Document:

Exhibit
4.1

THIS PROMISSORY
NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES 

ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS.

THIS PROMISSORY
NOTE IS ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON 

TRANSFER AND OTHER PROVISIONS AS SET FORTH HEREIN.

	
  

 	
  

 
	
 US$100,000.00

 	
 March 26, 2012 

 
	
 Somerville, New Jersey

 	
  

 

PROMISSORY
NOTE

          FOR
VALUE RECEIVED, the undersigned, CONOLOG CORPORATION, a corporation
incorporated under the laws of the State of Delaware (the “Borrower”), hereby
promises to pay to the order of ROBERT S. BENOU, an individual residing at 525
Hillside Ave. Mountainside, NJ. 07092
(the “Lender”) on the Termination Date (as defined below), the unpaid principal
amount of the loan made by the Lender to the Borrower on March 26, 2012, as
evidenced hereby, in the principal aggregate amount of one hundred thousand
United States Dollars (US$100,000.00) (the “Loan”). 

          Section
1. Certain Terms Defined.The following terms for all
purposes of this Promissory Note shall have the respective meanings specified
below. 

          ”Business Day” means any day except a
Saturday, Sunday or other day on which commercial banks in New York, New York
are authorized by law to close. 

          ”Default” means any event which, with the
giving of notice, lapse of time, determination of materiality or fulfillment of
any other applicable condition (or any combination of the foregoing), would
constitute an Event of Default. 

          ”Event of Default” has the meaning given to
it in Section 9. 

          ”Material Adverse Effect” means a material
adverse effect on (a) the business, operations, prospects, condition (financial
or otherwise) or property of the Borrower, (b) the validity or enforceability
of any provision of this Promissory Note, (c) the ability of the Borrower to
timely perform its obligations hereunder, or (d) the rights and remedies of the
Lender under this Promissory Note. 

          ”Person” means and includes any natural
person, individual, partnership, joint venture, corporation, trust, limited
liability company, limited company, joint stock company, unincorporated
organization, government entity or any political subdivision or agency thereof,
or any other entity. 

          ”Promissory Note” means this promissory
note. 

          ”Termination Date” means the fifth (5th)
Business Day following the date upon which the Lender notifies the Borrower, in
writing, that this Promissory Note and all amounts of principal owed hereunder
are due. 

          Section
2. Maturity of the Loan. The
Loan shall mature, and the principal amount thereof shall be due and payable on
the Termination Date. 

          Section
3. Interest Payments. No
interest shall accrue or be payable under this Promissory Note. 

          Any
overdue principal on the Loan shall bear interest, payable on demand, for each
day until paid at a rate per annum equal to the lesser of (i) the maximum
interest rate permitted by applicable law and (ii) six percent (6.00%) (the
“Default Rate”). 

          Interest
shall be computed on the basis of a year of 360 days and paid for the actual
number of days elapsed (including the first day but excluding the last day). 

          Section
4. Optional Prepayments. The Borrower may prepay the Loan in whole or in part at any time without
penalty by paying the principal amount to be prepaid. 

          Section
5. General Provisions as
to Payments. All payments of principal and of interest, if
applicable, on the Loan by the Borrower hereunder shall be made not later than
12:00 Noon (New York City time) on the date when due by cashier’s check or by
wire transfer of immediately available funds to the Lender’s account at a bank
in the United States specified by the Lender in writing to the Borrower without
reduction by reason of any set-off or counterclaim. 

          Section
6. Representations and
Warranties of the Borrower. The Borrower represents and warrants to
the Lender that: 

	
  

 	
  

 	
  

 
	
  

 	
 a.

 	
 it is duly
 incorporated, validly existing and in good standing under the laws of the
 State of Delaware; 

 
	
  

 	
  

 	
  

 
	
  

 	
 b.

 	
 it is duly authorized
 to do business in all jurisdictions material to the conduct of its business; 

 
	
  

 	
  

 	
  

 
	
  

 	
 c.

 	
 it has full power and
 authority and holds all requisite governmental licenses, permits and other
 approvals to enter into and perform its obligations under this Promissory
 Note and to conduct its business substantially as currently conducted by it; 

 
	
  

 	
  

 	
  

 
	
  

 	
 d.

 	
 the execution, delivery
 and performance of this Promissory Note are within the Borrower’s corporate
 powers and have been duly authorized by all necessary corporate action; 

 

2

	
  

 	
  

 	
  

 
	
  

 	
 e.

 	
 this Promissory Note
 has been duly executed by an authorized officer or director of the Borrower
 and constitutes a legal, valid and binding obligation enforceable against the
 Borrower; 

 
	
  

 	
  

 	
  

 
	
  

 	
 f.

 	
 this Promissory Note
 does not violate any of the Borrower’s organizational documents, any law,
 court order or material agreement by which the Borrower is bound; and 

 
	
  

 	
  

 	
  

 
	
  

 	
 g.

 	
 the Borrower’s
 performance under this Promissory Note is not threatened by any pending or
 threatened litigation. 

 

          Section
7. Affirmative Covenants. Unless
the Lender shall otherwise agree, the Borrower shall:

	
  

 	
  

 	
  

 
	
  

 	
 a.

 	
 (i) maintain its
 corporate existence and qualify and remain qualified to conduct business as
 currently conducted; (ii) maintain all approvals necessary for the Loan and
 the Promissory Note; and (iii) operate its business with due diligence,
 efficiency and in conformity with sound business practices; 

 
	
  

 	
  

 	
  

 
	
  

 	
 b.

 	
 (i) keep its properties
 and business insured with financially sound and reputable insurers against
 loss or damage in such manner and to the same extent as shall be no less than
 that generally accepted as customary in regard to property and business of
 like character; and (ii) punctually pay any premium, commission and any other
 amount necessary for effectuating and maintaining in force each insurance
 policy required pursuant hereto; 

 
	
  

 	
  

 	
  

 
	
  

 	
 c.

 	
 comply in all material
 respects with all applicable laws, rules, regulations and orders of any
 government authority; 

 
	
  

 	
  

 	
  

 
	
  

 	
 d.

 	
 promptly inform the
 Lender, in writing, of any proposed material change in the nature or scope of
 the business or operations of the Borrower, or any event or condition which
 has or could reasonably be expected to have a Material Adverse Effect;

 
	
  

 	
  

 	
  

 
	
  

 	
 e.

 	
 comply with the
 requirements of all applicable laws, rules, regulations, and orders of any
 government authority, a breach of which would or would reasonably be expected
 to result in a Material Adverse Effect;

 
	
  

 	
  

 	
  

 
	
  

 	
 f.

 	
 obtain, make and keep
 in full force and effect all licenses, contracts, consents, approvals and
 authorizations from and registrations with government authorities that may be
 required to conduct its business, to maintain compliance with all applicable
 laws and regulations, and remit monies payable pursuant to this Promissory Note;
 

 
	
  

 	
  

 	
  

 
	
  

 	
 g.

 	
 promptly notify the
 Lender of the occurrence of (i) any Default or Event of Default; (ii) any
 material litigation or proceedings that are instituted or, to the 

 

3

	
  

 	
  

 	
  

 
	
  

 	
  

 	
 knowledge of the
 Borrower, threatened against the Borrower or any of their respective assets;
 (iii) each and every event which, at the giving of notice, lapse of time,
 determination of materiality or fulfillment of any other applicable condition
 (or any combination of the foregoing), would constitute an event of default (however
 described) under the Promissory Note; and (iv) any other development in the
 business or affairs of the Borrower if the effect thereof might have a
 Material Adverse Effect;

 
	
  

 	
  

 	
  

 
	
  

 	
 h.

 	
 execute such other and
 further documents and instruments as the Lender may reasonably request to
 implement the provisions of this Promissory Note; 

 

          Section
8. Negative Covenants. Unless
the Lender shall otherwise agree, the Borrower shall not: 

	
  

 	
  

 	
  

 
	
  

 	
 a.

 	
 enter into any
 transaction except on an arm’s length basis or otherwise agreed in writing by
 the Lender; 

 
	
  

 	
  

 	
  

 
	
  

 	
 b.

 	
 make any change to the
 scope or nature of its respective business activities as carried on at the
 date hereof or undertake any operations not permitted by the Promissory Note;
 

 
	
  

 	
  

 	
  

 
	
  

 	
 c.

 	
 (i) violate any laws,
 ordinances, government rules or regulations to which it is subject or (ii)
 fail to obtain or maintain any patents, trademarks, service marks, trade
 names, copyrights, design patents, licenses, permits, franchises or other
 governmental authorizations necessary to ownership of its property or the
 conduct of its respective business, in either case where such failure would
 have or could reasonably be expected to have a Material Adverse Effect; and 

 
	
  

 	
  

 	
  

 
	
  

 	
 d.

 	
 assign or otherwise
 transfer, terminate, waive or amend the Promissory Note without the prior
 consent of the Lender, except for amendment in the ordinary course of
 business. 

 

          Section
9. Events of Default. Each
of the following events shall constitute an “Event of Default”: 

	
  

 	
  

 	
  

 
	
  

 	
 a.

 	
 the principal of the
 Loan shall not be paid when due; 

 
	
  

 	
  

 	
  

 
	
  

 	
 b.

 	
 the Borrower defaults
 in the due and punctual observance or performance of any covenant, condition
 or agreement contained in this Promissory Note and such default is not cured
 within five (5) Business Days after notice from the Lender; 

 
	
  

 	
  

 	
  

 
	
  

 	
 c.

 	
 a court shall enter a
 decree or order for relief in respect of the Borrower in an involuntary case
 under any applicable bankruptcy, insolvency or other similar law now or
 hereafter in effect, or appointing a receiver, liquidator, assignee,
 custodian, trustee, sequestrator (or similar official) of the Borrower or for
 any substantial part of the property of the Borrower or ordering the winding
 up or 

 

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 liquidation of the
 affairs of the Borrower, and such decree or order shall remain unstayed and
 in effect for a period of sixty (60) consecutive days; or

 
	
  

 	
  

 	
  

 
	
  

 	
 d.

 	
 the Borrower shall
 commence a voluntary case under any applicable bankruptcy, insolvency or
 other similar law now or hereafter in effect, or consent to the entry of an
 order for relief in an involuntary case under any such law, or consent to the
 appointment or taking possession by a receiver, liquidator, assignee,
 custodian, trustee, sequestrator (or similar official) of the Borrower or for
 any substantial part of the property of the Borrower, or the Borrower shall
 make any general assignment for the benefit of creditors. 

 

          If
an Event of Default described in (c) or (d) above shall occur, the unpaid
principal shall become immediately due and payable without any declaration or
other act on the part of the Lender. Immediately upon the occurrence of any
Event of Default described in (c) or (d) above, or upon failure to pay this
Promissory Note on the Termination Date, the Lender, without any notice to the
Borrower, which notice is expressly waived by the Borrower, may proceed to
protect, enforce, exercise and pursue any and all rights and remedies available
to the Lender under this Promissory Note and any other agreement or instrument,
and any and all rights and remedies available to the Lender at law or in
equity. 

          If
any Event of Default described in clauses (a) through (c) shall occur for any
reason, whether voluntary or involuntary, and be continuing, the Lender may by
notice to the Borrower declare all or any portion of the unpaid principal
amount of the Loan to be due and payable, whereupon the full unpaid amount of
the Loan which shall be so declared due and payable shall be and become
immediately due and payable, without further notice, demand or presentment. 

          Section
10. Further Assurances.
The Borrower hereby agrees that, from time to time upon the written request of
the Lender, the Borrower will execute and deliver such further documents and do
such other acts and things as the Lender may reasonably request in order to
fully affect the purposes of this Promissory Note. 

          Section
11. Rights and Remedies.
Upon the occurrence the continuation of an Event of Default the Lender shall
have the right to exercise all available remedies at law or in equity, subject
to the terms and conditions herein contained. All sums paid or advanced by the
Lender in connection with the foregoing and all out-of-pocket costs and
reasonable expenses (including, with limitation, reasonable attorneys’ fees and
expenses) incurred in connection therewith, together with interest thereon at
the Default Rate from the date of payment until repaid in full, shall be paid
by the Borrower to the Lender on demand and shall constitute and become a part
of the obligations of the Borrower. 

          Section
12. Powers and Remedies
Cumulative; Delay or Omission Not Waiver of Even of Default. No
right or remedy herein conferred upon or reserved to the Lender is intended to
be exclusive of any other right or remedy, and every right and remedy shall, to
the extent permitted by law, be cumulative and in addition to every other right
and remedy given hereunder or now or hereafter existing at law or in equity or
otherwise. The assertion or employment of any right or 

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remedy hereunder, or
otherwise, shall not prevent the concurrent assertion or employment of any
other appropriate right or remedy. 

          No
delay or omission of the Lender to exercise any right or power accruing upon
any Event of Default occurring and continuing as aforesaid shall impair any
such right or power or shall be construed to be a waiver of any Event of
Default or an acquiescence therein; and every power and remedy given by this
Promissory Note or by law may be exercised from time to time, and as often as
shall be deemed expedient, by the Lender. 

          Section
13. Transfers. The
Borrower may not transfer or assign this Promissory Note nor any right or
obligation hereunder to any person or entity without the prior written consent
of the Lender. This Promissory Note is freely transferable by the Lender. 

          Section
14. Modification. This
Promissory Note may be modified only with the written consent of both the
Borrower and the Lender. 

          Section
15. Expenses.
The Borrower agrees to pay to the Lender all out-of-pocket expenses (including
reasonable expenses for legal services of every kind) of, or incident to, the
enforcement of any of the provisions of this Promissory Note. 

          Section
16. Miscellaneous. This
Promissory Note shall be deemed to be a contract under the laws of the State of
New Jersey, and for all purposes shall be construed in accordance with the laws
of said state. The parties hereto hereby waive presentment, demand, notice,
protest and all other demands and notices in connection with the delivery,
acceptance, performance and enforcement of or any default under this Promissory
Note, except as specifically provided herein, and assent to extensions of the
time of payment, or forbearance or other indulgence without notice. The Section
headings herein are for convenience only and shall not affect the construction
hereof. Any provision of this Promissory Note which is illegal, invalid,
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such illegality, invalidity, prohibition or
unenforceability without invalidating or impairing the remaining provisions
hereof or affecting the validity or enforceability of such provision in any
other jurisdiction. This Promissory Note shall bind the Borrower and his or her
heirs, administrators, executors, personal representatives and permitted
assigns. The rights under and benefits of this Promissory Note shall inure to
the Lender and its successors and assigns. 

 [
Signature Page Follows ]

6

          IN
WITNESS WHEREOF, the Borrower has caused this instrument to be duly executed on
the date indicated below. 

	
  

 	
  

 	
  

 
	
 Date: March 26, 2012

 	
  

 
	
  

 	
 CONOLOG CORPORATION  

 
	
  

 	
  

 
	
  

 	
 By:

 	
 /s/ Marc Benou 

 
	
  

 	
  

 	

 

 
	
  

 	
 Name:

 	
 Marc Benou 

 
	
  

 	
 Title:

 	
 President

 

 [ Signature Page to Promissory Note ]ex10-1.htm

FEDERAL DEPOSIT INSURANCE CORPORATION 

WASHINGTON, D.C.

 

 

	 	 	 
	 	
)

	 
	
In the Matter of

	
)

	
       CONSENT ORDER

	 	) 	 
	PARKE BANK	) 	 
	SEWELL, NEW JERSEY	) 	       FDIC-12-004b 
	 	) 	 
	(INSURED STATE NONMEMBER BANK)	) 	 
	  	
)

	
 

 

The Federal Deposit Insurance Corporation ("FDIC") is the appropriate Federal banking agency for PARKE BANK, Sewell, New Jersey ("Bank"), under section 3(q) of the Federal Deposit Insurance Act ("Act"), 12 U.S.C. § 1813(q).

    The Bank, by and through its duly elected and acting Board of Directors ("Board"), has executed a STIPULATION AND CONSENT TO THE ISSUANCE OF A CONSENT ORDER ("CONSENT AGREEMENT"), dated [                     ], that is accepted by the FDIC. With the CONSENT AGREEMENT, the Bank has consented, without admitting or denying any charges of unsafe or unsound banking practices or violations of law or regulation relating to, among other things, its management, asset quality and Board participation and oversight, to the issuance of this Consent Order ("ORDER") by the FDIC.

    Having determined that the requirements for issuance of an order under section 8(b) of the Act, 12 U.S.C. § 1818(b), have been satisfied, the FDIC hereby orders that:

MANAGEMENT

1.    (a)    The Bank shall have and retain qualified management. At a minimum, such management shall include: a chief executive officer with proven ability in managing a bank of comparable size and complexity and experience in upgrading a low quality loan portfolio; a

  

  

  

senior lending officer with an appropriate level of lending, collection, and loan supervision experience for the type and quality of the Bank’s loan portfolio; and a chief financial officer with demonstrated ability in all financial areas including, but not limited to, accounting, regulatory reporting, budgeting and planning, management of the investment function, liquidity management, and interest rate risk management. The Board shall provide the necessary written authority to management to implement the provisions of this ORDER.

   (b)    The qualifications of management shall be assessed on its ability to:

(i)             comply with the requirements of this ORDER;

(ii)    operate the Bank in a safe and sound manner;

(iii)       comply with applicable laws, rules, and regulations; and

(iv)    restore all aspects of the Bank to a safe and sound condition, including capital adequacy, asset quality, management effectiveness, earnings, liquidity, and sensitivity to interest rate risk.

BOARD PARTICIPATION

2.     (a)    The Board shall increase its oversight of the affairs of the Bank, assuming full responsibility for the approval of sound policies and objectives and for the oversight of all of the Bank’s activities, consistent with the role and expertise commonly expected for directors of banks of comparable size.

(b)    This oversight shall include meetings to be held no less frequently than monthly at which, at a minimum, the following areas shall be reviewed and approved: reports of income and expenses; to the extent appropriate, new, overdue, renewal, insider, charged off, delinquent

  

2  

  

(30 to 89 days), nonaccrual, nonperforming, classified and recovered loans; investment activity; internal loan watch; liquidity levels and funds management; adoption or modification of operating policies; individual committee reports; audit reports; information technology; internal control reviews including managements’ responses; asset liability management; reconciliation of general ledger accounts; and compliance with this ORDER. Board minutes shall document these reviews and approvals, including the names of any dissenting directors.

(c)    The Bank shall notify the Regional Director of the FDIC’s New York Regional Office ("Regional Director") and the Commissioner of Banking and Insurance of the State of New Jersey ("Commissioner") in writing of any resignations or terminations of any members of its Board or any of its "senior executive officers" (as that term is defined in section 303.101(b) of the FDIC’s Rules and Regulations) within 10 days of the event. Prior to the addition of any individual to the Board or the employment of any individual as a senior executive officer, or any change in the title or function of a senior executive officer or director, the Bank shall request and obtain the Regional Director’s and Commissioner’s written non-objection. Any notification required by this subparagraph shall include a description of the background and experience of any proposed new senior executive officer or Board member and must be received at least 30 days prior to the individual assuming the new position. The Bank shall also establish procedures to ensure compliance with section 32 of the Act, 12 U.S.C. § 1831i, and Subpart F of Part 303 of the FDIC’s Rules and Regulations, 12 C.F.R. Part 303.

LOSS CHARGE-OFF

3.    The Bank shall eliminate from its books, by charge-off or collection, all assets or portions of assets classified "Loss" by the FDIC or the Commissioner in the current Report of

  

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Examination that have not been previously collected or charged off. Elimination or reduction of such assets with the proceeds of other Bank extensions of credit shall not be considered "collection" for purposes of this paragraph. Thereafter, within 10 days after the receipt of any subsequent report of examination of the Bank from the FDIC or the Commissioner, the Bank shall eliminate from its books, by charge-off or collection, all assets or portions of assets classified "Loss" in any subsequent report of examination that have not been previously collected or charged off.

REDUCTION OF DELINQUENCIES AND CLASSIFIED ASSETS

4.    (a)   Within 45 days from the effective date of this ORDER, the Bank shall formulate and submit for review as described in subparagraph (c), a written plan ("Delinquent and Classified Asset Plan") to reduce the Bank’s risk position in each asset in excess of $250,000 which is more than 90 days delinquent or classified "Substandard" or "Doubtful" in the current Report of Examination. Thereafter, the Delinquent and Classified Asset Plan shall be revised to reduce the Bank’s risk position in each asset in excess of $250,000 which becomes more than 90 days delinquent or classified "Substandard," "Doubtful" or listed for "Special Mention" in any report of examination. For purposes of this provision, "reduce" means to collect, charge off, or improve the quality of an asset so as to warrant its removal from adverse classification by the Regional Director and the Commissioner.

(b)    The Delinquent and Classified Asset Plan shall include, at a minimum, the following:

(i)    an action plan to review, analyze and document the current financial condition of each delinquent or adversely classified borrower including source of repayment,

  

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repayment ability, and alternative repayment sources, as well as the value and accessibility of any pledged or assigned collateral, and any possible actions to improve the Bank’s collateral position;

(ii)    a schedule for reducing the outstanding dollar amount of each delinquent or adversely classified asset, including timeframes for achieving the reduced dollar amounts (at a minimum, the schedule for each adversely classified asset must show its dollar balance on a quarterly basis);

(iii)   specific action plans intended to reduce the Bank’s risk exposure in each classified asset;

(iv)           delineate areas of responsibility for loan officers; and

(v)            provide for the submission of monthly written progress reports to the Board for review and notation in minutes of the Board meetings.

(c)    The Delinquent and Classified Asset Plan shall be submitted to the Regional Director and the Commissioner for non-objection or comment. Within 30 days from receipt of non-objection or any comments from the Regional Director and the Commissioner, and after incorporation and adoption of all comments, the Board shall approve the Classified Asset Plan, which approval shall be recorded in the minutes of the Board meeting. Thereafter, the Bank shall implement and fully comply with the Delinquent and Classified Asset Plan.

(d)    The Bank shall not extend, directly or indirectly, any additional credit to, or for the benefit of, any borrower who is already obligated in any manner to the Bank on any extensions of credit (including any portion thereof) that has been charged off the books of the Bank or classified "Loss" in the current or any future Report of Examination, so long as such

  

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credit remains uncollected. If the Bank determines that failure to extend any additional credit would be substantially detrimental to the best interests of the Bank, a waiver or non-objection may be requested from the Regional Director and Commissioner. Such waiver request shall be made by the Board and contain a certification in writing as to the specific reasons why failure to advance additional funds would be substantially detrimental to the best interests of the Bank.

(e)    The Bank shall not extend, directly or indirectly, any additional credit to, or for the benefit of, any borrower whose loan or other credit is more than 90 days delinquent or has been classified "Substandard", "Doubtful", or is listed for "Special Mention" in the current or any future report of examination, and is uncollected, unless the Board, or designated committee thereof, provides, in writing, a detailed explanation of why the extension is in the best interest of the Bank. Prior to extending additional credit pursuant to this subparagraph, whether in the form of a renewal, extension, or further advance of funds, such additional credit shall be approved by the Board, who shall determine that:

(i)   the failure of the Bank to extend such credit would be detrimental to the best interests of the Bank, with a written explanation of why the failure to extend such credit would be detrimental;

(ii)    the extension of such credit would improve the Bank’s position, with a written explanatory statement of how and why the Bank’s position would improve; and

(iii)   an appropriate workout plan has been developed and will be implemented in conjunction with the additional credit to be extended.

(f)    The Board’s determinations and approval shall be recorded in the minutes of the Board meeting and copies shall be submitted to the Regional Director and the Commissioner at

  

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such times as the Bank submits the progress reports required by this ORDER or sooner upon the written request of the Regional Director or the Commissioner.

INTEREST RESERVES AND INTEREST-ONLY TERMS

5.     (a)    Within 30 days from the effective date of this ORDER, the Bank shall engage a qualified independent third party firm, acceptable to the Regional Director and the Commissioner, to conduct a review of all credits that have been originated, extended, or restructured with the use of interest reserves and/or interest-only conditions, identify repayment risks and regulatory accounting standards associated with this loan portfolio, including the borrower’s source of repayment, and prepare a written analysis and assessment of their findings ("Interest Reserve Report")

(b)    The Interest Reserve Report shall be developed within 90 days from the engagement of the third party and shall include, at a minimum:

(i)    identification and status of all credits that have been originated and/or held by the Bank, extended, or restructured with the use of interest reserves and/or interest-only terms or conditions, including name, original and outstanding loan amount and, with respect to interest reserve loans, the reserve dollar amount, term of the reserve and funding history of the reserve

(ii)   assessment of the borrower’s ability to repay and underlying collateral value;

(ii)   evaluation of management’s underwriting practices, risk rating process, and compliance with regulatory reporting requirement as it relates to the identified loan portfolio. This evaluation should include, but is not limited to, the Bank’s identification of problem assets

  

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and workout strategies, placement of credits on past due or non-accrual status, and compliance with guidance relating to troubled debt restructure ("TDR") as defined in the instructions to the quarterly Consolidated Reports of Condition and Income ("Call Report") and in the Policy Statement on Prudent Commercial Real Estate Loan Workouts (FIL-61-2009, issued October 30, 2009); and

(iv)   based on the findings of subparagraph (b), include an assessment of impact on the Bank’s earnings and Allowance for Loan and Lease Losses ("ALLL");

(c)    The Interest Reserve Report shall be submitted to the Regional Director and the Commissioner for non-objection or comment. Within 30 days from receipt of non-objection or any comments from the Regional Director and the Commissioner, and after incorporation and adoption of all comments, the Board shall approve the Interest Reserve Report, which approval shall be recorded in the minutes of the Board meeting. Thereafter, the Bank shall implement and fully comply with the Interest Reserve Report.

(d)    If applicable, within 30 days from the receipt of the Interest Reserve Report, the Bank shall review its Call Reports filed with the FDIC on or after December 31, 2010, and amend said reports if necessary to accurately reflect the financial condition of the Bank as of the date of each such report.

(e)    While the Order is in effect, all credits that are originated, extended, or restructured with the use of interest reserves or interest-only terms, need to be approved by the Board, or a designated committee thereof, who shall determine that:

  

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(i)    the failure of the Bank to extend such credit would be detrimental to the best interests of the Bank, with a written explanation of why the failure to extend such credit would be detrimental;

(ii)   the extension of such credit would improve the Bank’s position, with a written explanatory statement of how and why the Bank’s position would improve; and

(iii)      an appropriate workout plan has been developed and will be implemented in conjunction with the additional credit to be extended.

(f)    The Board’s determinations and approval, as described in subparagraph 5(e), shall be recorded in the minutes of the Board meeting and copies shall be submitted to the Regional Director and the Commissioner at such times as the Bank submits the progress reports required by this ORDER or sooner upon the written request of the Regional Director or the Commissioner.

LOAN REVIEW PROGRAM

6.     (a)    Within 45 days from the effective date of this ORDER, the Board shall establish a program of independent loan review that will provide for a periodic review of the Bank’s loan portfolio and the identification and categorization of problem credits ("Loan Review Program").

(b)    At a minimum, the Loan Review Program shall provide for:

(i)    prompt identification of loans with credit weaknesses that warrant the special attention of management, including the name of the borrower, amount of the loan, reason why the loan warrants special attention; and assessment of the degree of risk that the loan will not be fully repaid according to its terms;

  

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(ii)    prompt identification of all outstanding balances and commitments attributable to each obligor identified under the requirements of subparagraph (i), including outstanding balances and commitments attributable to related interests of such obligors, including the obligor of record, relationship to the primary obligor identified under subparagraph (i), and an assessment of the risk exposure from the aggregate relationship;

(iii)      identification of trends affecting the quality of the loan portfolio and potential problem areas;

(iv)   assessment of the overall quality of the loan portfolio;

(v)    identification of credit and collateral documentation exceptions;

(vi)   identification and status of violations of laws, rules, or regulations with respect to the lending function;

(vii)     identification of loans that are not in conformance with the Bank’s Loan Policy;

(viii)        identification of loans to directors, officers, principal shareholders, and their related interests; and

(ix)   a mechanism for reporting periodically, but in no event less than quarterly, the information developed in (i) through (viii) above to the Board.

(c)    The Loan Review Program shall be submitted to the Regional Director and the Commissioner for non-objection or comment. Within 30 days from receipt of non-objection or any comments from the Regional Director and the Commissioner, and after incorporation and adoption of all comments, the Board shall approve the Loan Review Program, which approval

  

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shall be recorded in the minutes of the Board meeting. Thereafter, the Bank shall implement and fully comply with the Loan Review Program.

LOAN POLICY

7.   (a)    Within 60 days from the effective date of this ORDER, the Bank shall conduct a review of the Bank’s loan policies and procedures for adequacy and, based upon such review, shall make all appropriate revisions to the loan policies and procedures ("Loan Policy") necessary to address the lending deficiencies identified in the current Report of Examination. The revised Loan Policy shall be submitted for review as described in subparagraph (c). The Board shall also establish review and monitoring procedures to ensure that all lending personnel adhere to the Loan Policy, and that the Board receives timely and fully documented reports on loan activity, including reports that identify deviations from the Loan Policy.

(b)    The Loan Policy shall, at minimum:

(i)    require that all extensions of credit originated or renewed by the Bank, including loans purchased from a third party (loan participations):

a.    have a clearly defined and stated purpose;

b.    have a predetermined and realistic repayment source and schedule, including secondary source of repayment;

c.    are supported by complete loan documentation, including lien searches, perfected security interests, and collateral valuations; and

  

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d.    are supported by current financial information, profit and loss statements or copies of tax returns, and cash flow projections, which shall be maintained throughout the term of the loan; and are otherwise in conformance with the Loan Policy;

(ii)    require monthly monitoring and analyses of the Bank’s commercial real estate loan portfolio consistent with the Interagency Guidance on Concentrations in Commercial Real Estate Lending, Sound Risk Management Practices (FIL-104-2006, issued December 12, 2006);

(iii)    require appropriate risk management practices and guidelines for the restructuring of loans and for the timely identification and reporting of TDRs, as defined in the Call Report instructions and as outlined in the Policy Statement on Prudent Commercial Real Estate Loan Workouts (FIL-61-2009, issued October 30, 2009);

(iv)    incorporate limitations on the amount that can be loaned in relation to established collateral values, require the source of collateral valuations be identified, require that collateral valuations be completed prior to the commitment to lend funds, and require that collateral valuations be performed on a periodic basis over the term of the loan;

(v)     require accurate reporting of past due loans to the Board or the Bank’s loan committee at least monthly;

(vi)    require the individual reporting of loans granted as exceptions to the Loan Policy and aggregation of such loans in the portfolio;

(vii)   prohibit the capitalization of interest or loan-related expenses unless the Board or the Bank’s loan committee provides, in writing, a detailed explanation of why such action is in the best interest of the Bank;

  

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(viii)         define the appropriate use of, and establish specific limitations for, interest-only and principal moratorium loan terms or conditions; and

(ix)    establish review and monitoring procedures for compliance with the FDIC’s appraisal regulation, 12 C.F.R. Part 323, and the Interagency Appraisal and Evaluation Guidelines (FIL-82-010, issued December 2, 2010).

(c)    The Loan Policy shall be submitted to the Regional Director and the Commissioner for non-objection or comment. Within 30 days from receipt of non-objection or comments from the Regional Director and the Commissioner, and after incorporation and adoption of all comments, the Board shall approve the Loan Policy, which approval shall be recorded in the minutes of the Board meeting. Thereafter, the Bank shall implement and fully comply with the Loan Policy.

CONCENTRATIONS

8.    (a)    Within 90 days from the effective date of this ORDER, the Bank shall formulate and submit for review as described in subparagraph (b), a written plan to reduce and manage each of the concentrations of credit identified in the Bank’s most recent Report of Examination ("Concentrations Reduction Plan"). At a minimum, the Concentrations Reduction Plan shall provide for written procedures for the ongoing measurement and monitoring of the concentrations of credit, and a limit on concentrations commensurate with the Bank’s capital position, business strategy, management expertise, size, location, safe and sound banking practices, and the overall risk profile of the Bank. The Concentrations Reduction Plan shall prohibit any advances that would increase the concentration unless the advance is pursuant to an existing loan agreement and unless the Board, or a designated committee thereof, provides, in

  

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writing, a detailed explanation of why the extension is in the best interest of the Bank. Prior to extending additional credit pursuant to this paragraph, whether in the form of a renewal, extension, or further advance of funds, such additional credit shall be approved by the Board, or a designated committee thereof, who shall determine that:

(i)     the failure of the Bank to extend such credit would be detrimental to the best interests of the Bank, with a written explanation of why the failure to extend such credit would be detrimental;

(ii)    the extension of such credit would improve the Bank’s position, with a written explanatory statement of how and why the Bank’s position would improve; and

(iii)   an appropriate workout plan has been developed and will be implemented in conjunction with the additional credit to be extended.

(b)    The Board’s, or designated committee’s, determinations and approval shall be recorded in the minutes of the Board meeting and copies shall be maintained in the respective loan files

(c)    The Concentrations Reduction Plan shall include, but not be limited to:

(i)    dollar levels and percent of total Tier 1 capital to which the Bank shall reduce the concentration;

(ii)   timeframes for achieving the reduction in dollar levels in response to (i) above;

(iii)          provisions requiring compliance with the Interagency Guidance on Concentrations in Commercial Real Estate Lending, Sound Risk Management Practices (FIL­104-2006, issued December 12, 2006) and Managing Commercial Real Estate Concentrations in a Challenging Environment (FIL-22-2008, issued March 17, 2008);

  

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(iv)    provisions for controlling and monitoring of CRE, including plans to address the rationale for CRE levels as they relate to growth and capital targets, segmentation and testing of the CRE portfolio to detect and limit concentrations with similar risk characteristics; and

(v)    provisions for the submission of monthly written progress reports to the Board for review and notation in minutes of the Board meetings.

(d)    The Concentrations Reduction Plan shall be submitted to the Regional Director and the Commissioner for non-objection or comment. Within 30 days from receipt of non-objection or any comments from the Regional Director and the Commissioner, and after incorporation and adoption of all comments, the Board shall approve the Concentrations Reduction Plan, which approval shall be recorded in the minutes of the Board meeting. Thereafter, the Bank shall implement and fully comply with the Concentrations Reduction Plan.

PROFIT AND BUDGET PLAN

9.     (a)    Within 90 days from the effective date of this ORDER, and within the first 30 days of each calendar year thereafter, the Bank shall formulate and submit for review as described in subparagraph (c), a written profit and budget plan ("Profit Plan") consisting of goals and strategies, consistent with sound banking practices, and taking into account the Bank’s other written plans, policies, or other actions as required by this ORDER.

(b)    The Profit Plan shall include, at a minimum:

(i)    a description of the operating assumptions that form the basis for, and adequately support, material projected revenue and expense components;

(ii)   specific goals to maintain appropriate provisions to the ALLL;

  

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(iii)      realistic and comprehensive budgets for all categories of income and expense;

(iv)      an executive compensation plan, addressing any and all salaries, bonuses and other benefits of every kind or nature whatsoever, both current and deferred, whether paid directly or indirectly, which plan incorporates qualitative as well as profitability performance standards for the Bank’s senior executive officers;

(v)       a budget review process to monitor the revenue and expenses of the Bank whereby actual performance is compared against budgetary projections not less than quarterly; and

(vi)      recording the results of the budget review and any actions taken by the Bank as a result of the budget review in the Board minutes.

(c)    The Profit Plan shall be submitted to the Regional Director and the Commissioner for non-objection or comment. Within 30 days from receipt of non-objection or any comments from the Regional Director and the Commissioner, and after incorporation and adoption of all comments, the Board shall approve the Profit Plan, which approval shall be recorded in the minutes of the Board meeting. Thereafter, the Bank shall implement and fully comply with the Profit Plan.

(d)    Within 30 days following the end of each calendar quarter following completion of the Profit Plan required by this paragraph, the Board shall evaluate the Bank’s actual performance in relation to the Profit Plan, record the results of the evaluation, and note any actions taken by the Bank in the minutes of the Boards’ meeting at which such evaluation is undertaken. A copy of the evaluation, including any action taken, shall be submitted to the

  

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Regional Director and Commissioner at such times as the Bank submits the progress reports required by paragraph 13 of this Order.

CORRECTION OF VIOLATIONS

10.   The Bank shall take all steps necessary, consistent with other provisions of this ORDER and safe and sound banking practices, to eliminate or correct and prevent unsafe or unsound banking practices, violations of law or regulation, and all contraventions of regulatory policies or guidelines cited in the current Report of Examination.

COMPLIANCE COMMITTEE

11.   (a)    Within 30 days from the effective date of this ORDER, the Board shall establish a compliance committee ("Compliance Committee") composed of at least three directors who are not now, and have never been, involved in the daily operations of the Bank, and whose composition is acceptable to the Regional Director and Commissioner, to monitor and ensure the Bank’s compliance with this ORDER.

(b)    Within 45 days from the effective date of this ORDER, and at monthly intervals thereafter, such Compliance Committee shall prepare and present to the Board a written report of its findings, detailing the form, content, and manner of any action taken to ensure compliance with this ORDER and the results thereof, and any recommendation with respect to such compliance. Such progress reports shall be included in the Board minutes. Nothing contained herein shall diminish the responsibility of the entire Board to ensure compliance with the provisions of this ORDER.

 

  

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DIVIDEND RESTRICTION

12.    The Bank shall not declare or pay any dividend without the prior written consent of the Regional Director and the Commissioner.

PROGRESS REPORTS

13.   Within 30 days from the end of each calendar quarter following the effective date of this ORDER, the Bank shall furnish to the Regional Director and the Commissioner written progress reports detailing the form, manner, and results of any actions taken to secure compliance with this ORDER. All progress reports and other written responses to this ORDER shall be reviewed by the Board and made a part of the Board minutes.

SHAREHOLDER DISCLOSURE

14.    Within 30 days from the effective date of this ORDER, the Bank shall send a copy of this ORDER, or otherwise furnish a description of this ORDER, to its parent holding company. The description shall fully describe the ORDER in all material respects.

The provisions of this ORDER shall not bar, estop, or otherwise prevent the FDIC or any other federal or state agency or department from taking any other action against the Bank or any of the Bank’s current or former institution-affiliated parties.

This ORDER shall be effective on the date of issuance. 

The provisions of this ORDER shall be binding upon the Bank, its institution-affiliated parties, and any successors and assigns thereof.

  

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The provisions of this ORDER shall remain effective and enforceable except to the extent that and until such time as any provision has been modified, terminated, suspended, or set aside by the FDIC.

 

Issued Pursuant to Delegated Authority 

 

	  	  	
Dated:

	
April __, 2012

	  
	  	  	  
	  	  	
By:

	  	  	  
	  	  	
 

	  	  	
Doreen R. Eberley

	  	  	
Regional Director

	  	  	
Federal Deposit Insurance Corporation

 

 

 

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