7,918 7,709 Provision for loan losses 150 199 ---------- ---------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 7,768 7,510 ---------- ---------- OTHER INCOME Service charges and fees for other services 408 410 Trust department income 1,443 1,146 Securities gains 273 17 Bank owned life insurance 220 197 Other income 213 197 ---------- ---------- Total other income 2,557 1,967 OTHER EXPENSES Salaries and employee benefits 3,237 2,927 Premises and equipment 1,081 970 Other expense 1,165 1,235 ---------- ---------- Total other expenses 5,483 5,132 ---------- ---------- INCOME BEFORE INCOME TAX EXPENSE 4,842 4,345 Income tax expense 1,582 1,384 ---------- ---------- NET INCOME $ 3,260 $ 2,961 ========== ========== EARNINGS PER SHARE Basic $ 0.49 $ 0.44 Diluted $ 0.47 $ 0.44 Average basic shares outstanding 6,704,722 6,658,804 Average diluted shares outstanding 6,898,151 6,774,361 See accompanying notes to consolidated financial statements. 4
PEAPACK-GLADSTONE FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Dollars in thousands) (Unaudited) Three Months Ended March 31, 2003 2002 -------- -------- Balance, Beginning of Period $ 77,158 $ 63,085 Comprehensive income: Net Income 3,260 2,961 -------- -------- Unrealized holding losses on securities arising during the period, net of tax (385) (1,374) Less: Reclassification adjustment for gains included in net income, net of tax (177) (11) -------- -------- (562) (1,385) -------- -------- Total Comprehensive income 2,698 1,576 Common Stock Options Exercised 31 177 Purchase of Treasury Stock (11) (197) Cash Dividends Declared (603) (499) Tax Benefit on Disqualifying and Nonqualifying Exercise of Stock Options 122 -- -------- -------- Balance, March 31, $ 79,395 $ 64,142 ======== ======== See accompanying notes to consolidated financial statements. 5
PEAPACK-GLADSTONE FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) (Unaudited) Three Months Ended March 31, 2003 2002 -------- -------- OPERATING ACTIVITIES: Net Income: $ 3,260 $ 2,961 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 368 312 Amortization of premium and accretion of discount on securities, net 706 143 Provision for loan losses 150 199 Gains on security sales (273) (17) Increase in cash surrender value of life insurance (201) (181) (Increase)/decrease in accrued interest receivable (295) 315 (Increase)/decrease in other assets (354) 2,182 Increase in other liabilities 1,963 3,780 -------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES 5,324 9,694 -------- -------- INVESTING ACTIVITIES: Proceeds from maturities of investment securities 15,707 3,232 Proceeds from maturities of securities available for sale 6,355 1,570 Proceeds from calls of investment securities 165 1,220 Proceeds from calls of securities available for sale 8,825 19,650 Proceeds from sales of securities available for sale 15,918 1,538 Purchase of investment securities (11,251) (15,783) Purchase of securities available for sale (82,886) (67,089) Net (increase)/decrease in short-term investments (149) 15,162 Net decrease/(increase) in loans 9,732 (9,118) Purchases of premises and equipment (610) (272) -------- -------- NET CASH USED IN INVESTING ACTIVITIES (38,194) (49,890) -------- -------- FINANCING ACTIVITIES: Net increase in deposits 27,807 45,653 Net increase in borrowed funds 6,000 -- Dividends paid (603) (499) Exercise of stock options 31 177 Purchase of Treasury Stock (11) (197) -------- -------- NET CASH PROVIDED BY FINANCING ACTIVITIES 33,224 45,134 -------- -------- Net increase in cash and cash equivalents 354 4,938 Cash and cash equivalents at beginning of period 38,320 19,983 -------- -------- Cash and cash equivalents at end of period $ 38,674 $ 24,921 ======== ======== Supplemental disclosures of cash flow information: Cash paid during the year for: Interest $ 3,149 $ 2,509 Income taxes -- -- See accompanying notes to consolidated financial statements. 6
PEAPACK-GLADSTONE FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Certain information and footnote disclosures normally included in the unaudited consolidated 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. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the December 31, 2002 Annual Report on Form 10-K for Peapack-Gladstone Financial Corporation (the "Corporation"). Principles of Consolidation: The Corporation considers that all adjustments (all of which are normal recurring accruals) necessary for a fair presentation of the statement of the financial position and results of operations in accordance with accounting principals generally accepted in the United States for these periods have been made. Results for such interim periods are not necessarily indicative of results for a full year. The consolidated financial statements of Peapack-Gladstone Financial Corporation are prepared on the accrual basis and include the accounts of the Corporation and its wholly owned subsidiary, the Peapack-Gladstone Bank. All significant intercompany balances and transactions have been eliminated from the accompanying consolidated financial statements. Allowance for Loan Losses: The allowance for loan losses is maintained at a level that management considers adequate to reflect the risk of future losses inherent in the Corporation's loan portfolio. In its evaluation of the adequacy of the allowance for loan losses, management considers past loan loss experience, changes in the composition of non-performing loans, the condition of borrowers facing financial pressure, the relationship of the current level of the allowance to the credit portfolio and to non-performing loans and existing economic conditions. The process of determining the adequacy of the allowance is a critical accounting policy of the Corporation and is necessarily judgmental and subject to changes in external conditions. The allowance is increased by provisions charged to expense and reduced by net charge-offs. Stock Option Plans: At March 31, 2003, the Corporation had stock-based employee and non-employee director compensation plans. The Corporation 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 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 the grant. The following table illustrates the effect on net income and earnings per share for the periods indicated if the Corporation had applied the fair value recognition provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation, to stock-based employee compensation: <TABLE> <CAPTION> Three Months Ended March 31, (In Thousands Except per Share Data) 2003 2002 -------- -------- <S> <C> <C> Net Income: As Reported $ 3,260 $ 2,961 Less: Total Stock-Based Employee Compensation Expense Determined under the Fair Value Based Method on all Stock Options, Net of Related Tax Effects 48 62 -------- -------- Pro Forma $ 3,212 $ 2,899 Earnings Per Share: As Reported Basic $ 0.49 $ 0.44 Diluted $ 0.47 $ 0.44 Pro Forma Basic $ 0.48 $ 0.44 Diluted $ 0.47 $ 0.43 </TABLE> 7
Earnings per Common Share - Basic and Diluted: Basic earnings per share is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding. Diluted earnings per share includes any additional common shares as if all potentially dilutive common shares were issued (i.e., stock options). All share and per share amounts have been restated to reflect all prior stock dividends and stock splits. Comprehensive Income: The difference between the Corporation's net income and total comprehensive income for the three months ended March 31, 2003 and 2002 relates to the change in the net unrealized gains and losses on securities available for sale during the applicable period of time less adjustments for realized gains. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL: The foregoing contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are not historical facts and include expressions about management's confidence and strategies and management's expectations about new and existing programs and products, relationships, opportunities and market conditions. These statements may be identified by such forward-looking terminology as "expect", "believe", or similar statements or variations of such terms. Actual results may differ materially from such forward-looking statements. Factors that may cause actual results to differ materially from those contemplated by such forward-looking statements include, among others, the following possibilities: o Competitive pressure in the banking industry causes unanticipated adverse changes. o A downturn in the economy of New Jersey causes customers to default in the payment of their loans or causes loans to become impaired. o Loss of key managers or employees. o Loss of major customers or failure to develop new customers. o A decrease in loan quality and loan origination volume. o An increase in non-performing loans. The Corporation assumes no responsibility to update such forward-looking statements in the future. RESULTS OF OPERATIONS: The Corporation realized earnings of $0.47 per diluted share for the first quarter ended March 31, 2003, an increase of 6.8 percent over the $0.44 per diluted share for the first quarter of 2002. Net income increased 10.1 percent to $3.3 million for the quarter compared with $3.0 million for the first quarter of 2002. First quarter results produced an annualized return on average assets of 1.51 percent and an annualized return on average equity of 16.64 percent. EARNINGS ANALYSIS NET INTEREST INCOME: Net interest income before the provision for loan losses rose 2.7 percent to $7.9 million in the first quarter of 2003 as compared to $7.7 million in the first quarter of 2002. Net interest margin, on a fully tax-equivalent basis, decreased to 3.95 percent from 4.57 percent in the first quarter of 2002. Average interest earning assets increased $138.1 million or 20.4 percent for the quarter ended March 31, 2003 as compared to the same period in 2002. This was primarily due to an increase in average investment securities, which increased $164.6 million, or 69.0 percent, as compared to March 31, 2002. Partially offsetting this increase were lower average loans, which declined $17.7 million or 4.2 percent from the year ago period. This decline was due to higher levels of residential mortgage pay-offs resulting from falling interest rates. The liquidity from strong deposit growth continued to be deployed into short and intermediate term securities. Average interest-bearing liabilities for the quarter ended March 31, 2003 increased $115.6 million or 21.5 percent from the same period in 2002. At March 31, 2003, total deposits grew to an average of $769.6 million from an average of $642.1 million at March 31, 2002, an increase of $127.5 million or 19.9 percent. Average balances in each category of interest-bearing deposits increased as money market accounts, certificates of deposits, interest-bearing checking and savings accounts increased by $69.8 million, $23.5 million, $12.0 million and $10.0 million, respectively. Federal Home Loan Bank advances were $8.3 million on average for the first quarter of 2003 as compared to $8.0 million in the same quarter a year ago. Average demand deposits increased $12.2 million or 10.9 percent as compared to the first quarter of 2002. Average interest rates earned on interest earning assets declined 112 basis points to 5.27 percent in the first quarter 2003 from 6.39 percent earned in the first quarter of 2002. The average interest rates earned on loans declined 48 basis points and average rates earned on investment securities declined 144 basis points in the first quarter of 2003 8
as compared with the same period in 2002. The average interest rate paid on interest-bearing liabilities declined to 1.64 percent in the first quarter of 2003 as compared to 2.21 percent in the same period in 2002. The average rate paid on certificates of deposits declined 89 basis points and average rates paid on tiered money market accounts declined 63 basis points in the first quarter of 2003 as compared with the same period in 2002. The cost of funds fell to 1.38 percent in the first quarter of 2003 as compared to 1.83 percent in the first quarter of 2002. This continuing lower interest rate environment is the result of the Federal Reserve lowering interest rates on several occasions during the past two years. OTHER INCOME: Other income amounted to $2.6 million for the quarter ended March 31, 2003 while the comparable amount for the prior year period was $2.0 million. PGB Trust and Investments, the Bank's trust division, generated gross fees of $1.4 million for the first quarter of 2003 as compared to $1.1 million in the first quarter of 2002, an increase of 25.9 percent. This increase was primarily due to an increase in trust assets under management. Service charges and fees remained constant at $408 thousand for the quarter ended March 31, 2003 as compared to $410 thousand for the prior year quarter. In the fourth quarter of 2002, the Corporation invested an additional $2.8 million in Bank Owned Life Insurance (BOLI) to assist in offsetting the rising cost of employee benefits. For the first quarter of 2003, income rose 11.7 percent over the same period in 2002 to $220 thousand due to this additional investment. The Corporation realized $273 thousand of securities gains during the first quarter of 2003 as compared to $17 thousand for the first quarter of 2002. The following table presents the components of other income for the three months ended March 31, 2003 and 2002: Three Months Ended March 31, (In Thousands) 2003 2002 -------- -------- Trust Department Fees $ 1,443 $ 1,146 Service Charges on Deposit Accounts 408 410 Other Fee Income 92 91 Bank Owned Life Insurance 220 197 Other Non-Interest Income 61 47 Safe Deposit Rental Fees 60 59 Securities Gains 273 17 -------- -------- Total Other Income $ 2,557 $ 1,967 ======== ======== OTHER EXPENSES: Other expenses totaled $5.5 million for the quarter ended March 31, 2003, an increase of $351 thousand or 6.8 percent from the comparable 2002 period. The largest component of other expense are salaries and employee benefits expense which totaled $3.2 million for the quarter ended March 31, 2003 as compared to $2.9 million in the first quarter of 2002. This 10.6 percent increase can be attributed to additions to the professional staff, upward salary adjustments to attract and retain highly qualified employees and the opening of a new branch location, in addition to higher health insurance and pension costs. Premises and equipment expense increased $111 thousand or 11.4 percent, from $970 thousand for the quarter ended March 31, 2002 to $1.1 million for the quarter ended March 31, 2003. This increase can be attributed to an overall increase in the cost of operating bank facilities including the aforementioned new branch location. The significant components of other expense include professional fees, trust department expense, advertising, telephone, postage and stationery expense which totaled $697 thousand and $773 thousand for the quarters ended March 31, 2003 and 2002, respectively. The following table presents the components of other expense for the three months ended March 31, 2003 and 2002: 9
Three Months Ended March 31, (In Thousands) 2003 2002 -------- -------- Salaries and Benefits $ 3,237 $ 2,927 Premises and Equipment 1,081 970 Advertising 93 173 Stationery and Supplies 124 119 Professional Fees 151 238 Trust Department 136 106 Telephone 88 59 Postage 105 78 Other Expense 468 462 -------- -------- Total Other Expense $ 5,483 $ 5,132 ======== ======== NON-PERFORMING ASSETS: Other real estate owned (OREO), loans past due in excess of 90 days and still accruing, and non-accrual loans are considered non-performing assets. These assets totaled $188 thousand and $433 thousand at March 31, 2003 and 2002, respectively. Loans past due in excess of 90 days and still accruing are in the process of collection and are well secured. The following table sets forth non-performing assets on the dates indicated, in conjunction with asset quality ratios: March 31, (In thousands) 2003 2002 -------------------- Loans past due in excess of 90 days and still accruing $ 15 $ 216 Non-accrual loans 173 217 -------- -------- Total non-performing assets $ 188 $ 433 ======== ======== Non-performing loans as a % of total loans 0.05% 0.10% Non-performing assets as a % of total Loans plus other real estate owned 0.05% 0.10% Allowance as a % of loans 1.25% 0.99% PROVISION FOR LOAN LOSSES: For the three months ended March 31, 2003 and 2002, the provision for loan losses was $150 thousand and $199 thousand, respectively. The amount of the loan loss provision and the level of the allowance for loan losses are based upon a number of factors including Management's evaluation of potential losses in the portfolio, after consideration of appraised collateral values, financial condition and past credit history of the borrowers as well as prevailing and anticipated economic conditions. Net recoveries were $35 thousand for the first quarter of 2003 as compared to net charge-offs of $22 thousand during the same period of 2002. A summary of the allowance for loan losses for the three-month period ended March 31, follows: (In thousands) 2003 2002 ---- ---- Balance, January 1, $ 4,798 $ 4,023 Provision charged to expense 150 199 Loans charged off (3) (25) Recoveries 38 3 -------- -------- Balance, March 31, $ 4,983 $ 4,200 ======== ======== INCOME TAXES: Income tax expense as a percentage of pre-tax income was 33 percent for the three months ended March 31, 2003 and 32 percent for the three months ended March 31, 2002. The increase in the effective tax rate is due to changes in the state tax rates in New Jersey. Income taxes increased 14.3 percent from $1.38 million in 2002 to $1.58 million in 2003, reflecting higher taxable income. CAPITAL RESOURCES: The Corporation is committed to maintaining a strong capital position. At March 31, 2003, total shareholders' equity, including net unrealized gains, was $79.4 million, representing a 23.8 percent increase over the same period in 2002. The Federal Reserve Board has adopted risk-based capital guidelines for banks. The minimum guideline for the ratio of total capital to risk-weighted assets is 8 percent. At least half of the total capital is 10
to be comprised of common stock, retained earnings, minority interests in the equity accounts of consolidated subsidiaries, non-cumulative preferred stock, less goodwill and certain other intangibles ("Tier 1 Capital"). The remainder may consist of other preferred stock, certain other instruments and a portion of the loan loss allowance. At March 31, 2003, the Corporation's Tier 1 Capital and Total Capital ratios were 20.04 percent and 21.38 percent, respectively. In addition, the Federal Reserve Board has established minimum leverage ratio guidelines. These guidelines provide for a minimum ratio of Tier 1 Capital to average total assets of 3 percent for banks that meet certain specified criteria, including having the highest regulatory rating. All other banks are generally required to maintain a leverage ratio of at least 3 percent plus an additional 100 to 200 basis points. The Corporation's leverage ratio at March 31, 2003, was 8.62 percent. LIQUIDITY: Liquidity refers to an institution's ability to meet short-term requirements in the form of loan requests, deposit withdrawals and maturing obligations. Principal sources of liquidity include cash, temporary investments and securities available for sale. Management's opinion is that the Corporation's liquidity position is sufficient to meet future needs. Cash and cash equivalents, interest-earning deposits and federal funds sold totaled $39.4 million at March 31, 2003. In addition, the Corporation has $263.2 million in securities designated as available for sale. These securities can be sold in response to liquidity concerns. Book value as of March 31, 2003, of investment securities and securities available for sale maturing within one year amounted to $6.4 million and $5.9 million, respectively. The primary source of funds available to meet liquidity needs is the Corporation's core deposit base, which excludes certificates of deposit greater than $100 thousand. As of March 31, 2003, core deposits equaled $735.6 million. Another source of liquidity is borrowing capacity. The Corporation has a variety of sources of short-term liquidity available, including federal funds purchased from correspondent banks, short-term and long-term borrowings from the Federal Home Loan Bank of New York, access to the Federal Reserve Bank discount window and loan participations or sales of loans. The Corporation also generates liquidity from the regular principal payments made on its mortgage-backed security and loan portfolios. ITEM 3. Quantitative and Qualitative Disclosures about Market Risk There have been no material changes to information required regarding quantitative and qualitative disclosures about market risk from the end of the preceding fiscal year to the date of the most recent interim financial statements (March 31, 2003). ITEM 4. Controls and Procedures Based on their evaluation of the Corporation's disclosure controls and procedures in the 90 days prior to the date hereof, the Corporation's principal executive officer and principal financial officer have determined that such controls and procedures are effective. No significant change has occurred in the Corporation's internal controls since the date of the evaluation that could significantly affect these controls subsequent to the date of the evaluation. PART II. OTHER INFORMATION ITEM 6. Exhibits and Reports on Form 8-K (a) Exhibits (3) (i) Articles of Incorporation A. Restated Certificate of Incorporation of the Corporation, as in effect on the date of this filing. (ii) By-Laws A. By-Laws of the Corporation, as in effect on the date of this filing (incorporated by reference to the Corporation's Annual Report on Form 10-K for the year ended December 31, 1997 filed with the Securities and Exchange Commission on March 31, 1998 (Exhibit 3.2)). (10) Material Contracts A. Employment Agreement dated January 1, 2003 by and among Peapack-Gladstone Financial Corporation, Peapack-Gladstone Bank, and Garrett P. Bromley. (b) Reports on Form 8-K None 11
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PEAPACK-GLADSTONE FINANCIAL CORPORATION (Registrant) DATE: May 13, 2003 By: ------------------------------------------------- FRANK A. KISSEL Chairman of the Board and Chief Executive Officer DATE: May 13, 2003 By: ------------------------------------------------- ARTHUR F. BIRMINGHAM Executive Vice President and Chief Financial Officer 12
CERTIFICATIONS I, Frank A. Kissel, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Peapack-Gladstone Financial Corporation; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 13, 2003 - ---------------------------- Frank A. Kissel Chairman of the Board and Chief Executive Officer 13
I, Arthur F. Birmingham, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Peapack-Gladstone Financial Corporation; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 13, 2003 - ---------------------------- Arthur F. Birmingham Executive Vice President and Chief Financial Officer 14
RESTATED CERTIFICATE OF INCORPORATION OF PEAPACK-GLADSTONE FINANCIAL CORPORATION The undersigned, being over the age of eighteen years, in order to form a corporation pursuant to the provisions of the New Jersey Business Corporation Act, does hereby execute this Certificate of Incorporation: ARTICLE I CORPORATE NAME The name of the corporation is Peapack-Gladstone Financial Corporation. ARTICLE II CORPORATE PURPOSE 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 New Jersey Business Corporation Act (the "Act"). ARTICLE III CAPITAL STOCK The aggregate number of shares which the corporation shall have authority to issue is 20,000,000 shares of common stock, without nominal or par value. ARTICLE IV REGISTERED AGENT AND REGISTERED ADDRESS The address of the corporation's initial registered office is 158 Route 206 North, Gladstone, New Jersey 07934, and the name of the corporation's initial registered agent at such address is Frank A. Kissel. ARTICLE V INITIAL BOARD OF DIRECTORS The number of directors constituting the first board is twelve (12), and the names and addresses of the persons who are to serve as such directors are: Name Address ---- ------- Pamela Hill 158 Route 206 North Gladstone, NJ 07934 T. Leonard Hill 158 Route 206 North Gladstone, NJ 07934 Frank A. Kissel 158 Route 206 North Gladstone, NJ 07934 15
John D. Kissel 158 Route 206 North Gladstone, NJ 07934 James R. Lamb 158 Route 206 North Gladstone, NJ 07934 George R. Layton 158 Route 206 North Gladstone, NJ 07934 Edward A. Merton 158 Route 206 North Gladstone, NJ 07934 F. Duffield Meyercord 158 Route 206 North Gladstone, NJ 07934 John R. Mulcahy 158 Route 206 North Gladstone, NJ 07934 Philip W. Smith III 158 Route 206 North Gladstone, NJ 07934 Jack D. Stine 158 Route 206 North Gladstone, NJ 07934 William Turnbull 158 Route 206 North Gladstone, NJ 07934 The number of directors shall be governed by the by-laws of the corporation. ARTICLE VI EXCULPATION AND INDEMNIFICATION No director or officer of the corporation, or of a subsidiary of the corporation, shall be personally liable to the corporation or to its shareholders for damages for breach of any duty owed to the corporation or its shareholders unless such breach of duty is based on an act or omission (a) in breach of such person's duty of loyalty to the corporation (and/or its subsidiary) 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 benefit. Unless expressly prohibited by law, the corporation shall indemnify a director or officer of the corporation or of a subsidiary of the corporation against his reasonable expenses and all liabilities in connection with any proceeding involving that director or officer of the corporation or a wholly-owned subsidiary of the corporation, including a proceeding by or in the right of the corporation or its wholly-owned subsidiary, unless such breach of duty is based on an act or omission (a) in breach of such person's duty of loyalty to the corporation or its stockholders; (b) not in good faith or involving a knowing violation of law; or (c) resulting in receipt by such person of an improper 16
personal benefit. The corporation shall advance or pay those reasonable expenses incurred by such director or officer in a proceeding as and when incurred, provided, however, that the director or officer shall, as a condition to receipt of such advances, undertake to repay all amounts advanced if it shall finally be adjudicated that the breach of duty by the director or officer was based upon an act or omission (a) in breach of such person's duty of loyalty to the corporation (and/or its subsidiary) or its stockholders; (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. ARTICLE VIII SHAREHOLDER VOTE ON CERTAIN TRANSACTIONS In addition to any affirmative vote required by law or this certificate of incorporation, and except as set forth below, the affirmative vote of the holders of 80% of each class of stock of the corporation, entitled to vote in elections of directors, shall be required for all of the following: (i) any merger or consolidation of the corporation with or into any other corporation, banking institution, person or entity; or (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or series of transactions) of assets or of the deposit liabilities of the corporation which, in the case of either assets or of deposit liabilities, total 10% or more of the value of the assets or of the deposit liabilities of the corporation on a consolidated basis to any other corporation, banking institution, person or entity; or (iii) any sale, lease, exchange, mortgage pledge, transfer or other disposition (in one transaction or a series of transactions) to the corporation of any assets of any other corporation, banking institution, person or entity in exchange for voting securities (or securities convertible into or exchangeable for voting securities or any options, warrants or rights to purchase any of the same) of the bank constituting (after giving effect to any conversion, exchange or right) 5% or more of the outstanding voting securities of the corporation; or (iv) any reclassification of securities, or recapitalization of the corporation proposed by, on behalf of or pursuant to any arrangement with any other corporation, banking institution, person or entity which has the effect, directly or indirectly, of increasing the proportionate share of the outstanding securities of the corporation of which that other corporation, banking institution, person or entity is the beneficial owner; or (v) the issuance (in one transaction or a series of transactions) to any other corporation, banking institution, person or entity, of voting securities (or securities convertible into or exchangeable for voting securities or 17
any options, warrants or rights to purchase any of the same) of the corporation constituting (after giving effect to any conversion, exchange or right) 5% or more of the outstanding voting securities of the corporation; or (vi) the adoption of any plan or proposal for the liquidation or dissolution of the corporation proposed by, on behalf of or pursuant to any arrangement with any other corporation, banking institution, person or entity; if, in any such case, as of the record date for the determination of stockholders entitled to notice thereof and to vote thereon or consent thereto, such other corporation, banking institution, person or entity is: (a) the beneficial owner, directly or indirectly, of more than 5% of the outstanding shares of any class of stock of the corporation entitled to vote in the election of directors or the assignee of, or otherwise the successor to, any shares of such stock of the corporation from a corporation, banking institution, person or entity which within the two-year period immediately prior to such record date was a more than 5% beneficial owner (where any such assignment or succession occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of that term under the Securities Act of 1933, as amended); or (b) is an affiliate (as defined subsequently in this Article) of the corporation and at any time within the two-year period immediately prior to such record date was the beneficial owner, directly or indirectly, of more than 5% of the outstanding shares of any class of stock of the corporation entitled to vote in the election of directors. Such affirmative vote shall be required notwithstanding the fact that no vote may be required, or that a lesser percentage may be specified, by law or in an agreement, if any, with any national securities exchange or otherwise. For the purpose, but only for the purpose of determining whether a corporation, banking institution, person or other entity is "the beneficial owner, directly or indirectly, of more than 5% of the outstanding shares of stock of the corporation entitled to vote in elections of directors," within this Article: (x) any corporation, banking institution, person or other entity shall be deemed to be the beneficial owner of any shares of stock of the corporation (i) which it has the right to acquire pursuant to any agreement, or upon the exercise of conversion rights, warrants or options, or otherwise, or (ii) which are beneficially owned, directly or indirectly (including shares deemed owned through application of clause (i), above), by any other corporation, person or entity with which it or its "affiliate" or "associate" (as defined below) has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of stock of the corporation, or which is its "affiliate" or "associate" as those terms are defined in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934 as in effect on the date of this Amendment; and (y) the outstanding shares of any class of stock of the corporation shall include shares deemed owned through application of clauses (i) and (ii) above. 18
The Board of Directors of the corporation shall have the power and duty to determine for the purposes of this Article on the basis of information known to the corporation, whether: (i) such other corporation, banking institution, person or other entity beneficially owns more than 5% of the outstanding shares of any class of stock of the corporation entitled to vote in elections of directors, (ii) a corporation, banking institution, person or entity is an "affiliate" or "associate" (as defined above) of another, and (iii) the value of any assets or of deposit liabilities of the corporation proposed sales, lease, exchange, mortgage, pledge, transfer or other disposition exceed 10% of the corporation's assets or deposit liabilities, as the case may be. Any such determination shall be conclusive and binding for all purposes of this Article. The provisions of this Article shall not be applicable to: (i) any merger or consolidation of the corporation with or into any other banking institution or corporation, or any sale or lease of assets or deposit liabilities of the corporation to, or any sale or lease to the corporation or any subsidiary thereof in exchange for securities of the corporation of any assets of, any other corporation, banking institution, person or entity, if at least two-thirds of the members of the entire Board of Directors of the corporation shall, by resolution, have approved such transaction prior to the time that such other corporation, banking institution, person or entity shall have become the beneficial owner, directly or indirectly, of more than 5% of the outstanding shares of any class of stock of the corporation entitled to vote in elections of directors; or (ii) any merger or consolidation of the corporation or any subsidiary thereof into or with, or any sale, lease, exchange, mortgage, pledge, transfer or other disposition of the assets of the corporation to, any other banking institution or corporation of which a majority of the outstanding shares of all classes of stock entitled to vote in elections of directors is owned of record or beneficially by the corporation and its subsidiaries (if any) and so long as, if the corporation is not the surviving banking institution, each beneficial owner of shares of stock of the corporation receives the same type of consideration in such transaction and the provisions of this Article are continued in effect or adopted by such surviving banking institution as part of its certificate of incorporation (and its certificate of incorporation have no provisions inconsistent with this Article as continued or adopted) or (iii) any transaction involving the corporation or its assets or deposit liabilities required or ordered by any Federal or state regulatory agency; provided the Board of Directors referred to in (i) of this paragraph passing upon such transaction shall be comprised of a majority of continuing directors, i.e., members of such Board who were elected by the stockholders of the corporation prior to that time, that any such stockholder became the beneficial owner, directly or indirectly, of more than 5% of any class of the stock of the corporation, entitled to vote in elections of directors, or who were appointed to succeed a continuing director by a majority of continuing directors. 19
No amendment to the Certificate of Incorporation of the corporation shall amend, alter, change or repeal any of the provisions of this Article unless the amendment effecting such amendment, alteration, change or repeal shall receive the affirmative vote of the holders of 80% of each class of stock of the corporation entitled to vote in elections of directors. ARTICLE IX NAME AND ADDRESS OF THE INCORPORATOR The name and address of the incorporator is Frank A. Kissel, 158 Route 206 North, Gladstone, New Jersey 07934. IN WITNESS WHEREOF, the undersigned has executed this Certificate of Incorporation this 14th day of August, 1997 -------------------------------- Frank A. Kissel, Incorporator 20
PEAPACK-GLADSTONE EMPLOYMENT AGREEMENT OF GARRETT BROMLEY This EMPLOYMENT AGREEMENT (this "Agreement") dated January 1, 2003, by and between Peapack-Gladstone Financial Corporation ("PGFC") and Peapack-Gladstone Bank (the "Bank") (PGFC and the Bank are collectively referred to herein as the "Company"), and Garrett P. Bromley (the "Executive"), whose home address is 54 Baptist Church Road, Hampton, New Jersey. WITNESSETH: WHEREAS, the Executive is willing to continue to serve as the Executive Vice President and Chief Lending Officer of the Company and the Company desires to retain the Executive in that capacity on the terms and conditions herein set forth; and NOW, THEREFORE, in consideration of the mutual covenants contained herein, the parties agree as follows: Section 1. Term of Employment. This Agreement shall be effective as of the date hereof and, subject to earlier termination as specified herein, shall continue until December 31, 2005. Section 2. Position and Duties. During the Term, the Executive shall serve as the Executive Vice President and Chief Lending Officer of the Company. The Executive shall have such powers and duties as are commensurate with such position and as may be conferred upon him by the Board of Directors of the Company (the "Board"). During the Term, the Executive shall devote all of his business time, attention, skill and efforts exclusively to the business and affairs of the Company and its subsidiaries. Notwithstanding the foregoing, the Executive may engage in charitable, educational, religious, civic and similar types of activities, speaking engagements, membership on the board of directors of other organizations, and similar activities to the extent that such activities do not inhibit the performance of his duties hereunder or conflict in any material way with the business of the Company and its subsidiaries. Section 3. Compensation. For all services rendered by the Executive in any capacity required hereunder during the Term, including, without limitation, services as an executive officer, director, or member of any committee of the Company or any of its subsidiaries, the Executive shall be compensated as follows: (a) The Company shall pay the Executive a fixed salary at a rate per annum equal to $135,000.00 ("Base Salary"). The Base Salary shall be increased by 3% per year to $139,050.00 for the calendar year 2004 and $143,221.50 for the calendar year 2005. Base Salary shall be payable bi-weekly. (b) The Company shall pay the Executive a bonus with respect to each calendar year for which he is employed under this Agreement determined as follows: bonus equal to 10% of Base Salary if 90% of Company's budget is achieved and 20% of Base Salary if 100% of Company's budget is achieved. The bonus shall be paid when other employee bonuses are paid or such later date as is mutually agreed to by the Company and the Executive. (c) The Executive shall be entitled to five weeks of vacation in each calendar year during the Term. The Executive shall not be entitled to carryover vacation from one year to another or to any payment in respect of any unused vacation. (d) The Executive shall be entitled to participate in all compensation and employee benefit plans for which any salaried employees of the Company are eligible. Notwithstanding the foregoing, nothing in this Agreement shall preclude the amendment or termination of any such plan or program. Section 4. Business Expenses. The Company shall pay or reimburse the Executive for all reasonable entertainment, travel or other expenses incurred by the Executive in connection with the performance of his duties under this Agreement, subject to the Executive's presentation of appropriate documentation in accordance with such procedures as the Company may from time to time establish. Section 5. Termination of Employment. (a) The Company shall have the right, upon delivery of written notice to the Executive, to terminate the Executive's employment hereunder prior to the expiration of the Term: (i) pursuant to a Termination for Cause, or (ii) upon the Executive's Permanent Disability, or (iii) pursuant to a Without Cause Termination. 21
(b) The Executive shall have the right, upon delivery of written notice to the Company 30 days in advance of the proposed termination date, to terminate the Executive's employment hereunder prior to the expiration of the Term in the Executive's sole discretion. (c) The Executive's employment hereunder shall terminate automatically without action by any party hereto upon the Executive's death. (d) For purposes of this Agreement, the following terms have the following meanings: "Termination for Cause" means a termination of the Executive's employment by the Company because the Executive has (a) materially failed to perform the duties assigned to him hereunder or imposed upon him by applicable law, and such failure to perform constitutes self-dealing, willful misconduct or recklessness, (b) committed an act of dishonesty in the performance of his duties hereunder or engaged in conduct materially detrimental to the business of the Company, (c) been convicted of a felony or a misdemeanor involving moral turpitude, (d) materially failed to perform his duties hereunder, which breach or failure the Executive shall fail to remedy within 30 days after written demand from the Company, (e) knowingly failed to follow lawful, written directives of the Board, or (f) engaged in any material employment act or practice, including but not limited to sexual harassment, forbidden by the Company in its employment manual as revised from time to time. "Without Cause Termination" means a termination of the Executive's employment by the Company other than due to Permanent Disability, retirement or expiration of the Term and other than a Termination for Cause. "Permanent Disability" means permanently disabled so as to qualify for full benefits under the Company's then-existing disability insurance policy. If the Company does not maintain any such policy on the date of termination, "Permanent Disability" shall mean the inability of the Executive to work for a period of four full calendar months during any eight consecutive calendar months due to illness or injury of a physical or mental nature, supported by the completion by the Executive's attending physician of a medical certification form outlining the disability and treatment. Section 6. Benefits Upon Termination. (a) In lieu of any severance that may otherwise be payable to the Executive pursuant to any policies of the Company, whether existing on the date hereof or in effect from time to time hereafter, in the event that the Company terminates the Executive's employment pursuant to a Without Cause Termination, the Company shall continue to pay the Executive's Base Salary for a period (the "Severance Period") equal to the longer of (A) the remainder of the Term, or (B) one year from the effective date of such termination. The Executive also shall be entitled to any earned but unpaid Base Salary as of the effective date of termination of employment. No other payments shall be made, or benefits provided, by the Company under this Agreement except as otherwise required by law or the Company's benefit plans. (b) In the event that the Company terminates the Executive's employment pursuant to a Permanent Disability, the Company shall pay the Executive any earned but unpaid Base Salary as of the date of termination of employment. No other payments shall be made, or benefits provided, by the Company under this Agreement except as otherwise required by law or the Company's benefit plans. (c) In the event that the Company terminates the Executive's employment pursuant to a Termination for Cause or the Executive terminates his employment with the Company (including, without limitation, pursuant to any retirement), the Company shall pay the Executive any earned but unpaid Base Salary as of the date of termination of employment. No other payments shall be made, or benefits provided, by the Company under this Agreement or otherwise except to the extent required by law or the Company's benefit plans. (d) In the event that the Executive's employment hereunder is terminated due to the Executive's death, the Company shall pay the Executive's executor or other legal representative (the "Representative") any earned but unpaid Base Salary as of the date of termination of employment. No other payments shall be made, or benefits provided, by the Company whether under this Agreement or otherwise except to the extent required by law or the Company's benefit plans. (e) Any payments to be made or benefits to be provided by the Company pursuant to this Section 6 (other than in the event of the Executive's death or Permanent Disability) are subject to the receipt by the Company of an effective general release and agreement not to sue, in a form reasonably satisfactory to the Company and the Executive (the "Release") pursuant to which the Executive agrees (i) to release all claims against the Company and certain related parties (excluding claims for (x) indemnification under the Company's Certificate of Incorporation or by-laws or (y) any severance benefits payable hereunder), (ii) not to maintain any action, suit, claim or proceeding against the Company, its subsidiaries and affiliates and certain related parties, and (iii) to be bound by certain confidentiality and mutual non-disparagement covenants specified therein. Notwithstanding the due date of any post-employment payment, the Company shall not be obligated to make any payments under this Section 6 until after the expiration of any revocation period applicable to the Release. (f) The Executive shall not be required to mitigate the severance payments to be made to him hereunder and if the Executive obtains other employment while receiving severance payments hereunder he shall continue to be entitled to the benefits of this Agreement. 22
Section 7. Confidential Information. The Executive and the Company agree that all information pertaining to the affairs, business, clients, or customers of the Company or any of its subsidiaries, other than information that the Company has previously made publicly available, is confidential information belonging to the Company and is a unique and valuable asset of the Company. Both during the Term hereof and thereafter, the Executive shall not, except to the extent reasonably necessary in the performance of his duties for the Company during the Term, disclose any information concerning the affairs, businesses, clients, or customers of the Company or its subsidiaries, or make use of any such information for his own purposes or for the benefit of any other person, firm, or corporation. All records, memoranda, letters, books, papers, reports, or other data, and other records and documents relating to the Company or its subsidiaries, whether made by the Executive or otherwise coming into his possession, shall remain the property of the Company, no copies thereof shall be made which are not retained by the Company, and the Executive agrees, on termination of his employment not to retain any copies and deliver all such confidential information in his possession to the Company. Section 8. Non-Compete; Non-Solicitation. (a) During the period (the "Restricted Period") commencing on the termination of his employment for any reason whatsoever during the Term and ending two years thereafter, the Executive shall not, without express prior written consent of the Company, directly or indirectly, own or hold any proprietary interest in, or be employed by or receive remuneration from, any corporation, partnership, sole proprietorship or other entity (collectively, an "entity") "engaged in competition" (as defined below) with the Company or any of its subsidiaries (a "Competitor"). For purposes of the preceding sentence, (i) the term "proprietary interest" means direct or indirect ownership of an equity interest in an entity other than ownership of less than 2 percent of any class stock in a publicly-held entity, and (ii) an entity shall be considered to be "engaged in competition" if such entity is, or is a holding company for or a subsidiary of an entity which is engaged in the business of (A) providing banking, trust services, asset management advice, or similar financial services to consumers, businesses individuals or other entities, and (B) the entity, holding company or subsidiary maintains any physical offices for the transaction of such business located within 50 miles of the main office of the Company. (b) During the Restricted Period, the Executive shall not, without express prior written consent of the Company, solicit or assist any other person in soliciting for the account of any Competitor, any customer or client of the Company or any of its subsidiaries. (c) During the Restricted Period, the Executive shall not, without the express prior written consent of the Company, directly or indirectly, (i) solicit or assist any third party in soliciting for employment any person employed by the Company or any of its subsidiaries at the time of the termination of the Executive's employment (collectively, "Employees"), (ii) employ, attempt to employ or materially assist any third party in employing or attempting to employ any Employee, or (iii) otherwise act on behalf of any Competitor to interfere with the relationship between the Company or any of its subsidiaries and their respective Employees. (d) The Executive acknowledges that the restrictions contained in this Section 8 are reasonable and necessary to protect the legitimate interests of the Company and that any breach by the Executive of any provision contained in this Section 8 will result in irreparable injury to the Company for which a remedy at law would be inadequate. Accordingly, the Executive acknowledges that the Company shall be entitled to temporary, preliminary and permanent injunctive relief against the Executive in the event of any breach or threatened breach by the Executive of the provisions of this Section 8, in addition to any other remedy that may be available to the Company whether at law or in equity. With respect to any provision of this Section 8 finally determined by a court of competent jurisdiction to be unenforceable, such court shall be authorized to reform this Agreement or any provision hereof so that it is enforceable to the maximum extent permitted by law. If the covenants of Section 8 are determined to be wholly or partially unenforceable in any jurisdiction, such determination shall not be a bar to or in any way diminish the Company's right to enforce such covenants in any other jurisdiction and shall not bar or limit the enforceability of any other provisions. (e) The provisions of this Section 8 shall survive the termination of the Executive's employment with the Company for any reason whatsoever so long as the termination of employment occurs during the Term. If there is no termination of Executive's employment during the Term, the provisions of this Section 8 shall expire and be of no further force and effect after the Term. The Company shall not be required to post any bond or other security in connection with any proceeding to enforce the provisions of this Section 8. Section 9. Withholdings. The Company may directly or indirectly withhold from any payments made under this Agreement all Federal, State, City or other taxes and all other deductions as shall be required pursuant to any law or regulation or pursuant to any contributory benefit plan maintained by or on behalf of the Company. Section 10. Notices. All notices, requests, demands and other communications required or permitted hereunder shall be given in writing and shall be deemed to have been duly given if delivered or mailed, postage prepaid, by same day or overnight mail (i) if to the Executive, at the address set forth above, or (ii) if to the Company, as follows: Frank A. Kissel, Chairman & CEO Peapack-Gladstone Bank 158 Route 206 North Gladstone, NJ 07934 23
or to such other address as either party shall have previously specified in writing to the other. Section 11. Binding Agreement; Assignment. This Agreement shall be binding upon and shall inure to the benefit of, the Executive and the Company and its successors and permitted assigns. This Agreement is personal to the Executive and may not be assigned by him. The Company may assign its rights and obligations under this Agreement in connection with a sale of all or substantially all of the business of PGFC or the Bank. Any successor to the Company by merger or consolidation shall be entitled to the benefits of this Agreement. Section 12. Governing Law. This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of New Jersey, without reference to the choice of law principles thereof. Section 13. Dispute Resolution. At the option of either the Company or the Executive, any dispute, controversy or question arising under, out of or relating to this Agreement, the Executive's employment or termination of employment, including but not limited to any and all statutory claims involving workplace discrimination or wrongful discharge, but excluding claims pursuant to Sections 7 or 8 hereof, shall be referred for decision by arbitration in the State of New Jersey by a neutral arbitrator mutually selected by the parties hereto. Any arbitration proceeding shall be governed by the Rules of the American Arbitration Association then in effect or such last in effect (in the event such Association is no longer in existence). If the parties are unable to agree upon such a neutral arbitrator within 21 days after either party has given the other written notice of the desire to submit the dispute, controversy or question for decision as aforesaid, then either party may apply to the American Arbitration Association for a final and binding appointment of a neutral arbitrator; however, if such Association is not then in existence or does not act in the matter within 45 days of any such application, either party may apply to a judge of the local court where the Bank is headquartered for an appointment of a neutral arbitrator to hear the parties and such judge is hereby authorized to make such appointment. In the event that either party exercises the right to submit a dispute, controversy or question arising hereunder to arbitration, the decision of the neutral arbitrator shall be final, conclusive and binding on all interested persons and no action at law or in equity shall be instituted or, if instituted, further prosecuted by either party other than to enforce the award of the neutral arbitrator. The award of the neutral arbitrator may be entered in any court that has jurisdiction. The Executive and the Company shall each bear all their own costs (including the fees and disbursements of counsel) incurred in connection with any such arbitration and shall each pay one-half of the costs of any arbitrator. Section 14. Entire Agreement. This Agreement shall constitute the entire agreement among the parties with respect to the matters covered hereby and shall supersede all previous written, oral or implied understandings among them with respect to such matters. Section 15. Amendments. This Agreement may only be amended or otherwise modified, and compliance with any provision hereof may only be waived, by a writing executed by all of the parties hereto. The provisions of this Section 15 may only be amended or otherwise modified by such a writing. Section 16. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, and all of which shall together be deemed to constitute one and the same instrument. Section 17. Effect on Change-in-Control Agreement. Notwithstanding anything else to the contrary in this Agreement, if the Change-in-Control Agreement between the Company and the Executive, dated as of January 1, 1998, becomes effective under Section 13b thereof due to a Change-in-Control of the Company (as defined therein), while the Executive remains employed by the Company, this Agreement, including, without limitation, Sections 7 and 8 hereof, shall no longer be effective in any respect but instead the relationship between the Executive and the Company shall be governed by the Change-in-Control Agreement. If the Executive is terminated prior to a Change-in-Control of the Company, then Sections 7 and 8 hereof shall survive the Change-in-Control in accordance with the terms of Sections 7 and 8 hereof. IN WITNESS WHEREOF, PGFC and the Bank have caused this Agreement to be duly executed by the undersigned, thereunto duly authorized, and the Executive has signed this Agreement, all as of the date first written above. WITNESS PEAPACK-GLADSTONE FINANCIAL CORPORATION ____________________________ By: ___________________________ Secretary PEAPACK-GLADSTONE BANK ____________________________ By: ___________________________ Secretary - ---------------------------- -------------------------------- EXECUTIVE 24