<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 31, 1997
REGISTRATION NO. 333-[ ]
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
BROOKLYN HEIGHTS BANCORP
(Name of Small Business Issuer in Its Charter )
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<S> <C> <C>
FEDERAL 6712 (TO BE APPLIED FOR)
(State or Jurisdiction (Primary Standard (I.R.S. Employer
of Incorporation or Industrial Classification Code Identification No.)
Organization) Number)
</TABLE>
186 MONTAGUE STREET
BROOKLYN, NEW YORK 11201
(718) 855-3555
(Address and Telephone Number of Principal Executive Offices)
186 MONTAGUE STREET
BROOKLYN, NEW YORK 11201
(Address of Principal Place of Business or Intended Principal Place of Business)
STEPHEN IRVING
186 MONTAGUE STREET
BROOKLYN, NEW YORK 11201
(718) 855-3555
(Name, Address and Telephone Number of Agent for Service)
COPIES TO:
ERIC LUSE, ESQ.
ALAN SCHICK, ESQ.
LUSE LEHMAN GORMAN POMERENK & SCHICK, P.C.
5335 WISCONSIN AVENUE, N.W., SUITE 400
(202) 274-2000
WASHINGTON, D.C. 20015
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after
this registration statement becomes effective.
If this Form is filed to register additional shares for an offering pursuant to
Rule 462(b) under the Securities Act please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]
If the delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [X]
<PAGE> 2
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
======================================================================================================================
PROPOSED PROPOSED
AMOUNT TO BE MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF REGISTERED OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED PER SHARE OFFERING REGISTRATION FEE
PRICE (1)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $1.00 par value 608,350 $10.00 $6,083,500 $1,800.00
per share
======================================================================================================================
</TABLE>
- ------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION SHALL
THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES
ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH
DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(a), MAY DETERMINE.
================================================================================
<PAGE> 3
PROSPECTUS
UP TO 608,350 SHARES OF COMMON STOCK
BROOKLYN HEIGHTS BANCORP
186 MONTAGUE STREET
BROOKLYN, NEW YORK 11201
================================================================================
Atlantic Liberty Savings, F.A., a federally-chartered mutual savings
association (the "Association"), is reorganizing to form a federally-chartered
mutual holding company (the "Reorganization"). As part of the Reorganization,
the Association will convert to a stock savings association and will become a
wholly-owned subsidiary of Brooklyn Heights Bancorp, a federal stock corporation
(the "Company"). The Company will become the majority-owned subsidiary of
Atlantic Liberty, MHC (the "Mutual Holding Company"), a federal mutual holding
company. Concurrently with the Reorganization, the Company is offering for sale
between 391,000 and 529,000 shares of its common stock, par value $1.00 per
share (the "Common Stock"), in a subscription offering to qualifying depositors
and borrowers, the Association's employee stock ownership plan and to employees,
officers and directors of the Association. Any unsubscribed shares may be
offered for sale to the public in a community offering or syndicated community
offering (the subscription and community offerings are referred to collectively
as the "Offering"). The Common Stock offered for sale in the Offering will
represent a minority ownership interest of 46% of the Company's total
outstanding shares of Common Stock. The Reorganization and Offering are being
made pursuant to the terms of a plan of reorganization which must be approved by
a majority of the eligible votes of members of the Association and by the Office
of Thrift Supervision (the "OTS"). The Reorganization will not go forward if the
Association does not receive these approvals and the Company does not sell at
least 391,000 shares of Common Stock.
================================================================================
OFFERING TERMS
An independent appraiser has estimated that as of December 11, 1997,
the pro forma market value of the Common Stock of the Company was between $8.5
million and $11.5 million, with a midpoint of $10 million. The 391,000 to
529,000 shares of Common Stock being sold in the Offering represent a minority
ownership interest in the Company equal to 46% of the minimum and maximum of the
estimated pro forma value of the Common Stock of the Company. Subject to OTS
approval, up to 608,350 shares of Common Stock will be offered for sale in the
Offering in the event of an increase in the pro forma market value of the Common
Stock. Based on these estimates, the Company is making the following Offering of
shares of Common Stock.
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<S> <C>
- Price Per Share: $10
- Number of Shares
Minimum/Maximum/Adjusted Maximum: 391,000/529,000/608,350
- Reorganization Expenses
Minimum/Maximum/Adjusted Maximum: $500,000/$521,000/$534,000
- Net Proceeds to Brooklyn Heights Bancorp
Minimum/Maximum/Adjusted Maximum: $3,410,000/$4,769,000/$5,549,500
- Net Proceeds per share to Brooklyn Heights Bancorp
Minimum/Maximum/Adjusted Maximum: $8.73/$9.03/$9.13
</TABLE>
PLEASE REFER TO RISK FACTORS BEGINNING ON PAGE _____ OF THIS DOCUMENT.
THESE SECURITIES ARE NOT DEPOSITS OR ACCOUNTS AND ARE NOT INSURED OR GUARANTEED
BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION, THE OFFICE OF THRIFT
SUPERVISION, NOR ANY STATE SECURITIES REGULATOR HAS APPROVED OR DISAPPROVED
THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Ryan, Beck & Co. will use its best efforts to assist the Company in selling at
least the minimum number of shares, but does not guarantee that this number will
be sold. All funds received from subscribers will be held in an interest bearing
account at the Association until the completion or termination of the
Reorganization.
For information on how to subscribe, call the Stock Information Center at
(718) ___________.
RYAN, BECK & CO.
PROSPECTUS DATED FEBRUARY ___, 1998
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
QUESTIONS AND ANSWERS ABOUT THE STOCK OFFERING...................................... 1
SUMMARY ........................................................................... 4
SELECTED FINANCIAL AND OTHER DATA OF
ATLANTIC LIBERTY SAVINGS, F.A.............................................. 8
RISK FACTORS........................................................................10
PROPOSED PURCHASES BY DIRECTORS AND EXECUTIVE OFFICERS..............................14
ATLANTIC LIBERTY, MHC...............................................................15
BROOKLYN HEIGHTS BANCORP............................................................15
ATLANTIC LIBERTY SAVINGS, F.A.......................................................15
SUMMARY DESCRIPTION OF THE REORGANIZATION...........................................16
MARKET AREA.........................................................................16
USE OF PROCEEDS.....................................................................17
DIVIDENDS...........................................................................17
MARKET FOR THE COMMON STOCK.........................................................18
COMPETITION.........................................................................18
CAPITALIZATION......................................................................19
PRO FORMA DATA......................................................................20
HISTORICAL AND PRO FORMA REGULATORY CAPITAL COMPLIANCE..............................25
ATLANTIC LIBERTY SAVINGS, F.A.
STATEMENTS OF OPERATIONS...................................................26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS..............................27
BUSINESS OF ATLANTIC LIBERTY SAVINGS, F.A...........................................38
MANAGEMENT OF BROOKLYN HEIGHTS BANCORP..............................................49
MANAGEMENT OF ATLANTIC LIBERTY SAVINGS, F.A.........................................50
EXECUTIVE COMPENSATION AND RELATED TRANSACTIONS OF THE ASSOCIATION..................51
REGULATION..........................................................................57
TAXATION ...........................................................................64
THE REORGANIZATION AND OFFERING.....................................................65
RESTRICTIONS ON THE ACQUISITION OF THE COMPANY......................................79
DESCRIPTION OF CAPITAL STOCK........................................................81
TRANSFER AGENT......................................................................82
REGISTRATION REQUIREMENTS...........................................................82
LEGAL AND TAX MATTERS...............................................................82
EXPERTS ...........................................................................82
ADDITIONAL INFORMATION..............................................................83
</TABLE>
THIS DOCUMENT CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS
AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM
THE RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT
CAUSE SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN
"RISK FACTORS" BEGINNING ON PAGE 8 OF THIS PROSPECTUS.
PLEASE SEE THE GLOSSARY BEGINNING ON PAGE G-L FOR THE MEANING OF CAPITALIZED
TERMS THAT ARE USED IN THIS PROSPECTUS.
(i)
<PAGE> 5
QUESTIONS AND ANSWERS ABOUT THE STOCK OFFERING
Q: WHAT IS THE MUTUAL HOLDING COMPANY?
A: Atlantic Liberty, MHC (the "Mutual Holding Company") is a
mutually-owned federal corporation that is being established in
connection with the mutual holding company reorganization (the
"Reorganization") of Atlantic Liberty Savings, F.A. (the
"Association"). The Mutual Holding Company will be chartered under the
laws of the United States and will be regulated by the Office of Thrift
Supervision ("OTS"). The Mutual Holding Company will own 54% of the
outstanding Common Stock of Brooklyn Heights Bancorp (the "Company"),
or 540,000 shares at the midpoint of the valuation range established by
the independent appraisal. The remaining 46% of the Common Stock of the
Company will be owned by persons who purchase Common Stock in the
Offering. As part of the Reorganization, all of the current membership
and voting rights of the Association's members will be transferred to
the Mutual Holding Company.
Q: WHO WILL BE THE MINORITY STOCKHOLDERS OF THE COMPANY?
A: All persons who purchase Common Stock in the Offering, including the
employee stock ownership plan ("ESOP") of the Association, will be the
minority stockholders (the "Minority Stockholders") of the Company, and
will own 46% of its Common Stock upon completion of the Offering. The
Mutual Holding Company will own 54% of the Common Stock of the Company,
and will remain its majority stockholder as long as the Mutual Holding
Company remains in existence.
Q: WHAT IS THE PURPOSE OF THE REORGANIZATION AND OFFERING?
A: The primary purpose of the Reorganization and Offering is to raise
additional equity capital for the Association. The increased capital
will be used in part to expand the Association's lending activities.
The Reorganization also is intended to create a holding company and a
stock charter, which is the corporate form used by all commercial banks
and an increasing number of savings institutions. The holding company
structure will expand the investment and operating authority currently
available to the Association. The Offering also will provide you with
the opportunity to become a stockholder of the Company.
Q: HOW DO I ORDER THE COMMON STOCK?
A: You must complete and return the Stock Order Form to the Association,
together with your payment, on or before March ___, 1998. Please review
the Stock Order Form carefully before sending us any payment.
Q: HOW MUCH STOCK MAY I ORDER?
A: The minimum order is 25 shares (or $250). The maximum order in the
Offering is 5,000 shares (or $50,000). For purposes of these
limitations, joint account holders may not collectively exceed the
5,000 share limit. In certain instances, your order may be grouped
together with orders by other persons who are associated with you (such
as your spouse, child or relative living in your home), or with whom
you are acting in concert, and, in that event, the aggregate order may
not exceed 5,000 shares. The maximum purchase limitation may be
decreased or increased without notifying you. However, if the maximum
purchase limitation is increased, and you previously subscribed for the
maximum number of shares, you will be notified of the increase, as well
as the opportunity to subscribe for additional shares.
Q: WHO HAS SUBSCRIPTION RIGHTS AND WHAT ARE THE SUBSCRIPTION PRIORITIES?
A: Subscription rights to purchase Common Stock will be offered on a
priority basis to the following classes of persons:
<PAGE> 6
- First, to persons who had one or more deposit accounts with
the Association aggregating at least $50 on June 30, 1996.
(The Association's ESOP will have priority over such persons
if more than 529,000 shares are sold).
- Second, to the Association's ESOP.
- Third, to persons who had one or more deposit accounts with
the Association aggregating at least $50 on December 31, 1997.
- Fourth, to depositors (who are not eligible depositors as of
June 30, 1996 or December 31, 1997) and borrowers of the
Association as of ____________, 1998.
- Fifth, to employees, officers and directors of the
Association.
Q: WHAT HAPPENS IF THERE ARE NOT ENOUGH SHARES TO FILL ALL ORDERS?
A: If the Offering is oversubscribed, you may not receive any or all of
the shares you wish to purchase. Shares will be allocated based upon a
formula set forth in the Plan of Reorganization and in accordance with
OTS regulations.
Q: WILL SHARES BE OFFERED TO ANYONE OTHER THAN PERSONS WITH SUBSCRIPTION
RIGHTS?
A: If persons with subscription rights do not subscribe for all of the
shares offered, the remaining shares will be offered to certain members
of the general public in a community offering, with a preference for
natural persons residing in Brooklyn.
Q: WHAT PARTICULAR FACTORS SHOULD I CONSIDER WHEN DECIDING WHETHER OR NOT
TO BUY COMMON STOCK?
A: Before you decide to purchase Common Stock, you should read the entire
Prospectus, including the Risk Factors section on pages _____ of the
Prospectus.
Q: AS A DEPOSITOR OR BORROWER OF THE ASSOCIATION, WHAT WILL HAPPEN IF I DO
NOT ORDER ANY COMMON STOCK?
A: You presently have membership rights in the Association, which include
the right to elect directors and vote on certain other matters.
However, once the Reorganization is completed these membership rights
in the Association will be converted into membership rights in the
Mutual Holding Company, regardless of whether or not you purchase
Common Stock. You will retain your membership rights in the Mutual
Holding Company so long as your existing borrowings from the
Association remain outstanding or so long as you remain a depositor of
the Association. If you purchase Common Stock, you will also have
voting rights in the Company, but such rights will depend on the amount
of Common Stock that you own and not on your deposit account or lending
relationship at the Association YOU ARE NOT REQUIRED TO PURCHASE COMMON
STOCK. YOUR DEPOSIT ACCOUNT, CERTIFICATE ACCOUNTS AND ANY LOANS YOU MAY
HAVE WITH THE ASSOCIATION WILL NOT BE AFFECTED BY THE REORGANIZATION.
Q: WHO CAN HELP ANSWER ANY OTHER QUESTIONS I MAY HAVE ABOUT THE OFFERING?
A: In order to make an informed investment decision, you should read this
entire Prospectus. This section highlights selected information and may
not contain all of the information that is important to you. In
addition, you may contact:
2
<PAGE> 7
STOCK INFORMATION CENTER
ATLANTIC LIBERTY SAVINGS, F.A.
186 MONTAGUE STREET
BROOKLYN, NEW YORK 11201
(718) ________
SELLING OR ASSIGNING YOUR SUBSCRIPTION RIGHTS IS ILLEGAL. ALL PERSONS
EXERCISING THEIR SUBSCRIPTION RIGHTS WILL BE REQUIRED TO CERTIFY THAT THEY ARE
PURCHASING SHARES SOLELY FOR THEIR OWN ACCOUNT AND THAT THEY HAVE NO AGREEMENT
OR UNDERSTANDING REGARDING THE SALE OR TRANSFER OF SUCH SHARES. THE ASSOCIATION
INTENDS TO PURSUE ANY AND ALL LEGAL AND EQUITABLE REMEDIES IN THE EVENT IT
BECOMES AWARE OF THE TRANSFER OF SUBSCRIPTION RIGHTS. ORDERS KNOWN TO INVOLVE
THE TRANSFER OF SUBSCRIPTION RIGHTS WILL NOT BE HONORED. IN ADDITION, PERSONS
WHO VIOLATE THE PURCHASE LIMITATIONS MAY BE SUBJECT TO SANCTIONS AND PENALTIES
IMPOSED BY THE OFFICE OF THRIFT SUPERVISION.
3
<PAGE> 8
SUMMARY
This summary highlights selected information from this Prospectus and
does not contain all the information that you need to know before making an
informed investment decision. To understand the Offering fully, you should read
the entire Prospectus carefully, including the financial statements and the
notes to the financial statements of Atlantic Liberty Savings, F.A. Financial
information contained in the Prospectus at and for the two years ended March 31,
1997 is derived in part from the audited financial statements of Atlantic
Liberty Savings, F.A. All financial information contained in the Prospectus at
and for the six months ended September 30, 1997 and 1996 is derived from
unaudited financial statements.
You should note as you read this Prospectus that at times capitalized
terms are used. These capitalized terms are generally defined in the glossary
that is at the end of this Prospectus. Defined terms are used to help you
differentiate between the various components of the transaction, to simplify the
discussion and to avoid unnecessary repetition by not having to define or
describe a term each time it is used. For example, to avoid confusion, all of
the steps that are part of the transactions described in this Prospectus are
referred to as the "Reorganization," and the issuance of 46% of the Company's
Common Stock is referred to as the Offering. References to the "Association"
refer to Atlantic Liberty Savings, F.A. References to "the Company" refer to
Brooklyn Heights Bancorp, and references to the "Mutual Holding Company" refer
to Atlantic Liberty, MHC. To further assist you in reading this Prospectus, in
addition to including a glossary, each term defined in the glossary is also
defined the first time that it is used in the Prospectus.
THE COMPANIES
Atlantic Liberty, MHC
186 Montague Street
Brooklyn, New York 11201
(718) 855-3555
The Mutual Holding Company is not an operating company and has not
engaged in any business to date. Upon completion of the Reorganization, the
Mutual Holding Company will be chartered under Federal law and will own 54% of
the outstanding Common Stock of the Company. So long as the Mutual Holding
Company exists, it will own at least 50.1% of the Company's voting stock.
Following completion of the Reorganization, persons who were members of the
Association will become members of the Mutual Holding Company so long as their
existing borrowings from the Association remain oustanding or they continue to
maintain a deposit account with the Association.
Brooklyn Heights Bancorp
186 Montague Street
Brooklyn, New York 11201
(718) 855-3555
The Company is not an operating company and has not engaged in any
business to date. The Company will be chartered under Federal law and will own
100% of the common stock of the Association. The Company will sell 46% of its
Common Stock in the Offering, and the remaining 54% of the Common Stock will be
issued to the Mutual Holding Company.
Atlantic Liberty Savings, F.A.
186 Montague Street
Brooklyn, New York 11201
(718) 855-3555
4
<PAGE> 9
The Association is a community-oriented federal mutual savings
association, providing banking and financial services to individuals, families
and small businesses from its two offices in Brooklyn, New York. Historically,
the Association has emphasized residential mortgage lending. At September 30,
1997, the Association had total assets of $110 million, total deposits of $101
million, and retained earnings of $7.2 million. See pages _____ to _____.
THE OFFERING
The Company is offering for sale between 391,000 and 529,000 shares of
its Common Stock, par value $1.00 per share (the "Common Stock"), at a price of
$10.00 per share. The Offering may be increased to 608,350 shares without
further notice to you if the estimated pro forma market value of the Common
Stock (the "Independent Valuation") is increased as a result of changes in
market or financial conditions prior to the completion of the Offering. The
shares sold in the Offering will represent a minority ownership interest of 46%
of the shares of Common Stock of the Company (the "Minority Ownership
Interest"). The remaining 54% of the shares of Common Stock of the Company will
be issued to the Mutual Holding Company.
STOCK PURCHASE PRIORITIES
The Common Stock is being offered for sale in the following order of
priority in a Subscription Offering:
(i) the Association's Eligible Account Holders (holders of deposit
accounts totaling $50 or more as of June 30, 1996);
(ii) the Association's ESOP;
(iii) the Association's Supplemental Eligible Account Holders
(holders of deposit accounts totaling $50 or more as of
December 31, 1997);
(iv) other members (depositors and borrowers of the Association as
of the Voting Record Date who are not Eligible Account Holders
or Supplemental Eligible Account Holders); and
(v) employees, officers and directors of the Association.
Any shares of Common Stock not subscribed for in the Subscription
Offering may be offered for sale in a Community Offering and Syndicated
Community Offering. See pages _____ to _____. Ryan, Beck & Co. will assist in
selling the Common Stock on a best efforts basis.
THE OFFERING RANGE AND OFFERING PRICE PER SHARE
Feldman Financial Advisors, Inc. ("Feldman Financial"), an appraisal
firm independent of the Association and experienced in appraisals of savings
associations, has estimated that in its opinion, as of December 11, 1997, the
aggregate pro forma market value of the Company and the Association ranged from
$8.5 million to $11.5 million (the "Estimated Valuation Range") with a midpoint
of $10 million. The Company is offering to sell only 46% of its Common Stock in
the Offering and, based on the Independent Valuation, 46% of the Common Stock
ranged in value from $3.9 million to $5.3 million, with a midpoint of $4.6
million (the "Offering Range"). The Company is offering its Common Stock for
sale at $10.00 per share, representing 391,000 shares and 529,000 shares at the
minimum and maximum of the Offering Range, respectively, with a midpoint of
460,000 shares. The Independent Valuation was based in part upon the
Association's financial condition and operations and the effect of the
additional capital raised by the sale of Common Stock in the Offering. In
addition to the 391,000 to 529,000 shares to be sold in the Offering, between
459,000 and 621,000 shares will be issued to the Mutual Holding Company, which
will represent 54% of the outstanding shares of Common Stock of the Company. The
Independent Valuation will be updated prior to the completion of the Offering.
If the Independent Valuation increases, there will be a corresponding change in
the total
5
<PAGE> 10
number of shares issued to the Mutual Holding Company in the Reorganization and
sold to subscribers in the Offering, but the percentage of shares of the
Company's Common Stock owned by the Mutual Holding Company and the Minority
Stockholders will not change as a result of a change in the Independent
Valuation. If the Independent Valuation increases by 15%, or up to $13,225,000,
the number of shares sold in the Offering will increase to 608,350 shares and
the number of shares issued to the Mutual Holding Company will increase to
714,150 shares. Prospective purchasers will be given the opportunity to change
or withdraw their purchase orders only if the Estimated Valuation Range
decreases below the minimum or increases by more than 15% above the maximum of
such range, or if fewer than 391,000 shares or more than 608,350 shares are sold
in the Offering. See pages _____ to _____.
TERMINATION OF THE OFFERING
The Subscription Offering will terminate at ___________, New York time,
on ___________, 1998. The Community Offering, if one is held, is expected to
begin immediately after the termination of the Subscription Offering, but may
begin at any time during the Subscription Offering. The Community Offering may
terminate on or after __________, 1998, but in any event, no later than
__________, 1998, without OTS approval.
BENEFITS TO MANAGEMENT AND EMPLOYEES FROM THE OFFERING
Full-time employees of the Association will participate in an ESOP,
which is a form of retirement plan, that will purchase shares of Common Stock.
The Association also intends to implement a stock award plan (the "Stock Award
Plan") and a stock option plan (the "Stock Option Plan") following completion of
the Reorganization. The Stock Award Plan would award up to 4% of the Common
Stock issued in the Offering to executive officers and directors of the
Association at no cost to them. The Stock Option Plan would grant options for up
to 10% of the Common Stock issued in the Offering to employees, officers and
directors of the Association. Stock awards and stock options would be granted at
fair market value. The Stock Award Plan and Stock Option Plan may not be adopted
until at least six months after the completion of the Reorganization, and are
subject to shareholder approval and compliance with OTS regulations. See pages
_____ to _____.
USE OF THE PROCEEDS RAISED FROM THE SALE OF COMMON STOCK
The Company will retain up to 50% of the net proceeds from the Offering
and will contribute the remainder of the net proceeds to the Association. The
Company intends to use part of the net proceeds to make a loan to the ESOP to
fund its purchase of up to 8% of the Common Stock sold in the Offering. The
remainder of the net proceeds will be used for general corporate purposes, and
initially are expected to be invested in U.S. government securities and other
federal agency securities. See pages _____ to _____.
DIVIDENDS
Management of the Company does not initially intend to pay an annual
dividend. Later decisions as to whether or not to declare dividends by the
Company will depend upon a number of factors, including the amount of net
proceeds retained by the Company, investment opportunities available to the
Company or the Association and the Company's financial condition and results of
operations. If the Company decides to pay dividends on the Common Stock, the
Mutual Holding Company may waive its receipt of cash dividends, subject to
regulatory approval. See page _____.
MARKET FOR THE COMMON STOCK
The Company has never issued capital stock. The Company expects that
the Common Stock will be quoted on the OTC Electronic Bulletin Board, but there
can be no assurance that an active and liquid trading market in the Common Stock
will develop or be maintained. Ryan, Beck & Co. has indicated its intention to
make a market in the
6
<PAGE> 11
Common Stock, subject to compliance with applicable provisions of federal and
state securities laws and other regulatory requirements, although Ryan, Beck &
Co. is not required to do so. If you purchase shares, you may not be able to
sell them when you want to at a price that is equal to or more than the price
you paid. See pages _____ to _____.
PROHIBITION ON TRANSFER OF SUBSCRIPTION RIGHTS
SELLING OR ASSIGNING YOUR SUBSCRIPTION RIGHTS IS ILLEGAL. IF YOU
EXERCISE YOUR SUBSCRIPTION RIGHTS YOU WILL BE REQUIRED TO CERTIFY THAT YOU ARE
PURCHASING SHARES SOLELY FOR YOUR OWN ACCOUNT AND THAT YOU HAVE NO AGREEMENT OR
UNDERSTANDING REGARDING THE SALE OR TRANSFER OF SUCH SHARES. THE ASSOCIATION
INTENDS TO PURSUE ANY AND ALL LEGAL AND EQUITABLE REMEDIES IN THE EVENT THE
ASSOCIATION BECOMES AWARE OF THE TRANSFER OF SUBSCRIPTION RIGHTS, AND THE
ASSOCIATION WILL NOT HONOR ORDERS KNOWN TO INVOLVE THE TRANSFER OF SUCH RIGHTS.
IN ADDITION, PERSONS WHO VIOLATE THE PURCHASE LIMITATIONS MAY BE SUBJECT TO
SANCTIONS AND PENALTIES IMPOSED BY THE OTS.
IMPORTANT RISKS IN PURCHASING AND OWNING THE COMMON STOCK
Before you decide to purchase Common Stock in the Offering, you should
read the Risk Factors section on pages _____ of this Prospectus, in addition to
the other sections of this Prospectus.
7
<PAGE> 12
SELECTED FINANCIAL AND OTHER DATA OF
ATLANTIC LIBERTY SAVINGS, F.A.
The following selected historical financial data at March 31, 1997 and
1996 and for the two years then ended is derived in part from the audited
financial statements of the Association. The historical financial information at
and for the six months ended September 30, 1997 and 1996 is derived from
unaudited financial statements. The unaudited financial statements include all
adjustments, consisting of normal recurring accruals. The operating data for the
six months ended September 30, 1997 may not be indicative of results that can be
expected for the full year. The following selected financial data of the
Association is qualified in its entirety by, and should be read in conjunction
with, the financial statements, including notes thereto, included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
(UNAUDITED)
AT OR FOR THE
SIX MONTHS ENDED AT OR FOR THE
SEPTEMBER 30, YEAR ENDED MARCH 31,
------------------------ ------------------------
1997 1996 1997 1996
--------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
SELECTED FINANCIAL CONDITION DATA:
Total assets .................................... $ 109,887 $ 105,297 $ 109,794 $ 105,742
Loans receivable, net ........................... 65,486 57,321 60,059 54,505
Mortgage-backed securities held for investment .. 19,017 18,152 19,030 19,226
Investments securities held for investment ...... 13,150 18,880 17,258 16,155
Deposits ........................................ 100,539 95,728 100,798 97,396
Retained earnings--substantially restricted ..... 7,208 7,397 6,873 6,750
SELECTED OPERATING DATA:
Total interest income ........................... $ 4,065 $ 3,615 $ 7,248 $ 7,151
Total interest expense .......................... 2,304 2,189 4,363 4,149
--------- --------- --------- ---------
Net interest income ........................... 1,761 1,426 2,885 3,002
Provision for loan losses ....................... 105 65 771 275
--------- --------- --------- ---------
Net interest income after provision for loan
losses ........................................ 1,656 1,361 2,114 2,727
--------- --------- --------- ---------
Gain (loss) on disposal of foreclosed real estate 28 123 148 (135)
Other non-interest income ....................... 168 743 1,105 340
--------- --------- --------- ---------
Total non-interest income ....................... 196 866 1,253 205
--------- --------- --------- ---------
Total non-interest expense ...................... 1,267 1,819 3,391 2,596
--------- --------- --------- ---------
Income (loss) before taxes ...................... 585 408 (24) 336
Income tax (expense) benefit .................... (250) 240 147 (140)
--------- --------- --------- ---------
Net income ...................................... $ 335 $ 648 $ 123 $ 196
========= ========= ========= =========
</TABLE>
8
<PAGE> 13
<TABLE>
<CAPTION>
At or for the
Six Months Ended At or for the
September 30, Year Ended March 31,
------------------- --------------------
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
SELECTED OPERATIONS DATA:
PERFORMANCE RATIOS:
Return on average assets (ratio of net income to
average total assets) (1) ........................... 0.62% 1.24% 0.37% 0.05%
Return on average equity (ratio of net
income to average equity) (1) ....................... 9.12% 18.45% 5.98% 0.76%
Net interest margin (1) (2) ........................... 3.40% 2.87% 2.81% 3.10%
Interest rate spread (3) .............................. 3.21% 2.75% 2.71% 2.97%
Ratio of operating expense to average total assets (1) 2.34% 3.48% 3.21% 2.56%
Ratio of average interest-earning assets to
average interest-bearing liabilities ................ 103.81% 102.85% 103.61% 103.26%
ASSET QUALITY RATIOS:
Non-performing loans to total assets at end of period . 1.80% 3.24% 1.89% 2.92%
Allowance for loan losses to non-performing loans ..... 54.97% 15.92% 47.10% 24.17%
Allowance for loan losses to loans receivable, net .... 1.65% 1.18% 1.63% 1.37%
CAPITAL RATIOS:
Retained earnings to total assets at end of period .... 6.57% 7.02% 6.26% 6.38%
Average retained earnings to average assets ........... 6.78% 6.72% 6.47% 6.69%
OTHER DATA:
Number of full-service offices ........................ 2 2 2 2
</TABLE>
- -------------------------
(1) Annualized
(2) Net income divided by average interest earning assets.
(3) Net interest rate spread represents the difference between the average
yield on interest earning assets and the average cost of interest bearing
liabilities.
9
<PAGE> 14
RISK FACTORS
In addition to the other information in this Prospectus, you should
consider carefully the following risk factors in evaluating an investment in the
Common Stock.
POTENTIAL IMPACT OF CHANGES IN INTEREST RATES AND THE CURRENT INTEREST RATE
ENVIRONMENT
The Association's profitability, like that of most financial
institutions, substantially depends on its net interest income, which is the
difference between the interest income earned on interest earning-assets (such
as mortgage loans) and the interest expense paid on interest-bearing liabilities
(such as deposits). The Association's net interest income is affected primarily
by market interest rates and the amount, maturity and yield on the Association's
interest earning assets relative to the amount, maturity and cost of its
interest-bearing liabilities. Approximately 53.4% of the Association's mortgage
loans have terms of up to 15 years and fixed rates of interest, while deposit
accounts have significantly shorter terms to maturity. Because the Association's
interest-earning assets generally have fixed rates of interest and have longer
effective maturities than interest-bearing liabilities, the yield on
interest-earning assets generally will adjust more slowly to changes in market
interest rates than the cost of the Association's interest-bearing liabilities.
Savings institutions, such as the Association, often use interest rate
"gap" analysis as a measure of interest rate risk. This technique measures the
relative dollar amounts of interest-earning assets and interest-bearing
liabilities that reprice within a specific time period, either through maturity
or interest rate adjustment. Interest rate "gap" analysis is a common, though
imperfect, measure of interest rate risk. The "gap" is the difference between
the amounts of such assets and liabilities that are subject to repricing within
a specific time period, expressed as a percentage of total assets. A negative
gap for a given period means that the amount of interest-bearing liabilities
maturing or otherwise repricing within that period exceeds the amount of
interest-earning assets maturing or otherwise repricing within the same period.
A positive gap for a given period means that the amount of interest-earning
assets maturing or other repricing within that period exceeds the amount of
interest-bearing liabilities maturing or otherwise repricing within the same
period. At September 30, 1997, the dollar amount of the Association's
interest-bearing liabilities maturing or repricing within one year exceeded the
amount of the Association's interest earning assets maturing or repricing within
the same period by $15.2 million, resulting in a negative one year interest rate
gap of 13.79%. As a result, based on the model, the Association's net interest
income would be adversely affected by material and prolonged increases in
interest rates. In addition, rising interest rates may adversely affect earnings
because the demand for loans typically decreases in a higher interest rate
environment. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations-- Interest Rate Risk."
Management also monitors the Association's interest rate risk exposure
with a model that estimates the change in the Association's net portfolio value
("NPV") in response to a range of assumed changes in market interest rates. NPV
is the present value of expected cash flows from assets, liabilities and
off-balance sheet items. Under the model, assuming an instantaneous 200 basis
point increase in market interest rates, the Association's NPV as of September
30, 1997 would decrease by $2.2 million or 24%.
Changes in interest rates also can affect the average life of loans and
mortgage-backed securities. The relatively lower interest rates in recent
periods have resulted in increased prepayments of loans and mortgage-backed
securities, as borrowers have refinanced their mortgages to reduce their
borrowing costs. Under these circumstances, the Association is subject to
reinvestment risk to the extent that it is not able to reinvest such prepayments
at rates which are comparable to the rates on the prepaid loans or securities.
Moreover, volatility in interest rates also can result in the flow of funds away
from the Association into other investments such as U.S. Government and
corporate securities and investments which generally pay higher rates of return
than the rates paid on deposits by savings institutions.
10
<PAGE> 15
RISKS ASSOCIATED WITH MULTI-FAMILY AND COMMERCIAL REAL ESTATE LENDING
At September 30, 1997, $13 million, or 19.8%, of the Association's loan
portfolio consisted of multi-family real estate loans and $11.9 million, or
18.1% of the Association's loan portfolio, consisted of commercial real estate
loans. The Association's primary lending area includes a significant number of
multi-family dwellings and apartment buildings. As a result, the Association
will continue to originate multi-family and commercial real estate loans to meet
the financing needs of its community. Loans secured by multi-family or
commercial real estate typically have higher interest rates than the interest
rates on one-to-four family loans because of the higher credit risks involved in
such loans. The repayment of loans secured by multi-family and commercial real
estate properties typically depends on the successful operation or management of
the property securing the loan, as well as the conditions in the real estate
market or the local economy. If the cash flow from the property is reduced, the
borrower's ability to repay the loan may be impaired. Moreover, multi-family and
commercial real estate loans are also more difficult to monitor and evaluate
than loans secured by one-to-four family properties. See "Business of Atlantic
Liberty Savings, F.A.--Lending Activities."
POSSIBLE INCREASE IN INDEPENDENT VALUATION AND NUMBER OF SHARES SOLD
As a result of changes in market and economic conditions, the
Independent Valuation may increase when it is updated at the conclusion of the
Offering, and, in such event, the number of shares to be sold in the Offering
will increase. INVESTORS WILL NOT BE RESOLICITED UNLESS THE INDEPENDENT
VALUATION INCREASES BY MORE THAN 15%, OR TO MORE THAN $13,225,000, OR THE NUMBER
OF SHARES SOLD IN THE OFFERING INCREASES BY MORE THAN 15%, OR TO MORE THAN
608,350 SHARES. If the Independent Valuation increases, then the interests of
those who purchase shares in the Offering will be diluted because more shares
will be outstanding at the conclusion of the Offering. See "Pro Forma Data" and
"The Reorganization and Stock Offering--Stock Pricing and Number of Shares to be
Offered in the Offering."
CONTROL BY THE MUTUAL HOLDING COMPANY
As the majority stockholder of the Company, the Mutual Holding Company
will be able to elect all of the directors of the Company and direct its
business and affairs. The Company will be controlled by its Board of Directors
which will consist initially of those persons who currently are directors of the
Association. After the Reorganization, the initial Board of Directors of the
Mutual Holding Company will also consist of those persons who currently are
members of the Board of Directors of the Association. As a result, it is
expected that the Board of Directors of the Mutual Holding Company will exercise
control over the Mutual Holding Company and, consequently, may be capable of
perpetuating the Board of Directors and management of the Mutual Holding
Company, the Company and the Association. THE PURCHASERS OF THE COMMON STOCK IN
THE OFFERING WILL BE MINORITY STOCKHOLDERS OF THE COMPANY AND WILL HAVE LIMITED
INFLUENCE IN ELECTING DIRECTORS OR OTHERWISE DIRECTING THE AFFAIRS OF THE
COMPANY AS LONG AS THE MUTUAL HOLDING COMPANY REMAINS IN EXISTENCE. THE
COMPANY'S FEDERAL CHARTER WILL PROHIBIT CUMULATIVE VOTING. THEREFORE, THE MUTUAL
HOLDING COMPANY WILL HAVE THE POWER TO ELECT ALL THE DIRECTORS OF THE COMPANY.
NO ASSURANCES CAN BE GIVEN THAT THE MUTUAL HOLDING COMPANY WILL NOT TAKE ACTION
THAT THE MINORITY STOCKHOLDERS BELIEVE TO BE CONTRARY TO THEIR INTERESTS.
WAIVER OF DIVIDENDS BY THE MUTUAL HOLDING COMPANY
The Company does not initially intend to pay dividends on its Common
Stock. However, in the event the Company pays cash dividends, the Mutual Holding
Company may, if permitted by regulatory authorities, waive the receipt of such
dividends if the Mutual Holding Company's board of directors determines that
such waiver is in the best interests of the Mutual Holding Company. The Board of
Directors of the Association, which will be the initial Board of Directors of
the Mutual Holding Company, currently believes that it will be in the best
interests of the Mutual Holding Company to waive the receipt of cash dividends,
and currently intends to have the Mutual Holding Company waive all or part of
its share of any cash dividends declared on the Common Stock. A waiver of cash
dividends by the Mutual Holding Company will result in a greater likelihood that
dividends will be paid to Minority
11
<PAGE> 16
Stockholders. There is no assurance that the Mutual Holding Company will waive
the receipt of cash dividends, and any dividend waiver by the Mutual Holding
Company will require the prior approval of the OTS. Pursuant to OTS policy and
the Association's Plan of Reorganization, the benefit to Minority Stockholders
of any dividends waived by the Mutual Holding Company must be taken into account
in any conversion of the Mutual Holding Company to stock form (a "Conversion
Transaction"), and would likely reduce the percentage of Common Stock of the
Company owned by Minority Stockholders following a Conversion Transaction.
CONVERSION OF MUTUAL HOLDING COMPANY TO STOCK FORM
OTS regulations permit a mutual holding company to convert to stock
form. The Plan provides that in a Conversion Transaction, the Mutual Holding
Company may merge into the Company or the Association, with either the Company
or the Association as the surviving entity, and depositors of the Association
will have the right to subscribe for shares of Common Stock of the Company or
its successor. The additional shares of Common Stock would be sold at their
aggregate pro forma market value as determined by an independent appraisal at
the time of the Conversion Transaction. Pursuant to the Plan, in any Conversion
Transaction, the Minority Stockholders will be entitled to maintain the same
percentage ownership interest in the Company after the Conversion Transaction as
their percentage ownership interest in the Company immediately before the
Conversion Transaction (the "Minority Ownership Interest"), subject only to the
following adjustments if required by federal law, regulation or policy to
reflect: (i) the cumulative effect of the aggregate amount of dividends waived
by the Mutual Holding Company, and (ii) the market value of the Mutual Holding
Company's assets other than its Common Stock of the Company.
The adjustment referred to in clause (i) of the preceding paragraph
would require that the Minority Ownership Interest be adjusted by multiplying
the Minority Ownership Interest by the following fraction:
(Company stockholders' equity immediately prior to Conversion Transaction) -
(aggregate amount of dividends waived by Mutual Holding Company)
----------------------------------------------------------------------------
Company stockholders' equity immediately prior to Conversion Transaction
The adjustment referred to in clause (ii) above would further adjust
the Minority Ownership Interest by multiplying it by the following fraction:
(pro forma market value of Company) - (market value of assets of Mutual Holding
Company other than Company Common Stock)
- -------------------------------------------------------------------------------
pro forma market value of Company
At the sole discretion of the Board of Directors of the Mutual Holding
Company and the Company, a Conversion Transaction may be effected in any other
manner necessary to qualify the Conversion Transaction as a tax-free
reorganization under applicable federal and state tax laws, provided such
Conversion Transaction does not diminish the rights and ownership interest of
Minority Stockholders. Management of the Association has no current intention to
conduct a Conversion Transaction. A Conversion Transaction would require the
approval of applicable federal regulators and a majority of the eligible votes
of the members of the Mutual Holding Company.
COMPETITION
Numerous commercial banks and savings banks have branches in the
immediate vicinity of the Association. There is strong competition from
financial institutions in the Association's local market in both originating
loans and attracting deposits. The Association's primary competitors are other
savings banks, commercial banks, mortgage banking companies and credit unions.
Such competition may have an adverse effect on the Association's growth and
profitability in the future. See "Competition."
GEOGRAPHIC CONCENTRATION OF LOANS
The Association's real estate mortgage loans are secured by properties
located primarily in Brooklyn, New York. A weakening in the local real estate
market or in the local economy could increase the number of delinquent
12
<PAGE> 17
or non-performing loans and reduce the value of the collateral securing such
loans, which would reduce the Association's net income.
INTENT TO REMAIN INDEPENDENT
The Association has operated as an independent community-oriented
savings association since 1888. The Association intends to continue to operate
as an independent community-oriented savings association following the
Reorganization. The Association and the Company will be controlled by the Mutual
Holding Company, and, under current OTS policy, control of the Mutual Holding
Company may not be sold to a third party. Accordingly, you are urged not to
subscribe for shares of Common Stock if you are anticipating a sale of control
of the Association or the Company. See "Business of Atlantic Liberty Savings,
F.A."
LACK OF ACTIVE MARKET FOR THE COMMON STOCK
The Company has never issued capital stock to the public, and due to
the relatively small size of the Offering there can be no assurance that an
active and liquid trading market for the Common Stock will develop or be
maintained. It is anticipated that the Common Stock will be quoted on the OTC
Electronic Bulletin Board. Ryan, Beck & Co. has indicated its intention to make
a market in the Common Stock, subject to compliance with applicable provisions
of federal and state securities laws and other regulatory requirements, although
Ryan, Beck & Co. is not required to do so. If you purchase shares of Common
Stock, you may not be able to sell them when you want to at a price that equals
or exceeds the price you paid for the Common Stock.
EXPENSES ASSOCIATED WITH ESOP AND STOCK AWARD PLAN
The Association will recognize material employee compensation and
benefit expenses assuming the ESOP and the Stock Award Plan are implemented. The
actual aggregate amount of these new expenses cannot be predicted at the present
time because applicable accounting practices require that they be based on the
fair market value of the shares of Common Stock when the expenses are
recognized, which would occur when shares are committed to be released in the
case of the ESOP, and over the vesting period of awards made to recipients in
the case of the Stock Award Plan. These expenses have been reflected in the pro
forma financial information under "Pro Forma Data" assuming the Purchase Price
($10.00 per share) as fair market value. Actual expenses, however, will be based
on the fair market value of the Common Stock at the time of recognition, which
may be higher or lower than the Purchase Price. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Impact of New
Accounting Standards--FASB Statement on Accounting for Stock-Based
Compensation," "Management of The Association--Benefits--Employee Stock
Ownership Plan" and "--Benefits--Stock Award Plan."
POSSIBLE DILUTIVE EFFECT OF STOCK AWARD PLAN AND STOCK OPTION PLAN
If the Reorganization and Offering are completed and stockholders
approve the Stock Award Plan and Stock Option Plan, the Company intends to issue
shares of Common Stock to officers and directors of the Association through
these plans. If the shares for these plans are issued from the Company's
authorized but unissued Common Stock, the book value and earnings per share of
minority stockholders would be diluted, and the trading price of the Company's
Common Stock may be reduced. See "Pro Forma Data" and "Executive Compensation
and Related Transactions of the Association."
FINANCIAL INSTITUTION REGULATION AND FUTURE OF THE THRIFT INDUSTRY
The Association is subject to extensive regulation, supervision, and
examination by the OTS and the FDIC. Legislation has been introduced in Congress
that would consolidate the OTS with the Office of the Comptroller of the
Currency. If this legislation is enacted into law, the Association may be
required to become a state or national commercial bank, and may become regulated
by a different government agency. It is not possible to predict at this
13
<PAGE> 18
time whether such legislation will be enacted into law, or the impact of any
such legislation on the operations of the Association, the Company or the Mutual
Holding Company. See "Regulation."
RISK OF DELAYED OFFERING
Although the Reorganization and Offering are expected to be completed
within the time periods indicated in this Prospectus, it is possible that
adverse market, economic or other factors may significantly delay the completion
of the Reorganization and Offering, which could significantly increase the costs
of the Reorganization and Offering. See "The Reorganization."
PROPOSED PURCHASES BY DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the approximate purchases of Common
Stock by each director and executive officer and their Associates in the
Offering. All shares will be purchased for investment purposes and not for
purposes of resale. The table assumes that 460,000 shares (the midpoint of the
Offering Range) of Common Stock will be sold at $10.00 per share and that
sufficient shares will be available to satisfy subscriptions.
<TABLE>
<CAPTION>
TOTAL SHARES
PROPOSED TO BE AGGREGATE PRICE OF
NAME POSITION SUBSCRIBED FOR(1) INTENDED PURCHASES PERCENT OF SHARES %
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
John A. Maher Chairman of the Board 5,000 $ 50,000 1.1%
and Secretary
Stephen Irving President, Chief Executive 2,500 25,000 .5
Officer and Director
Nunzio D'Addona Director 5,000 50,000 1.1
Eugene F. O'Connor Director 5,000 50,000 1.1
Edward W. Kelle Director and Vice 2,500 25,000 .5
Chairman of the Board
Fred W. McPhilliamy Director 2,500 25,000 .5
Martin D. Dehler Director 5,000 50,000 1.1
Barry Donohue 1,000 10,000 .2
Steven Parisi 1,000 10,000 .2
----- ------ --
All directors and officers
as a group (9 persons) (2) 29,500 $295,000 6.4%
====== ======== ====
</TABLE>
- ---------------------------
(1) Does not include shares subject to stock options which may be granted under
the Stock Option Plan, or shares which may be awarded under the Stock Award
Plan.
(2) Assuming (i) that all shares awarded under the Stock Award Plan are
purchased on the open market upon the full vesting of the restricted stock
awards to directors and officers contemplated under the Stock Award Plan
and (ii) the exercise in full of all options expected to be granted to
directors and officers under the Stock Option Plan, all directors and
officers as a group would beneficially own 84,240 shares (19.6%), 93,900
shares (18.6%), 103,560 shares (17.7%), and 114,669 shares (17.1%) at the
minimum, midpoint, maximum, and 15% above the maximum of the Offering
Range, respectively. See "Executive Compensation and Related Transactions
of Atlantic Liberty -- Stock Award Plan," "--Stock Option Plan."
14
<PAGE> 19
ATLANTIC LIBERTY, MHC
The Mutual Holding Company will at all times own a majority of the
outstanding shares of Common Stock. Each member of the Association immediately
prior to the Reorganization will receive the same membership rights in the
Mutual Holding Company after the Reorganization that such person had in the
Association before the Reorganization so long as such member continues to
maintain a deposit account with the Association after the Reorganization, or, in
the case of a borrower member, such member's borrowings from the Association, as
of the effective date of the Reorganization, remain outstanding. Borrowers will
not receive membership rights for any new borrowings from the Stock Association
after the completion of the Reorganization. The Mutual Holding Company will be
chartered as a federal mutual holding company and will be subject to regulation
by the OTS.
Immediately after the Reorganization, it is expected that the only
business activity of the Mutual Holding Company will be to own a majority of the
Common Stock. The Mutual Holding Company, however, will be authorized to engage
in any other business activities that are permissible for mutual holding
companies under federal law, including investing in loans and securities.
The office of the Mutual Holding Company is located at 186 Montague
Street, Brooklyn, New York 11201. The telephone number is (718) 855-3555.
BROOKLYN HEIGHTS BANCORP
The Company will be formed as a federal corporation and will own 100%
of the Association's common stock. The Company has not engaged in any business
to date and, for that reason, its financial statements are not included in this
Prospectus. The Company has received approval from the OTS to become a savings
and loan holding company through the acquisition of all of the capital stock of
the Association to be issued and outstanding upon completion of the
Reorganization. The Company will have all of the powers set forth in its Federal
charter and under Federal law. The Company will be subject to the same
restrictions on its permissible business activities under federal law that are
applicable to the Mutual Holding Company.
The Company will retain up to 50% of the net proceeds of the Offering.
Part of the net proceeds will be used to fund a loan to the ESOP, which is
expected to purchase up to 8% of the Common Stock in the Offering. The remainder
of the net proceeds will be used for general corporate purposes. The Company has
no present plans regarding diversification, acquisitions or expansion. The
Company initially will not conduct any active business and does not intend to
employ any persons other than its officers, although it may utilize the
Association's support staff from time to time.
The office of the Company is located at 186 Montague Street, Brooklyn,
New York 11201. The telephone number is (718) 855-3555.
ATLANTIC LIBERTY SAVINGS, F.A.
Originally organized in 1888 as a New York building and loan
association, the Association converted to a Federal savings association in 1983.
The Association currently conducts its business from its main office and one
full-service branch office, both of which are located in Brooklyn, New York. At
September 30, 1997, the Association had total assets of $110 million, deposits
of $101 million and retained earnings of $7.2 million, or 6.54% of assets. For
the six months ended September 30, 1997 and the year ended March 31, 1997, the
Association had net income of $335,000 and $123,000, respectively. For the same
period it had a return on average assets of 0.62% and 0.12%, respectively, and a
return on average equity of 9.12% and 5.98%, respectively.
The Association is primarily engaged in the business of offering
savings and certificates of deposit to the general public, and using the funds
from such deposits to make mortgage loans secured by one-to-four family
15
<PAGE> 20
residential real estate. The Association also makes loans secured by
multi-family and commercial real estate. The Association has no outstanding
borrowings.
SUMMARY DESCRIPTION OF THE REORGANIZATION
Pursuant to the Plan, the Association will reorganize into a two-tier
mutual holding company structure by forming: (i) the Mutual Holding Company as a
federally-chartered mutual holding company; (ii) the Company as a
federally-chartered stock holding company that will sell 46% of its Common Stock
in the Offering and issue the remaining 54% of its Common Stock to the Mutual
Holding Company; and (iii) the Stock Association as a federally-chartered stock
savings association which will be the successor to the Association in its
current mutual form, and which will be wholly-owned by the Company.
------------------- -------------------
Atlantic Liberty, Public
MHC Stockholders
(Including ESOP)
------------------- -------------------
54% of the 46% of the
Common Common
Stock Stock
----------------------------------------------------------------
Brooklyn Heights Bancorp
----------------------------------------------------------------
100% of the
Common Stock
----------------------------------------------------------------
Atlantic Liberty Savings, F.A.
----------------------------------------------------------------
The Reorganization will structure the Association in the stock form of
ownership, which is the corporate form used by commercial banks, most major
businesses and a large number of savings institutions. The primary purpose of
the Reorganization is to raise equity capital and establish a holding company to
enable the Association to compete more effectively in the financial services
marketplace. See "The Reorganization and Offering--Reasons for the
Reorganization."
MARKET AREA
The Association is a community-oriented savings institution that offers
a variety of financial products and services from its main office and one branch
office located in Brooklyn, New York. The Association's primary lending area is
concentrated in the neighborhoods surrounding both of the Association's office
locations. One-to-four family residential real estate in the Association's
market area is characterized by a large number of attached and semi-detached
houses, including a number of two- and three-family homes and cooperative
apartments. Most of the Association's deposit customers are residents of the
greater New York metropolitan area.
The Association has significant competition in originating loans from
savings and loan associations, savings banks, mortgage banking companies,
insurance companies and commercial banks, many of which have greater financial
and marketing resources than the Association. The Association also faces
significant competition in attracting deposits from savings and loan
associations, savings banks, commercial banks and credit unions. The Association
faces additional competition for deposits from money market funds and other
corporate and government securities funds, and from other financial service
providers such as brokerage firms and insurance companies.
16
<PAGE> 21
USE OF PROCEEDS
The Company will retain up to 50% of the net proceeds from the
Offering, and will use the balance of the net proceeds to purchase all of the
Common Stock issued by the Association. A portion of the net proceeds retained
by the Company will be loaned to the ESOP to fund its purchase of up to 8% of
the Common Stock sold in the Offering. On a short-term basis, the remaining net
proceeds retained by the Company may be invested in U.S. Government securities
and other federal agency securities. On a longer-term basis, the Company will
use the net proceeds for general corporate purposes. The Company may also use a
portion of the net proceeds to fund the purchase of Common Stock equal to 4% of
the shares sold in the Offering for the Stock Award Plan. The Stock Award Plan
may not be adopted by the Company's Board of Directors earlier than six months
following the completion of the Reorganization, and is subject to the approval
of stockholders.
The Association intends to use a portion of the net proceeds that it
receives from the Company to make one-to-four family mortgage loans,
multi-family real estate loans and commercial real estate loans, subject to
market conditions. On an interim basis, a portion of the net proceeds may be
invested in U.S. Government securities and other Federal agency securities. See
"Business of Atlantic Liberty Savings, F.A.--Investments."
The following table shows estimated gross and net proceeds based on the
sale of Common Stock at the minimum, midpoint, maximum and 15% above the
maximum, of the Offering Range.
<TABLE>
<CAPTION>
15% ABOVE
MINIMUM, MIDPOINT, MAXIMUM, MAXIMUM,
391,000 460,000 529,000 608,350
SHARES SOLD AT PRICE SHARES SOLD AT PRICE SHARES SOLD AT PRICE SHARES SOLD AT PRICE
OF $10.00 OF $10.00 OF $10.00 OF $10.00(2)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross proceeds............. $ 3,910,000 $ 4,600,000 $ 5,290,000 $ 6,083,500
Less:
Estimated underwriting
commissions and other
expenses(1)............. 500,000 510,000 521,000 534,000
------------- -------------- ------------- -------------
Estimated net proceeds(1).. $ 3,410,000 $ 4,090,000 $ 4,769,000 $ 5,549,500
============= ============== ============= =============
</TABLE>
- -------------------------
(1) In calculating estimated net proceeds it has been assumed that no sales
will be made through selected dealers and that the ESOP acquires 8% of the
shares of Common Stock issued in the Offering.
(2) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Offering Range of up to 15% to
reflect changes in market and financial conditions following the
commencement of the Subscription Offering and the Community Offering, if
any, as well as to reflect the demand for the Common Stock.
The actual net proceeds may differ from the estimated net proceeds
calculated above for various reasons, including variances in the actual amount
of legal and accounting expenses incurred in connection with the Reorganization
and Offering, commissions paid for sales made through other dealers, and the
actual number of shares of Common Stock sold in the Offering. Any variance in
the actual net proceeds from the estimates provided in the table above is not
expected to be material.
DIVIDENDS
The Company has no present plans to pay a dividend on the Common Stock.
Dividends will be subject to determination and declaration by the Board of
Directors in its discretion, which will take into account the Company's
consolidated financial condition and results of operations, tax considerations,
industry standards, economic conditions, capital levels, regulatory restrictions
on dividend payments by the Association to the Company, general business
practices and other factors. See "Regulation--Savings Association Regulatory
Capital" and "--Dividend Limitations."
The Company will not be subject to OTS regulatory restrictions on the
payment of dividends, although its ability to pay dividends will depend in part
upon the receipt of dividends from the Association. The Association must
17
<PAGE> 22
provide the OTS with 30 days prior notice of its intention to pay a dividend or
other capital distribution to the Company. Additional limits on the dollar
amount of any capital distribution by the Association to the Company are set
forth in OTS regulations. See "Regulation--Dividend Limitations."
If permitted by regulatory authorities, the Mutual Holding Company may
waive the receipt of any cash dividends declared on the Common Stock if the
Mutual Holding Company's Board of Directors determines that such waiver is in
the best interests of the Mutual Holding Company. The Board of Directors may
conclude that such waiver, which permits retention of capital by the Company, is
in the best interest of the Mutual Holding Company because, among other reasons,
(i) the Mutual Holding Company has no need for the dividend considering its
current business operations, and (ii) the cash that would be received could be
invested by the Company at a more favorable rate of return. The Board of
Directors may consider other factors in determining whether such waiver is
consistent with its fiduciary duties to the Mutual Holding Company. A waiver of
dividends by the Mutual Holding Company will result in a greater likelihood that
dividends will be paid to stockholders other than the Mutual Holding Company.
There is no assurance that the Mutual Holding Company will waive the receipt of
dividends.
In addition to the foregoing, the portion of the Association's earnings
which has been appropriated for bad debt reserves and deducted for federal
income tax purposes cannot be used by the Association to pay cash dividends to
the Company without the payment of federal income taxes by the Association at
the then current income tax rate on the amount deemed distributed, which would
include the amount of any federal income taxes attributable to the distribution.
See "Taxation-- Federal Taxation" and Note 9 to the Financial Statements. The
Company does not contemplate any distribution by the Association that would
result in a recapture of the Association's bad debt reserve or otherwise create
federal tax liabilities.
MARKET FOR THE COMMON STOCK
The Company has never issued Common Stock to the public. Consequently,
there is no established market for the Common Stock. The Company intends to have
the Common Stock traded on the OTC Electronic Bulletin Board, an electronic
communications network that provides brokers and dealers with quotation
information. Ryan, Beck & Co. has advised the Association that it intends to act
as a market maker for the Common Stock, subject to compliance with applicable
provisions of federal and state securities laws and other regulatory
requirements, but it is under no obligation to do so.
The existence of a public trading market will depend upon the presence
in the market of both willing buyers and willing sellers at any given time. The
presence of a sufficient number of buyers and sellers at any given time is a
factor over which neither the Company nor any broker or dealer has control. The
absence of an active and liquid trading market may make it difficult to sell the
Common Stock and may have an adverse effect on the price of the Common Stock.
Purchasers should consider the potentially illiquid and long-term nature of
their investment in the Common Stock.
COMPETITION
Numerous financial institutions that provide similar services operate
in the Association's market area, including commercial banks, savings
associations, credit unions and certain nonbanking consumer lenders. The
Association also competes with money market funds with respect to deposit
accounts and with insurance companies with respect to individual retirement
accounts. The Association's office locations are in close proximity to many
competing financial institutions.
The Association attracts and retains deposits by offering personalized
service, convenient office locations and competitive interest rates. Loan
originations are obtained primarily through (i) direct contacts by employees
with individuals, businesses and attorneys in the Association's community, (ii)
personalized service that the Association provides borrowers, and (iii)
competitive pricing. Competition is affected by, among other things, the general
18
<PAGE> 23
availability of lendable funds, general and local economic conditions, current
interest rate levels, and other factors that management cannot readily predict.
CAPITALIZATION
The following table presents the Association's historical
capitalization at September 30, 1997, and the pro forma consolidated
capitalization of the Company as of that date, giving effect to the sale of
Common Stock offered by this Prospectus based on the number of shares indicated
in the table, and subject to the other assumptions set forth below. The pro
forma data set forth below may change significantly at the time the Company
completes the Reorganization and Offering due to, among other factors, a change
in the Independent Valuation or a change in the current estimated expenses of
the Reorganization and Offering. If the Offering Range changes so that between
391,000 and 608,350 shares are not sold in the Offering, subscriptions will be
returned to subscribers who do not affirmatively elect to continue their
subscriptions at the revised Offering Range.
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1997
PRO FORMA COMPANY
CAPITALIZATION BASED ON SALE OF
------------------------------------------------------
391,000 460,000 529,000 608,350
SHARES SHARES SHARES SHARES
ATLANTIC SOLD AT SOLD AT SOLD AT SOLD AT
LIBERTY PRICE OF PRICE OF PRICE OF PRICE OF
HISTORICAL $10.00 $10.00 $10.00 $10.00(8)
- -----------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Deposits(1) .................................. $ 100,539 $ 100,539 $ 100,539 $ 100,539 $ 100,539
--------- --------- --------- --------- ---------
Total deposits .......................... $ 100,539 $ 100,539 $ 100,539 $ 100,539 $ 100,539
========= ========= ========= ========= =========
Stockholders equity (2):
Preferred Stock, $1.00 par value per share:
authorized - 10,000,000 shares; assumed
outstanding - none ......................... $ -- $ -- $ -- $ -- $ --
Common stock, $1.00 par value per share
20,000,000 authorized shares; shares to be
outstanding as shown(3)(4) ................. -- 391 460 529 608
Paid-in capital(3) ........................... -- 3,019 3,630 4,240 4,942
Less: Common stock acquired by ESOP(5) ....... -- (313) (368) (423) (487)
Common stock to be acquired by SAP(6) .. -- (156) (184) (212) (243)
Retained earnings, substantially restricted(7) 7,208 7,208 7,208 7,208 7,208
--------- --------- --------- --------- ---------
Total stockholders' equity ................... $ 7,208 $ 10,149 $ 10,746 $ 11,342 $ 12,028
========= ========= ========= ========= =========
</TABLE>
- ---------
(1) Excludes withdrawals from deposit accounts for the purchase of Common Stock.
Such withdrawals will reduce pro forma deposits by the amount thereof.
(2) Pro forma stockholders' equity is not intended to represent the fair market
value of the Common Stock, the net fair market value of the Company's assets
and liabilities or the amounts, if any, that would be available for
distribution to stockholders in the event of liquidation. Such pro forma
data may be affected by a change in the number of shares to be sold in the
Offering and by other factors.
(3) The number of shares to be issued in the Offering may be increased or
decreased based on market and financial conditions prior to the completion
of the Offering. Assumes estimated expenses of $500,000, $510,000, $521,000
and $534,000 at the minimum, midpoint, maximum and adjusted maximum of the
Offering Range, respectively. See "Use of Proceeds."
(4) Does not reflect additional shares of Common Stock that could be purchased
pursuant to the Stock Option Plan, if implemented, under which directors,
executive officers and other employees of the Company would be granted
options to purchase an aggregate amount of Common Stock equal to 10% of the
shares issued in the Offering (54,000 shares at the midpoint of the
19
<PAGE> 24
Offering Range). Implementation of the Stock Option Plan requires
shareholder approval, which is expected to be sought at the first annual
meeting of stockholders to be held no earlier than six months following the
Reorganization.
(5) Assumes purchases by the ESOP of a number of shares equal to 8% of the
shares sold to the public in the Offering. The funds used to acquire the
ESOP shares will be borrowed from the Company. See "Use of Proceeds." The
Association intends to make contributions to the ESOP sufficient to service
and ultimately retire its debt. The Common Stock acquired by the ESOP is
reflected as a reduction of shareholders' equity. As the ESOP debt is
repaid, shares will be released and allocated to participants' accounts, and
a corresponding reduction in the charge against stockholders' equity will
occur. See "Executive Compensation and Related Transactions of Atlantic
Liberty-- Employee Stock Ownership Plan and Trust."
(6) Assuming the receipt of shareholder approval, the Company intends to
implement the Stock Award Plan . Assuming such implementation, the Stock
Award Plan will purchase an amount of shares equal to 4% of the Common Stock
sold in the Offering. Such shares may be purchased from authorized but
unissued shares or in the open market. Under the terms of the Stock Award
Plan, assuming it is adopted within one year of the Reorganization, shares
awarded to officers and directors will vest at the rate of 20% per year. The
Common Stock to be purchased by the Stock Award Plan represents unearned
compensation and is, accordingly, reflected as a reduction to pro forma
stockholders' equity. As shares of the Common Stock granted pursuant to the
Stock Award Plan vest, a corresponding reduction in the charge against
capital will occur. In the event that authorized but unissued shares are
acquired, the interests of existing stockholders will be diluted. Assuming
that 460,000 shares of Common Stock, the midpoint of the Offering Range, are
issued in the Reorganization, and that all awards under the Stock Award Plan
are from authorized but unissued shares, the Company estimates that the per
share book value for the Common Stock would be diluted by $.92 per share, or
3.9% on a pro forma basis as of September 30, 1997. The dilution would be
$1.02 per share (3.87%) and $.84 per share (3.95%) at the minimum and
maximum levels, respectively, of the Offering Range on a pro forma basis at
September 30, 1997.
(7) Retained earnings are substantially restricted, see "Financial Statements."
(8) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Offering Range of up to 15% to reflect
changes in market and financial conditions following the commencement of the
Subscription Offering and Community Offering, if any.
PRO FORMA DATA
The following tables set forth the pro forma combined consolidated net
income of the Company for the year ended March 31, 1997 and the six-months ended
September 30, 1997, as though the Offering had been consummated at the beginning
of the year and the six month period, and the investable net proceeds had been
invested at 6.0% for the year ended March 31, 1997 which was the one year
treasury bill rate at March 31, 1997, and at 5.36% for the six months ended
September 30, 1997, which was the one year treasury bill rate at September 30,
1997, respectfully. The pro forma after-tax return for the Company on a
consolidated basis is assumed to be 3.84% for the year ended March 31, 1997 and
3.43% for the six months ended September 30, 1997, after giving effect to (i)
the yield on investable net proceeds from the Offering and (ii) adjusting for
taxes using a combined federal and state income tax rate of 36%. Historical and
per share amounts have been calculated by dividing historical amounts and pro
forma amounts by the indicated number of shares of Common Stock, assuming that
such number of shares had been outstanding during each of the entire periods.
The 391,000, 460,000, 529,000 and 608,350 shares represent 46% of minimum,
midpoint, maximum and adjusted maximum, respectively of the Estimated Valuation
Range.
Book value represents the difference between the stated amount of
consolidated assets and consolidated liabilities of the Company computed in
accordance with generally accepted accounting principles. Book value does not
necessarily reflect current market value of assets and liabilities, or the
amounts, if any, that would be available for distribution to shareholders in the
event of liquidation. See "The Reorganization--Principal Effects of
Reorganization--Effect on Liquidation Rights." Book value also does not reflect
the federal income tax consequences of the restoration to income of the
Association's bad debt reserve for income tax purposes, which would be required
in the unlikely event of liquidation or if a substantial portion of retained
earnings were otherwise used for a purpose other than absorption of bad debt
losses. See "Taxation--Federal Taxation." Pro forma book value includes only net
proceeds from the Offering as though it occurred as of the indicated date and
does not include earnings on the proceeds for the period then ended.
The pro forma net income derived from the assumptions set forth above
should not be considered indicative of the actual results of operations of the
Company that would have been attained for the year ended March 31, 1997 and the
six months ended September 30, 1997 if the Offering had been actually
consummated at the beginning of such
20
<PAGE> 25
year and six month period, and the assumptions regarding investment yields
should not be considered indicative of the actual yield expected to be achieved
during any future period. The pro forma book values at the date indicated should
not be considered as reflecting the potential trading value of the Common Stock.
There can be no assurance that an investor will be able to sell the Common Stock
purchased in the Offering at prices within the range of the pro forma book
values of the Common Stock or at or above the Purchase Price. The pro forma data
may not total due to rounding differences.
21
<PAGE> 26
<TABLE>
<CAPTION>
At or for the Six Months Ended September 30, 1997
Based on the sale of common stock for $10.00 per share
------------------------------------------------------
391,000 460,000 529,000 608,350
Shares Shares Shares Shares
Sold Sold Sold Sold (1)
--------- --------- -------- ---------
(Dollars in Thousands, Except Per Share Data)
<S> <C> <C> <C> <C>
Gross proceeds................................................ $ 3,910 $ 4,600 $ 5,290 $ 6,084
Less Offering expenses........................................ 500 510 521 534
--------- --------- -------- ---------
Estimated net proceeds...................................... $ 3,410 $ 4,090 $ 4,769 $ 5,550
========= ========= ======== =========
Net earnings:
Historical.................................................. $ 335 $ 335 $ 335 $ 335
Pro forma income on net proceeds (2)........................ 50 61 71 83
Pro forma ESOP adjustment (3)............................... (10) (12) (14) (16)
Pro forma Stock Award Plan adjustment (4)................... (10) (12) (14) (16)
---------- ---------- --------- ----------
Pro forma net earnings................................... $ 365 $ 372 $ 379 $ 387
========= ========= ======== =========
Per share net earnings: (5) (6)
Historical.................................................. $ .41 $ .35 $ .30 $ .26
Pro forma income on net proceeds (2)........................ .06 .06 .06 .06
Pro forma ESOP adjustment (3)............................... (.01) (.01) (.01) (.01)
Pro forma Stock Award Plan adjustment (4)................ (.01) (.01) (.01) (.01)
---------- ---------- --------- ----------
Pro forma net earnings per share (5) (7)................. $ .44 $ .39 $ .34 $ .30
========= ========= ======== =========
Stockholders' equity:
Historical (8).............................................. $ 7,208 $ 7,208 $ 7,208 $ 7,208
Estimated adjusted net proceeds (9)......................... 3,411 4,091 4,771 5,552
Common stock acquired by ESOP (3)........................... (313) (368) (423) (487)
Common stock acquired by Stock Award Plan (4)............... (156) (184) (212) (243)
---------- ---------- --------- ----------
Pro forma stockholders' equity.............................. $ 10,150 $ 10,747 $ 11,344 $ 12,030
========= ========= ======== =========
Stockholders' equity per share: (5) (8)
Historical.................................................. $ 8.36 $ 7.11 $ 6.18 $ 5.37
Estimated adjusted net proceeds (9)......................... 4.01 4.09 4.16 4.20
Common stock acquired by ESOP (3)........................... (.37) (.37) (.37) (.37)
Common stock acquired by Stock Award Plan (4)............... (.18) (.18) (.18) (.18)
---------- ---------- --------- ----------
Pro forma stockholders' equity per share (5) (7)............ $ 11.82 $ 10.65 $ 9.78 $ 9.02
========= ========= ======== =========
Offering price to pro forma stockholders' equity.............. 84.58% 93.92% 102.28% 110.85%
======== ======== ======= ========
Offering price to pro forma net earnings per share (5)........ 11.05x 12.73x 14.34x 16.12x
========= ========= ======== =========
Minority Ownership Interest (10).............................. 46.00% 46.00% 46.00% 46.00%
========= ========= ======== =========
</TABLE>
(footnotes on second following page)
22
<PAGE> 27
<TABLE>
<CAPTION>
At or for the Year Ended March 31, 1997
Based on the Sale of common stock for $10.00 Per Share
------------------------------------------------------
391,000 460,000 529,000 608,350
Shares Shares Shares Shares
Sold Sold Sold Sold (1)
--------- --------- -------- ---------
(Dollars in Thousands, Except Per Share Data)
<S> <C> <C> <C> <C>
Gross proceeds................................................ $ 3,910 $ 4,600 $ 5,290 $ 6,084
Less Offering expenses........................................ 500 510 521 534
--------- --------- --------- ---------
Estimated net proceeds...................................... $ 3,410 $ 4,090 $ 4,769 $ 5,550
========= ========= ========= =========
Net earnings:
Historical.................................................. $ 123 $ 123 $ 123 $ 123
Pro forma income on net proceeds (2)........................ 113 136 159 185
Pro forma ESOP adjustment (3)............................... (20) (24) (27) (31)
Pro forma stock award plan adjustment (4)................... (20) (24) (27) (31)
---------- --------- --------- ----------
Pro forma net earnings.................................... $ 196 $ 212 $ 228 $ 246
========= ========= ========= =========
Per share net earnings: (5) (6)
Historical.................................................. $ .15 $ .13 $ .11 $ .10
Pro forma income on net proceeds (2)........................ .14 .14 .14 .14
Pro forma ESOP adjustment (3)............................... (.02) (.02) (.02) (.02)
Pro forma stock award plan adjustment (4)................... (.02) (.02) (.02) (.02)
---------- --------- ---------- ---------
Pro forma net earnings per share (5) (7).................. $ .24 $ .22 $ .20 $ 0.19
========= ========= ========= =========
Stockholders' equity:
Historical (8).............................................. $ 6,773 $ 6,773 $ 6,773 $ 6,773
Estimated adjusted net proceeds (9)......................... 3,411 4,091 4,771 5,552
Common stock acquired by ESOP (3)........................... (313) (368) (423) (487)
Common stock acquired by stock award plan (4)............... (156) (184) (212) (243)
---------- ---------- ---------- ----------
Pro forma stockholders' equity.............................. $ 9,715 $ 10,312 $ 10.909 $ 11,595
========= ========= ========= =========
Stockholders' equity per share: (5) (8)
Historical.................................................. $ 7.97 $ 6.77 $ 5.89 $ 5.12
Estimated adjusted net proceeds (9)......................... 4.01 4.09 4.15 4.20
Common stock acquired by ESOP (3)........................... (.37) (.37) (.37) (.37)
Common stock acquired by stock award plan (4)............... (.18) (.18) (.18) (.18)
---------- ---------- ---------- ----------
Pro forma stockholders' equity per share (5) (7)............ $ 11.43 $ 10.31 $ 9.49 $ 8.77
========= ========= ========= =========
Offering price to pro forma stockholders' equity.............. 87.49% 96.97% 105.42% 114.06%
========= ========= ========= =========
Offering price to pro forma net earnings per share (5)........ 41.91x 45.62x 48.81x 51.97x
========= ========= ========= =========
Minority Ownership Interest (10).............................. 46.00% 46.00% 46.00% 46.00%
========= ========= ========= =========
</TABLE>
(footnotes on following page)
23
<PAGE> 28
(1) Assumes that at the conclusion of the Offering the Independent Valuation
increases by 15% to $13,225,000 and that the Association increases the
number of shares sold in the Offering to 608,350.
(2) No effect has been given to withdrawals from savings accounts for the
purpose of purchasing Common Stock. Since funds on deposit at the
Association may be withdrawn to purchase shares of Common Stock (which will
reduce deposits by the amount of such purchases), the net amount of funds
available to the Association for investment following receipt of the net
proceeds of the Offering will be reduced by the amount of such withdrawals.
(3) Assumes that 8% of the shares of Common Stock sold in the Offering will be
purchased by the ESOP. The funds used to acquire such shares will be
borrowed by the ESOP from the Company. The Association intends to make
annual contributions to the ESOP in an amount at least equal to the
principal and interest requirements of the debt, which is expected to have a
maturity of 10 years. The pro forma net earnings assume that: (i) the
Association's total annual contribution is equivalent to the debt service
requirement for the six months ended September 30, 1997, and the year ended
March 31, 1997, and was made at the end of each period; (ii) the interest
rate applicable to the debt was 8.5% for each period; and (iii) the marginal
statutory tax rate applicable to the debt was 36% for each period. The
amount borrowed is reflected as a contra equity account and as a reduction
of stockholders' equity. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Impact of New Accounting
Standards." To the extent that insufficient shares are available in the
Offering to satisfy the purchases of the ESOP, the ESOP may, following the
Offering, purchase such number of shares in the open market.
(4) Subsequent to the completion of the Offering, and subject to the approval by
stockholders other than the Mutual Holding Company at the first annual
meeting of stockholders if established within the first year following
completion of the Reorganization, the Stock Award Plan intends to purchase
an aggregate number of shares of common stock equal to 4.0% of the shares to
be issued in the Offering. The shares may be acquired directly from the
Company from authorized but unissued shares, or through open market
purchases. The funds to be used by the Stock Award Plan to purchase the
shares will be provided by the Company or the Association. Assumes that the
Stock Award Plan acquires the shares from the Company at the Purchase Price
with funds contributed by the Company, and that 20% of the amount
contributed to the Stock Award Plan is amortized as an expense in the year
ended March 31, 1997 and 10% is amortized as an expense for the six months
ended September 30, 1997.
(5) Assumes 850,000 shares, 1,000,000 shares, 1,150,000 shares, and 1,322,500
shares are outstanding at the minimum, midpoint, maximum, and adjusted
maximum of the Valuation Range. Such number of shares includes shares sold
in the Offering, shares issued to the Mutual Holding Company in the
Reorganization, and shares assumed to be issued by the Company pursuant to
the Stock Award Plan (which will not be established within the first year
after the conclusion of the Offering unless approved by Minority
Stockholders) in an amount equal to 4% of the number of shares issued in
the Offering. No effect has been given to the issuance of additional shares
of Common Stock pursuant to the Company's stock option plans (which will
not be established within the first year after the conclusion of the
Offering unless approved by Minority Stockholders.
(6) Annualized where appropriate.
(7) If the Stock Award Plan purchases 18,400 shares of Common Stock in the open
market after the Offering (i.e., 4% of the number of shares issued at the
midpoint of the Offering Range) at an assumed fair market value of $10.00
per share, the pro forma stockholders' equity and earnings per share before
the cumulative effect of accounting change would be $9.49 and $.20,
respectively, at and for the six months ended September 30, 1997, and $9.78
and $.35, respectively, at and for the fiscal year ended March 31, 1997.
(8) Stockholders' equity represents the excess of the carrying value of the
assets of the Association over its liabilities. The amounts shown do not
reflect the federal income tax consequences of the potential restoration to
income of the bad debt reserves for income tax purposes, which would be
required in the event of liquidation. See Note 1 of Notes to the Financial
Statements.
(9) Includes assumed proceeds from sale to the Stock Award Plans for $10.00 per
share of a number of authorized but unissued shares equal to 4% of the
number of shares sold in the Offering. Purchases by the Stock Award Plans
will be made at the fair market value of such shares at the time of
purchase, which may be more or less than $10.00.
(10) "Minority Ownership Interest" represents the aggregate of the number of
shares of common stock sold in the Offering and intended to be awarded
pursuant to the Stock Award Plans, as a percentage of 391,000 shares,
460,000 shares, 529,000 shares, and 608,350 shares at the minimum,
midpoint, maximum and adjusted maximum of the Offering Range.
24
<PAGE> 29
HISTORICAL AND PRO FORMA REGULATORY CAPITAL COMPLIANCE
The following table compares the Association's historical and pro forma
regulatory capital levels as of September 30, 1997 to the OTS' capital
requirements after giving effect to the Offering.
<TABLE>
<CAPTION>
PRO FORMA BASED UPON SALE OF
---------------------------------------------------
MINIMUM OF MIDPOINT OF
OFFERING OFFERING
RANGE OF RANGE OF
HISTORICAL AT 391,000 SHARES 460,000 SHARES
SEPTEMBER 30, 1997 AT $10.00 PER SHARE AT $10.00 PER SHARE
------------------------- ------------------------- -----------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
--------- ---------- --------- ---------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ATLANTIC LIBERTY
- ----------------
Capital under generally
accepted accounting
principles........................ $ 7,208 6.6% $ 8,600 7.8% $ 8,884 7.9%
========= =========
Tangible capital(2)................ $ 7,208 6.6% 8,600 7.8% 8,884 7.9%
Tangible capital requirement(3).... 1,645 1.5% 1,666 1.5% 1,670 1.5%
--------- --------- --------- --------- --------- --------
Excess........................... $ 5,563 5.1% $ 6,934 6.3% $ 7,214 6.4%
========= ========= ========= ========= ========= ========
Core capital(2).................... $ 7,208 6.6% 8,600 7.8% 8,884 7.9%
Core capital requirement(2) (4).... 3,289 3.0% 3,331 3.0% 3,340 3.0%
--------- --------- --------- --------- --------- --------
Excess........................... $ 3,919 3.6% $ 5,269 4.8% $ 5,544 4.9%
========= ========= ========= ========= ========= ========
Risk-based capital(2)(3)........... $ 7,822 15.7% 9,214 18.4% 9,498 18.9%
Risk-based capital
requirement....................... 3,977 8.0% 4,000 8.0% 4,004 8.0%
--------- --------- --------- --------- --------- --------
Excess........................... $ 3,845 7.7% $ 5,214 10.4% $ 5,494 10.9%
========= ========= ========= ========= ========= ========
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA BASED UPON SALE OF
-----------------------------------------------------
MAXIMUM OF MAXIMUM, AS ADJUSTED,
OFFERING OF OFFERING
RANGE OF RANGE OF
529,000 SHARES 608,350 SHARES
AT $10.00 PER SHARE AT $10.00 PER SHARE(1)
---------------------- -----------------------
AMOUNT PERCENT AMOUNT PERCENT
--------- --------- --------- ---------
(DOLLARS
IN THOUSANDS)
<S> <C> <C> <C> <C>
ATLANTIC LIBERTY
- ----------------
Capital under generally
accepted accounting
principles........................ $ 9,169 8.2% $ 9,496 8.5%
Tangible capital(2)................ 9,169 8.2% 9,496 8.5%
Tangible capital requirement(3).... 1,674 1.5% 1,679 1.5%
--------- -------- --------- --------
Excess........................... $ 7,495 6.7% $ 7,817 7.0%
========= ======== ========= ========
Core capital(2).................... 9,169 8.2% 9,496 8.5%
Core capital requirement(2) (4).... 3,348 3.0% 3,358 3.0%
--------- -------- --------- --------
Excess........................... $ 5,821 5.2% $ 6,138 5.0%
========= ======== ========= ========
Risk-based capital(2)(3)........... 9,783 19.5% 10,110 20.1%
Risk-based capital
requirement....................... 4,009 8.0% 4,014 8.0%
--------- -------- --------- --------
Excess........................... $ 5,774 11.5% $ 6,096 12.1%
========= ======== ========= ========
</TABLE>
- ----------------------
(1) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Offering Range of up to 15% to reflect
changes in market and financial conditions following commencement of the
Subscription Offering and the Community Offering, if any, as well as to
reflect demand for the Common Stock.
(2) Tangible and core capital levels are shown as a percentage of total assets;
risk-based capital levels are shown as a percentage of risk-weighted assets.
(3) Pro forma risk-based capital amounts and percentages assume net proceeds
have been invested in 20% risk-weighted assets.
(4) The current OTS core capital requirement for savings associations is 3% of
total adjusted assets. The OTS has proposed core capital requirements which
would require a core capital ratio of 3% of total adjusted assets for
thrifts that receive the highest supervisory rating for safety and soundness
and a core capital ratio of 4% to 5% for all other thrifts.
25
<PAGE> 30
ATLANTIC LIBERTY SAVINGS, F.A.
STATEMENTS OF OPERATIONS
The following Statements of Operations of the Association for the
fiscal years ended March 31, 1997 and 1996 have been audited by Sol Masch &
Company, independent certified public accountants, whose report on the financial
statements appears elsewhere in this Prospectus. The Statements of Operations
for the six months ended September 30, 1997 and 1996 were not audited by
independent public accountants but in the opinion of management reflect all
adjustments, consisting of normal recurring accruals, necessary for a fair
presentation of the results of operations for those periods. Operating results
at and for the six months ended September 30, 1997 are not necessarily
indicative of the results that may be expected for any other interim period or
for the fiscal year ending March 31, 1998. These Statements of Operations should
be read in conjunction with the Financial Statements of the Association and the
Notes thereto included elsewhere in the Prospectus.
<TABLE>
<CAPTION>
(UNAUDITED)
FOR THE SIX MONTHS ENDED FOR THE YEARS ENDED
SEPTEMBER 30, MARCH 31,
------------------------ ------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Interest income:
Loans receivable
First mortgage loans.................................. $ 2,799,995 $ 2,319,224 $ 4,676,981 $ 4,628,730
Consumer and other loans.............................. 7,856 -- -- 50,660
Investment securities................................... 646,827 718,795 1,433,772 1,341,263
Mortgage-backed and related securities.................. 610,276 576,740 1,137,225 1,130,330
----------- ----------- ----------- -----------
Total interest income................................. 4,064,954 3,614,759 7,247,978 7,150,983
----------- ----------- ----------- -----------
Interest expense:
Deposits................................................ 2,300,345 2,185,940 4,356,710 4,143,186
Borrowed funds.......................................... 3,585 3,265 6,668 6,257
----------- ----------- ----------- -----------
Total interest expense................................ 2,303,930 2,189,205 4,363,378 4,149,443
----------- ----------- ----------- -----------
Net interest income................................... 1,761,024 1,425,554 2,884,600 3,001,540
Provision for loan losses.................................. 105,473 65,643 771,178 274,980
----------- ----------- ----------- -----------
Net interest income after provision for loan losses... 1,655,551 1,359,911 2,113,422 2,726,560
----------- ----------- ----------- -----------
Noninterest income:
Loan servicing fees..................................... 72 260 373 590
Income from real estate operations...................... 80,165 57,129 154,212 173,157
Gain (loss) on disposal of foreclosed real estate....... 28,838 123,089 148,394 (135,247)
Other................................................... 87,712 686,617 950,607 166,896
----------- ----------- ----------- -----------
Total noninterest income.............................. 196,787 867,095 1,253,586 205,396
----------- ----------- ----------- -----------
Noninterest expense:
General and administrative:
Compensation and benefits............................. 747,473 699,737 1,667,416 1,435,244
Occupancy and equipment............................... 135,627 130,724 276,019 266,342
SAIF deposit insurance premium........................ 31,318 703,515 762,696 208,903
Other................................................. 352,606 285,023 684,677 684,828
----------- ----------- ----------- -----------
Total noninterest expense........................... 1,267,024 1,818,999 3,390,808 2,595,317
----------- ----------- ----------- -----------
Income (loss) before income taxes..................... 585,314 408,007 (23,800) 336,639
Income tax (expense) benefit............................ (249,922) 239,584 147,325 (140,551)
----------- ----------- ----------- -----------
Net income............................................ $ 335,392 $ 647,591 $ 123,525 $ 196,088
=========== =========== =========== ===========
</TABLE>
26
<PAGE> 31
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Brooklyn Heights Bancorp will be formed as a federal corporation for
the purpose of issuing the Common Stock and owning all of the capital stock of
the Association issued in the Reorganization. Consequently, the Company has no
operating history. All information in this section should be read in conjunction
with the financial statements and notes thereto included in this Prospectus.
The Association's principal business has historically consisted of
offering savings and other deposits to the general public and using the funds
from such deposits to make loans secured by residential real estate. The primary
goals of management are to increase the Association's profitability, enhance its
banking franchise and monitor its capital position. The Association's results of
operations depend primarily upon its net interest income, which is the
difference between income earned on interest earning assets, such as loans and
investments, and the interest expense paid on deposits. The Association's
operations are affected to a much lesser degree by noninterest income, such as
loan origination and commitment fees, gain (loss) from the sale of foreclosed
real estate and other sources of income. The Association's net income is also
affected by, among other things, provisions for loan losses and noninterest
expenses. The Association's principal operating expenses, aside from interest
expense, consist of compensation and benefits, occupancy and equipment, SAIF
deposit insurance premiums and other expenses. The Association's results of
operations also are affected significantly by general economic and competitive
conditions, particularly changes in market interest rates, government
legislation and policies affecting fiscal affairs, housing and financial
institutions, monetary policies of the Federal Reserve System, and the actions
of bank regulatory authorities.
Like many financial institutions, the Association relies upon computers
for the daily conduct of its business and for data processing generally. There
is concern that on January 1, 2000 computers will be unable to "read" the new
year and as a consequence, there may be widespread computer malfunctions.
Management has reviewed this issue and has been advised by the Association's
data processing service center that they have addressed this issue and that it
should not affect the Association's external data processing. In addition,
management has concluded that no computer malfunctions are expected to occur
with the Association's computer systems on January 1, 2000. To the best of
management's knowledge, no significant additional costs will be incurred in
connection with the year 2000 issue.
OPERATING STRATEGY
In guiding the Association's operations, management has implemented
various strategies designed to continue the institution's profitability
consistent with safety and soundness. These strategies include: (i) emphasizing
one-to-four family residential real estate lending; (ii) monitoring and
improving asset quality; (iii) managing interest-rate risk and (iv) controlling
operating expenses. It is anticipated, subject to market conditions, that the
strategies presently in place will be continued following completion of the
Reorganization.
EMPHASIS ON RESIDENTIAL REAL ESTATE LENDING. Historically, the
Association has emphasized one-to-four family residential lending within the
Borough of Brooklyn. As of September 30, 1997, approximately 61.2% of the loan
portfolio consisted of one-to-four family residential real estate loans. As of
such date, 19.8% of the loan portfolio consisted of multi-family real estate
loans, and 18.1% of the loan portfolio consisted of commercial real estate
loans. During the six months ended September 30, 1997 and the year ended March
31, 1997, the Association originated $5.3 million and $12.7 million,
respectively, of loans secured by real estate. The Association uses various
methods to increase loan originations, including advertising and establishing
relationships with realtors, homebuilders and customers.
27
<PAGE> 32
MONITORING ASSET QUALITY. At September 30, 1997, the Association's
ratio of nonperforming loans to total assets was 1.60%. At March 31, 1997 and
1996, the Association's ratio of nonperforming loans to total assets was 1.89%
and 2.92%, respectively. The Association has reduced its level of nonperforming
loans by emphasizing sound underwriting and collection procedures, and by
selling nonperforming and foreclosed assets.
MANAGING INTEREST-RATE RISK. Interest rate "gap" analysis is a common,
though imperfect, measure of interest rate risk, which measures the relative
dollar amounts of interest-earning assets and interest-bearing liabilities that
reprice within a specific time period, either through maturity or interest rate
adjustment. The "gap" is the difference, expressed as a percentage of total
interest earning assets, between the amounts of such assets and liabilities that
are subject to repricing. At September 30, 1997, the Association had a negative
one year "gap" of 13.79%. A negative "gap" for a given period means that the
amount of interest-bearing liabilities maturing or otherwise repricing within
that period exceeds the amount of interest-earning assets maturing or otherwise
repricing within the same period. Consequently, the Association's net interest
income likely would be impacted negatively by an increase in market interest
rates. See "--Interest Rate Risk."
CONTROL OF GENERAL AND ADMINISTRATIVE EXPENSES. The Association closely
monitors its general and administrative expenses and seeks to control such
expenses while maintaining the necessary personnel to properly serve its
customers. For the six months ended September 30, 1997 and the years ended March
31, 1997 and 1996, the Association's ratio of operating expenses (exclusive of
the SAIF special assessment), as a percentage of average assets, was 2.28%,
3.10% and 2.66%, respectively.
INTEREST RATE RISK
The Association's interest rate risk management program focuses
primarily on evaluating and managing the composition of the Association's assets
and liabilities in the context of various interest rate scenarios. Factors
beyond management's control, such as market interest rates and competition, also
have an impact on interest income and interest expense.
In the absence of other factors, the yield or return on the
Association's interest-earning assets generally will increase from existing
levels when interest rates rise over an extended period of time, and conversely
interest income will decrease when interest rates decrease. In general, interest
expense will increase when interest rates rise over an extended period of time,
and conversely interest expense will decrease when interest rates decrease. The
cost of funds for an institution with a negative "gap" would generally be
expected to increase more quickly than the yield on its interest-earnings assets
in a rising interest rate environment, and such institution's net interest
income generally would be expected to be adversely affected by rising interest
rates. Changes in market interest rates generally would have the opposite effect
on an institution with a positive "gap."
The Association's one-year interest sensitivity "gap" as a percentage
of total interest-earning assets at September 30, 1997 was a negative 13.79%
using various assumptions described below. The Association's interest rate
sensitivity is moderated by the relatively short terms offered on its mortgage
loans, as well as its investment in ARM loan mutual funds. The Association
generally does not originate fixed rate residential mortgage loans for terms
that exceed 15 years. Multi-family and commercial real estate loans are
originated for terms of up to 10 years. In addition, at September 30, 1997,
$13.6 million, or 13.6% of total deposits consisted of medium- and longer-term
certificates of deposits which have been opened with the Association at the
direction of the local county and surrogate courts for the benefit of minor
children or persons judged to be incompetent. In most cases such funds must be
maintained at the Association until the beneficiary becomes 18 or is deemed
competent by a court, as the case may be.
The following table sets forth the amounts of interest-earning assets
and interest-bearing liabilities outstanding at September 30, 1997 which are
projected to reprice or mature in each of the future time periods specified.
Adjustable rate loans are assumed to reprice at a rate of 32.5% per year. Fixed
rate loans are assumed to mature at
28
<PAGE> 33
a rate of 12.8% per year, non-residential fixed rate mortgage loans are assumed
to mature at a rate of 11.1% per year, and non-residential adjustable rate loans
are assumed to mature at a rate of 16.3% per year. Investments and adjustable
rate mortgage-backed securities are assumed to reprice at an annual rate of
25.5% and 29.4%, respectively. Passbook accounts and money market deposit
accounts are assumed to decay at a rate of 33% annually. The excess (deficiency)
of interest-earning assets over interest-bearing liabilities which are expected
to mature or reprice during a given period is referred to as the "gap"
associated with that period. In making the gap computations, none of the
assumptions made regarding prepayment rates and deposit decay rates have been
used for any other interest-earning assets or interest-bearing liabilities. In
addition, the table reflects expected principal payments assuming that interest
rates do not change the scheduled terms of the loans. The interest rate
sensitivity of the Association's assets and liabilities illustrated in the
following table would vary substantially if different assumptions were used or
if actual experience differs from that indicated by such assumptions.
<TABLE>
<CAPTION>
TERMS TO REPRICING AT SEPTEMBER 30, 1997
---------------------------------------------------
MORE THAN
1 YEAR 1 YEAR TO MORE THAN
OR LESS 5 YEARS 5 YEARS TOTAL
-------- --------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Loans:
Adjustable rate .......................... $ 22,457 $ 10,231 -- $ 32,688
Fixed rate ............................... 3,645 10,102 $ 8,918 22,665
Non-residential mortgage (adjustable rate) 5,959 6,921 -- 12,880
Non-residential mortgage (fixed rate) .... 1,912 7,621 1,424 10,957
Investments:
Investment securities .................... 583 12,567 -- 13,150
Mortgage securities ...................... 4,622 55 635 5,312
-------- -------- -------- --------
Total rate sensitive assets ............ $ 39,178 $ 47,497 $ 10,977 $ 97,652
======== ======== ======== ========
Liabilities:
Money market deposits .................... $ 2,227 $ 3,611 $ 911 $ 6,749
Certificates of deposit .................. 41,145 19,429 12 60,586
Passbook accounts ........................ 7,114 11,534 2,911 21,559
NOW accounts ............................. 1,414 2,291 579 4,284
Other savings ............................ 2,429 3,938 994 7,361
-------- -------- -------- --------
Total rate sensitive liabilities ....... $ 54,329 $ 40,803 $ 5,407 $100,539
======== ======== ======== ========
Periodic/Cumulative Gap ..................... (15,151) 6,694 5,570
Gap as a percentage of total assets ...... (13.79)% 6.09% 5.07%
</TABLE>
NET PORTFOLIO VALUE. Management monitors the Association's interest
rate sensitivity through the use of a model which estimates the change in net
portfolio value ("NPV") in response to a range of assumed changes in market
interest rates. NPV is the present value of expected cash flows from assets,
liabilities, and off-balance sheet items. The model estimates the effect on the
Association's NPV of instantaneous and permanent 100 to 400 basis point
increases and decreases in market interest rates with no effect given to any
steps that management might take to counter the effect of interest rate
movements.
29
<PAGE> 34
The table below sets forth as of June 30, 1997, the latest date for
which such information is available, the estimated changes in (i) the
Association's NPV, and (ii) the Association's net interest income that would
result from the designated instantaneous changes in the U.S. Treasury yield
curve, as calculated by the Risk Management Division of the OTS.
<TABLE>
<CAPTION>
Net Portfolio Value
-------------------------------------------------
Changes in
Interest Rates Estimated Amount of NPV as % of
(basis points) $NPV $ Change(1) Percent Change Portfolio Value of Assets
-------------- --------- ----------- -------------- ----------------------------
(Dollars in Thousands) NPV Ratio(2) Change(3)
------------ ---------
<S> <C> <C> <C> <C> <C>
+400 4,154 -4,805 -54% 4.04% -416 bp
+300 5,483 -3,476 -39% 5.24% -296 bp
+200 6,769 -2,190 -24% 6.37% -183 bp
+100 7,928 -1,031 -12% 7.35% -85 bp
0 8,959 8.20%
-100 9,418 459 +5% 8.55% +35 bp
-200 9,465 506 +6% 8.53% +34 bp
-300 9,963 1,004 +11% 8.89% +69 bp
-400 10,870 1,911 +21% 9.57% +137 bp
</TABLE>
- --------------------
(1) Represents the increase (decrease) of the estimated NPV at the indicated
change in interest rates compared to the NPV assuming no change in interest
rates.
(2) Calculated as the estimated NPV divided by the portfolio value of total
assets ("PV").
(3) Calculated as the increase (decrease) of the NPV ratio assuming the
indicated change in interest rates over the estimated NPV ratio assuming no
change in interest rates.
Computations of prospective effects of hypothetical interest rate
changes are based on numerous assumptions including relative levels of market
interest rates, loan prepayments and deposit decay, and should not be relied
upon as indicative of actual results. Further, the computations do not reflect
any actions management may undertake in response to changes in interest rates.
The tables set forth above indicate that, in the event of a 200 basis
point decrease in interest rates, the Association would be expected to
experience a 6% increase in NPV. In the event of a 200 basis point increase in
interest rates, the Association would be expected to experience a 24% decrease
in NPV.
Certain shortcomings are inherent in the method of analysis presented
in the NPV computations and in the "gap" computations presented in the tables
above. Although certain assets and liabilities may have similar maturities or
periods within which they will reprice, they may react differently to changes in
market interest rates. The interest rates on certain types of assets and
liabilities may fluctuate in advance of changes in market interest rates, while
interest rates on other types may lag behind changes in market rates.
Additionally, adjustable-rate mortgages have interest rate caps which restrict
changes in interest rates on a short-term basis and over the life of the assets.
The proportion of adjustable-rate loans could be reduced in future periods if
market interest rates decline and remain at lower levels for a sustained period
due to increased refinancing activity. Further, in the event of a change in
interest rates, prepayment and early withdrawal levels would likely deviate
significantly from those assumed in the tables. Finally, the ability of many
borrowers to service their adjustable-rate debt may decrease in the event of a
sustained increase in market interest rates. However, management does not view
the Association's interest rate sensitivity position at September 30, 1997 to be
unacceptable in view of current and foreseeable interest rate trends.
30
<PAGE> 35
AVERAGE BALANCE SHEET
The following tables sets forth information relating to average
balances of the Association's assets and liabilities for the six months ended
September 30, 1997 and 1996 and the years ended March 31, 1997 and 1996. For the
periods indicated, the table reflects the average yield on interest-earning
assets and the average cost of interest-bearing liabilities (derived by dividing
income or expense by the monthly average balance of interest-earning assets or
interest-bearing liabilities, respectively) as well as the net yield on
interest-earning assets. Nonaccruing loans were included in the computation of
average balances.
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED SEPTEMBER 30, (4)
-------------------------------------------------------------------
AT SEPTEMBER 30, 1997 1997 1996
--------------------- --------------------------------- -------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE YIELD/RATE BALANCE INTEREST YIELD/RATE BALANCE INTEREST YIELD/RATE
------- ---------- ------- -------- ---------- ------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans.......................... $ 65,486 8.58% $ 62,238 $ 2,808 9.02% $ 54,366 $ 2,319 8.53%
Mortgage-backed securities..... 19,017 6.42% 19,472 610 6.27% 18,623 577 6.19%
Investment securities.......... 13,150 7.09% 15,317 466 6.09% 17,943 482 5.37%
Interest bearing cash balances. 6,413 5.63% 6,617 181 5.46% 8,270 237 5.74%
-------- -------- ------- -------- -------
Total interest-earning assets 104,066 7.79% 103,644 4,065 7.84% 99,202 3,615 7.29%
------- -------
Other assets................... 5,811 4,700 5,276
-------- -------- --------
Total assets................. $109,877 $108,344 $104,478
======== ======== ========
Interest bearing liabilities:
Deposits...................... $100,539 4.58% $ 99,074 2,300 4.65% $ 95,729 2,186 4.57%
Advance payments by
borrowers(1)................. 763 0.94% 767 4 0.94% 726 3 0.90%
-------- -------- ------- -------- -------
Total interest-bearing
liabilities................. 101,302 4.55% 99,841 2,304 4.63% 96,455 2,189 4.54%
------- -------
Other liabilities.............. 1,367 1,155 999
Retained earnings............. 7,208 7,348 7,024
-------- -------- --------
Total liabilities and
retained earnings........... $109,877 $108,344 $104,478
======== ======== ========
Net interest income and
interest rate spread(2)....... 3.24% $ 1,761 3.21% $ 1,426 2.75%
======= ======= ====== ======= =======
Net yield on average
interest-earning assets(3).... 3.36% 3.40% 2.87%
Ratio of interest-earning
assets to interest-bearing
liabilities................... 102.73% 103.81% 102.85%
======= ====== =======
</TABLE>
- -----------------
(1) Advance payments by borrowers balances includes noninterest bearing and
interest-bearing escrow deposits.
(2) Net interest rate spread represents the difference between the average yield
on interest earning assets and the average cost of interest bearing
liabilities.
(3) Net yield on interest earnings assets represents net interest income as a
percentage of average interest earnings assets.
(4) Annualized where appropriate.
31
<PAGE> 36
<TABLE>
<CAPTION>
FOR THE YEARS ENDED MARCH 31,
-------------------------------------------------------------------------
1997 1996
----------------------------------- -----------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST YIELD/RATE BALANCE INTEREST YIELD/RATE
-------- -------- ---------- -------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans ................................................ $ 56,004 $ 4,677 8.35% $ 53,821 $ 4,679 8.69%
Mortgaged-backed securities .......................... 18,537 1,137 6.10% 17,905 1,131 6.31%
Investment securities ................................ 17,774 1,004 5.65% 14,795 792 5.35%
Interest bearing cash balances ....................... 8,224 430 5.23% 10,351 549 5.31%
-------- -------- -------- --------
Total interest-earning assets ...................... 100,539 7,248 7.21% 96,872 7,151 7.39%
-------- --------
Other assets ......................................... 4,894 4,423
-------- --------
Total assets ....................................... $105,433 $101,295
======== ========
Interest bearing liabilities:
Deposits ............................................ $96,250 4,356 4.53% $ 93,201 4,143 4.45%
Advance payments by borrowers(1) .................... 790 7 0.84% 616 6 1.02%
-------- -------- -------- --------
Total interest-bearing liabilities ................. 97,040 4,363 4.50% 93,817 4,149 4.42%
-------- --------
Other liabilities .................................... 1,562 705
Retained earnings .................................... 6,831 6,773
-------- --------
Total liabilities and retained earnings ............ $105,433 $101,295
======== ========
Net interest income and interest rate spread(2) ...... $ 2,885 2.71% $ 3,002 2.97%
======== ======= ======== =======
Net yield on average interest-earning assets(3) ...... 2.81% 3.10%
Ratio of interest-earning assets to interest-bearing
liabilities ......................................... 103.61% 103.26%
======= =======
</TABLE>
- ---------------
(1) Advance payments by borrowers balances includes noninterest bearing and
interest-bearing escrow deposits.
(2) Net interest rate spread represents the difference between the average yield
on interest-earning assets and the average cost of interest-bearing
liabilities.
(3) Net yield on interest earnings assets represents net interest income as a
percentage of average interest earnings assets.
RATE/VOLUME ANALYSIS
The following table analyzes the dollar amount of changes in interest
income and interest expense for major components of interest-earning assets and
interest-bearing liabilities. The table distinguishes between (i) changes
attributable to volume (changes in volume multiplied by the prior period's
rate), (ii) changes attributable to rate (changes in rate multiplied by the
prior period's volume), and (iii) the net or total change (the sum of the
previous columns). The change attributable to both rate and volume (changes in
rate multiplied by changes in volume) has been allocated equally to both the
changes attributable to volume and the changes attributable to rate.
32
<PAGE> 37
<TABLE>
<CAPTION>
SIX MONTHS ENDED
SEPTEMBER 30, 1997 VS. 1996 YEAR ENDED MARCH 31, 1997 VS. 1996
----------------------------------- ----------------------------------
INCREASE (DECREASE) DUE TO INCREASE (DECREASE) DUE TO
----------------------------------- ----------------------------------
VOLUME RATE TOTAL VOLUME RATE TOTAL
--------- -------- --------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest Income:
Investments....................... $ (171) $ 99 $ (72) $ 92 $ 1 $ 93
Mortgage Securities............... 27 6 33 (12) 19 7
Loans............................. 319 170 489 473 (471) 2
-------- -------- -------- ------- ------- ------
Total interest income.......... 175 275 450 553 (451) 102
-------- -------- -------- ------- ------- ------
Interest expense:
Deposits.......................... 104 10 114 145 68 213
Borrowings........................ -- 1 1 1 -- 1
-------- -------- -------- ------- ------- ------
Total interest expense......... 104 11 115 146 68 214
-------- -------- -------- ------- ------- ------
Net interest income................... $ 71 $ 265 $ 336 $ 407 $ (519) $ (112)
======== ======== ======== ======= ======= ======
</TABLE>
COMPARISON OF FINANCIAL CONDITION
At September 30, 1997, the Association's assets totaled $109.9 million
as compared to $109.8 million at March 31, 1997, an increase of $93,000 or .09%.
Loans receivable, net, increased by $5.4 million, while investment and mortgage
backed securities decreased by $4.1 million and $13,000, respectively. Deposits
decreased to $100.5 million at September 30, 1997 from $100.8 million at March
31, 1997. Total retained earnings increased $335,000 to $7.2 million at
September 30, 1997 from $6.9 million at March 31, 1997, as a result of net
income for the six months ended September 30, 1997. At September 30, 1997, the
Association continued to exceed all applicable regulatory capital requirements
with tangible, core and risk based capital ratios to total assets of 6.6%, 6.6%
and 15.7%, respectively.
COMPARISON OF RESULTS OF OPERATIONS
NET INCOME. The Association had net income of $335,000 and $648,000 for
the six months ended September 30, 1997 and 1996, respectively. The decrease in
net income was primarily attributable to a $670,000 decrease in noninterest
income and an income tax expense of $250,000 for the six months ended September
30, 1997, as compared to an income tax benefit of $240,000 for the comparable
period in 1996, which were partially offset by a $335,000 increase in net
interest income and a $552,000 decrease in noninterest expense.
Net income totalled $124,000 and $196,000 for the years ended March 31,
1997 and 1996, respectively. The decrease in net income was attributable to an
increase of noninterest expense to $3.4 million from $2.6 million which was
primarily attributable to a special SAIF premium paid in September 1996 of
$596,000 before taxes. In addition, net interest income decreased to $2.9
million from $3.0 million and the provision for loan losses increased to
$771,000 from $275,000. The increase in the provision for loan losses reflected
updated financial information regarding six pools of loans in which the
Association is a participant as well as management's assessment of the need to
increase the provision for loan losses on a commercial loan that was
subsequently sold. Noninterest income increased to $1.3 million from $205,000.
The increase in noninterest income was mainly the result of the Association
recognizing a one time benefit of $791,000 from the proceeds of a life insurance
policy and the proceeds received in settlement of a lawsuit, as well as an
income tax benefit of $147,000 for the year ended March 31, 1997 resulting from
the special SAIF assessment.
INTEREST INCOME. Interest income increased $450,000 or 11.1%, to $4.1
million from $3.6 million for the six months ended September 30, 1997 and 1996,
respectively. The average yield on interest earning assets increased to 7.84%
from 7.29%. This was partially attributable to a one-time recapture of interest
due on a nonperforming
33
<PAGE> 38
loan. In addition, the average balance of interest earning assets increased to
$103.6 million for the six months ended September 30, 1997 from $99.2 million
for the six months ended September 30, 1996.
Interest income on loans receivable increased by $489,000, or 21.1%, to
$2.8 million for the six months ended September 30, 1997 from $2.3 million for
the six months ended September 30, 1996. The increase in interest income on
loans receivable was attributable to an increase in the average balance of loans
receivable to $62.2 million from $54.3 million, as well as an increase in the
average yield on loans receivable to 9.02% from 8.53%. The increase in the yield
on loans receivable was attributable in large part to the payment of interest
due on a nonperforming loan. Interest income on mortgage-backed securities
increased $34,000, or 5.9%, to $610,000 from $576,000. The increase in interest
income on mortgage-backed securities was attributable to an increase in the
average balance of mortgage-backed securities to $19.5 million from $18.6
million, as well as an increase in the average yield on mortgage-backed
securities to 6.27% from 6.19%. Interest income on interest bearing cash
balances decreased $56,000, or 23.6%, to $181,000 for the six months ended
September 30, 1997 from $237,000 for the six months ended September 30, 1996.
The decrease in interest income from interest bearing cash balances was
attributable to a decrease in the average balance of interest bearing cash
balances to $6.6 million from $8.3 million, as well as a decrease in the average
yield to 5.46% from 5.74%. Interest income from investment securities decreased
to $466,000 from $482,000. The decrease in interest income from investment
securities was attributable to a decrease in the average balance of investment
securities to $15.3 million from $17.9 million, which was partially offset by an
increase in the average yield to 6.09% from 5.37%.
Interest income increased $97,000, or 1.4%, to $7.2 million for the
year ended March 31, 1997 from $7.1 million for the year ended March 31, 1996.
The increase in interest income was attributable to an increase in the average
balance of interest earning assets to $100.5 million from $96.9 million,
partially offset by a decrease in the average yield on interest earning assets
to 7.21% from 7.39%. The increase in the average balance of interest earning
assets resulted from the increases in the average balance of investments,
mortgage-backed securities and loans. The decrease in the average yield
reflected an increase in nonperforming assets during fiscal 1997, one of which
was a loan that was subsequently sold, and the other was an investment security
pool of loans on which the Association is now receiving monthly interest
payments.
Interest income on loans receivable decreased $2,000 for the year ended
March 31, 1997 compared to the year ended March 31, 1996. The slight decrease
was attributable to a decrease in the average yield to 8.35% from 8.69%,
partially offset by a $2.2 million increase in the average balance of loans
receivable to $56.0 million from $53.8 million. Interest income on
mortgage-backed securities remained the same at $1.1 million for each of the
years ended March 31, 1997 and 1996. Interest income on interest-bearing cash
balances decreased by $119,000, or 21.7%, to $430,000 from $549,000. The
decrease in interest income on interest bearing cash balances was attributable
to a decrease in the average balance to $8.2 million from $10.4 million as a
result of investing cash from federal funds to real estate mortgages. Interest
income from investment securities increased $212,000 due to increased yields on
the reinvestment of maturing securities and an increase in the average balance
of investment securities by $3.0 million, or 20.1%.
INTEREST EXPENSE. Interest expense increased by $115,000, or 5.3%, to
$2.3 million for the six months ended September 30, 1997. The increase in
interest expense resulted primarily from an increase in the average balance of
interest bearing liabilities to $99.8 million for the six months ended September
30, 1997 from $96.5 million for the six months ended September 30, 1996. The
average cost of interest bearing liabilities increased slightly to 4.63% from
4.54%. The increase in the average balance of interest bearing liabilities was
attributable almost entirely to an increase in the balance of deposits.
Total interest expense increased $214,000 or 5.2% to $4.4 million for
the year ended March 31, 1997 from $4.1 million for the year ended March 31,
1996. The increase in interest expense for the year ended March 31, 1997 was
attributable to an increase in the average balance of deposits to $96.3 million
from $93.2 million, as well as an increase in the average cost of such deposits
to 4.53% from 4.45%.
34
<PAGE> 39
NET INTEREST INCOME. For the six months ended September 30, 1997 and
1996 net interest income before the provision for loan losses was $1.8 million
and $1.4 million, respectively. The ratio of interest earning assets to interest
bearing liabilities increased to 103.85% from 102.85%. The Association's net
interest rate spread increased to 3.21% from 2.75%.
For the years ended March 31, 1997 and 1996, net interest income before
the provision for loan losses was $2.9 million and $3.0 million respectively.
The ratio of interest earning assets to interest bearing liabilities increased
to 103.61% from 103.26%. The net interest rate spread decreased to 2.69% from
2.92%.
PROVISION FOR LOAN LOSSES. For the six months ended September 30, 1997
and 1996, the Association added $105,000 and $65,000 to its allowance for loan
losses. For the years ended March 31, 1997 and 1996, the Association's provision
for loan losses was $771,000 and $275,000 respectively. The increase in the
allowance for the year ended March 31, 1997 was based on management's decision
to increase the provision to reflect the risks inherent in the Association's
participation in six pools of loans, a commercial real estate loan upon which
the Association commenced foreclosure proceedings and a loan on a commercial
condominium unit that was subsequently sold. Management regularly reviews its
loan portfolio to determine whether any loans require classification or the
establishment of reserves. At September 30, 1997 the Association had loans with
aggregate principal balances of $610,000 which were 60 to 89 days delinquent,
and total nonperforming loans including loans greater than 90 days delinquent of
$1.8 million which represented 1.60% of total assets.
NONINTEREST INCOME. Noninterest income for the six months ended
September 30, 1997 and 1996 was $197,000 and $867,000. The decrease in
noninterest income was primarily attributable to nonrecurring income during the
six months ended September 30, 1996 consisting of insurance proceeds of
$556,000, and the settlement of a lawsuit totaling $195,000. These decreases
were partially offset by an increase in income from real estate operations to
$80,000 from $57,000.
Noninterest income for the years ended March 31, 1997 and 1996 totaled
$1.3 million and $205,000, respectively. The $1.0 million, or 430%, increase in
noninterest income was primarily attributable to nonrecurring income consisting
of insurance proceeds of $556,000 and the settlement of a lawsuit totaling
$195,000. In addition, gain on disposal of foreclosed real estate was $148,000
compared to a loss on the sale of foreclosed real estate of $135,000 in 1996.
Income from real estate operations decreased $19,000, or 11%, to $154,000 from
$172,000.
NONINTEREST EXPENSE. Noninterest expense for the six months ended
September 30, 1997 and 1996 was $1.3 million and $1.8 million, respectively.
Noninterest expense consists of compensation and benefits which increased
slightly to $747,000 from $700,000, deposit insurance premiums which decreased
$673,000, or 95.6%, to $31,000 from $704,000, and other noninterest expense
(consisting of postage, professional fees, audits and examinations, data
processing, office supplies and insurance and surety bond premiums) which
increased $67,000, or 23.5%, to $353,000 from $285,000. The increase in other
noninterest expense was primarily attributable to the Association increasing its
advertising expense by $60,000.
Noninterest expense for the years ended March 31, 1997 and 1996 was
$3.4 million and $2.6 million respectively, an increase of $800,000, or 30.7%.
The increase in noninterest expense in fiscal 1997 as compared to fiscal 1996
was primarily due to an increase in deposit insurance premiums to $763,000 from
$209,000. The increased deposit premiums include the special one-time SAIF
assessment of $594,000. In addition, compensation and benefits expense increased
$232,000, or 16.2%, due to a restating of the directors deferred compensation
plan. There was also a $10,000, or 3.6%, increase in occupancy and equipment
expense.
INCOME TAXES. The provision for federal income taxes was $250,000 for
the six months ended September 30, 1997 compared to a federal income tax benefit
of $240,000 for the six months ended September 30, 1996. The federal income tax
benefit for the six months ended September 30, 1996 was attributable to the tax
benefit resulting from the special SAIF assessment. The Association had an
income tax benefit of $147,000 and income tax expense
35
<PAGE> 40
of $140,000 for the years ended March 31, 1997 and 1996, respectively. The
income tax benefit was attributable to the effect of the payment of the special
SAIF assessment in 1996.
CAPITAL RESOURCES AND LIQUIDITY
The objective of the Association's liquidity management is to ensure
the availability of sufficient cash flows to meet all financial commitments and
to capitalize on opportunities for expansion. Liquidity management addresses the
Association's ability to meet deposit withdrawals on demand or at contractual
maturity, to repay borrowings as they mature, and to fund new loans and
investments as opportunities arise.
The Association's primary sources of internally generated funds are
principal and interest payments on loans receivable, cash flows generated from
operations, and cash flows generated by investments. External sources of funds
include increases in deposits and advances from the FHLB of New York.
The Association is required under applicable federal regulations to
maintain specified levels of "liquid" investments in qualifying types of U.S.
Government, federal agency and other investments having maturities of five years
of less. Current OTS regulations require that a savings association maintain
liquid assets of not less than 5% of its average daily balance of net
withdrawable deposit accounts and borrowings payable in one year or less, of
which short-term liquid assets must consist of not less than 1%. Monetary
penalties may be imposed for failure to meet applicable liquidity requirements.
At September 30, 1997, the Association's liquidity, as measured for regulatory
purposes, was 28%, or $25 million in excess of the minimum OTS requirement.
At September 30, 1997, the Association had outstanding $4.4 million in
commitments to originate mortgage loans. If the Association requires funds
beyond its internal funding capabilities, advances from the FHLB of New York are
available. At September 30, 1997, approximately $41 million in certificates of
deposit were scheduled to mature within a year.
Following the Reorganization, the Company will initially conduct no
business other than holding the capital stock of the Association and the loan it
will make to the ESOP. The Company expects to retain up to 50% of the net
proceeds of the Offering. See "Use of Proceeds." In the future, the Company's
primary source of funds, other than income from its investments and principal
and interest payments received on the ESOP loan, is expected to be capital
distributions from the Stock Association. As a stock savings association, the
Stock Association may not declare or pay a cash dividend on or repurchase any of
its capital stock if the effect of such transaction would be to reduce its net
worth to an amount which is less than the minimum amount required by applicable
federal regulations. At September 30, 1997, the Association was in compliance
with all applicable capital requirements.
IMPACT OF INFLATION AND CHANGING PRICES
The Financial Statements and related Notes have been prepared in
accordance with generally accepted accounting principles, which generally
requires the measurement of financial position and operating results in terms of
historical dollars without considering the change in the relative purchasing
power of money over time due to inflation. The impact of inflation is reflected
in the increased cost of the Association's operations. Unlike most industrial
companies, nearly all the assets and liabilities of the Association are
financial. As a result, the Association's net income is directly impacted by
changes in interest rates, which are indirectly influenced by inflationary
expectations. The Association's ability to match the interest sensitivity of its
financial assets to the interest sensitivity of its financial liabilities as
part of its interest rate risk management program, may reduce the effect of
changes in interest rates on the Association's net income. Changes in interest
rates do not necessarily move to the same extent as changes in the price of
goods and services. In the current interest rate environment, liquidity and the
maturity structure of the Association's assets and liabilities are critical to
the maintenance of acceptable levels of net income.
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<PAGE> 41
IMPACT OF NEW ACCOUNTING STANDARDS
FASB STATEMENT ON EARNINGS PER SHARE. In March 1997, the Financial
Accounting Standards Board ("FASB") issued Statement of Financial Accounting
Standards ("SFAS") No. 128. The Statement establishes standards for computing
and presenting earnings per share and applies to entities with publicly held
common stock or potential common stock. This Statement simplifies the standards
for computing earnings per share previously found in Accounting Principles Board
("APB") Opinion No. 15, "Earnings per Share" ("EPS"), and makes them comparable
to international EPS standards. It replaces the presentation of primary EPS with
the presentation of basic EPS. It also requires dual presentation of basic and
diluted EPS on the face of the income statement for all entities with complex
capital structures, and requires a reconciliation of the numerator and the
denominator of the basic EPS computation to the numerator and denominator of the
diluted EPS computation. Basic EPS excludes dilution and is computed by dividing
income available to common stockholders by the weighted-average number of common
shares outstanding for the period. Diluted EPS reflects the potential dilution
that could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the earnings of the entity. Diluted EPS is computed
similarly to fully diluted EPS pursuant to APB Opinion No. 15. This Statement
supersedes Opinion 15 and AICPA Accounting Interpretation 1.102 of Opinion 15.
This Statement will be effective for the Association's fiscal year ending March
31, 1998. Management does not believe the impact of adopting SFAS No. 128 will
be material to the Association's financial statements.
FASB STATEMENT ON ACCOUNTING FOR STOCK-BASED COMPENSATION. In November
1995, the FASB issued SFAS No. 123. SFAS No. 123 defines a "fair value based
method" of accounting for an employee stock option whereby compensation cost is
measured at the grant date based on the value of the award and is recognized
over the service period. FASB has encouraged all entities to adopt the fair
value based method; however, it will allow entities to continue the use of the
"intrinsic value based method" prescribed by APB Opinion No. 25. Under the
intrinsic value based method, compensation cost is the excess of the market
price of the stock at the grant date over the amount an employee must pay to
acquire the stock. However, most stock option plans have no intrinsic value at
the grant date and, as such, no compensation cost is recognized under APB
Opinion No. 25. Entities electing to continue use of the accounting treatment of
APB Opinion No. 25 must make certain pro forma disclosures as if the fair value
based method had been applied. The accounting requirements of SFAS No. 123 are
effective for transactions entered into in fiscal years beginning after December
15, 1995. Pro forma disclosures must include the effects of all awards granted
in fiscal years beginning after December 15, 1994. The Association expects to
use the "intrinsic value based method" as prescribed by APB Opinion No. 25.
Accordingly, management does not believe the impact of adopting SFAS No. 123
will be material to the Association's financial statements.
FASB STATEMENT ON TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND
EXTINGUISHMENTS OF LIABILITIES. In June 1996, the FASB issued SFAS No. 125. This
Statement provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities based on
consistent application of a financial-components approach that focuses on
control. It distinguishes transfers of financial assets that are sales from
transfers that are secured borrowings. Under the financial-components approach,
after a transfer of financial assets, an entity recognizes all financial and
servicing assets it controls and liabilities it has incurred and derecognizes
financial assets it no longer control and liabilities that have been
extinguished. The financial-components approach focuses on the assets and
liabilities that exist after the transfer. If a transfer does not meet the
criteria for a sale, the transfer is accounted for as a secured borrowing with
pledge of collateral. This Statement is effective for transfer and servicing of
financial assets and extinguishments of liabilities occurring after December 31,
1996, and is to be applied prospectively. The effective date for certain
provisions of this Statement have been postponed for one year. Management
anticipates that the adoption of the Statement should have no material impact on
its financial statements.
FASB STATEMENT ON REPORTING COMPREHENSIVE INCOME. In June 1997, the
FASB issued SFAS No. 130. This Statement establishes standards of reporting and
display of comprehensive income and its components in a full set of
general-purpose financial statements. This Statement will be effective for the
Association's fiscal year ending March 31, 1999, and the Association does not
intend to early adopt. Had the Association early-adopted this
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<PAGE> 42
Statement, it would have reported comprehensive income in the same amounts as
reported net income for the years ended March 31, 1997 and 1996, respectively.
BUSINESS OF ATLANTIC LIBERTY SAVINGS, F.A.
GENERAL
The Association was organized in 1888 and became a state-chartered
savings and loan association in 1935 and a federal association in 1983. Since
then, the Association has conducted its business from its main office and branch
office, both of which are located in Brooklyn, New York. The Association is
primarily engaged in the business of offering savings and other deposits to the
general public, and using the funds from such deposits to make one-to-four
family mortgage loans secured by properties in Brooklyn, New York. The
Association also makes multi-family residential real estate loans and commercial
real estate loans primarily in Brooklyn, New York. The Association's deposit
accounts are insured up to applicable limits by the FDIC.
LENDING ACTIVITIES
Historically, the Association's principal lending activity has been the
origination of first mortgage loans for the purchase or refinancing of
one-to-four family residential real property. Generally, the Association retains
all loans that it originates. One-to-four family residential real estate
mortgage loans represented $40.0 million, or 61.18%, of the Association's loan
portfolio at September 30, 1997. The Association also offers multi-family and
commercial real estate loans. Multi-family real estate loans totaled $13.0
million, or 19.8%, of the loan portfolio at September 30, 1997. Commercial real
estate totaled approximately $11.9 million, or 18.1% of the loan portfolio at
September 30, 1997. Subsequent to September 30, 1997, the Association began
offering home equity loans to existing customers.
LOAN PORTFOLIO COMPOSITION. The following table sets forth the
composition of the Association's loan portfolio by type of loan type and
security as of the dates indicated, including a reconciliation of gross loans
receivable after consideration of the allowance for loan losses and loans in
process.
<TABLE>
<CAPTION>
AT SEPTEMBER 30, AT MARCH 31,
--------------------- -----------------------------------------------
1997 1997 1996
--------------------- --------------------- --------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
-------- -------- -------- ------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Real estate loans:
- ------------------
One-to-four family................. $40,064 61.18% $36,862 61.38% $30,605 56.15%
Multi-family....................... 12,974 19.81 10,555 17.57 11,166 20.49
Commercial......................... 11,861 18.11 11,917 19.84 12,784 23.45
------- ------- ------- ------ ------- ------
Total real estate loans.......... 64,899 99.10 59,334 98.79 54,555 100.09%
Other loans:
- ------------
Deposit accounts................... 1,828 2.79 1,830 3.05 816 1.50
Less:
- -----
Deferred fees and discounts........ (158) (0.24) (127) (0.21) (121) (0.22)
Allowance for losses............... (1,083) (1.65) (978) (1.63) (745) (1.37)
------- ------- ------- ------ ------- ------
Total loans receivable, net...... $65,486 100.00% $60,059 100.00% $54,505 100.00%
======= ======= ======= ====== ======= ======
</TABLE>
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<PAGE> 43
The following table shows the composition of the Association's loan
portfolio by fixed and adjustable rates at the dates indicated.
<TABLE>
<CAPTION>
AT SEPTEMBER 30, AT MARCH 31,
------------------------ ---------------------------------------------------
1997 1997 1996
------------------------ ------------------------ ------------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
-------- ------- -------- ------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Fixed-Rate Loans:
- -----------------
Real estate:
One-to-four family ................ $ 21,932 33.49% $ 18,270 30.42% $ 12,750 23.39%
Multi-family ...................... 6,487 9.91 7,230 12.04 7,792 14.30
Commercial ........................ 5,682 8.68 5,697 9.49 7,815 14.34
-------- ------ -------- ------ -------- ------
Total real estate loans ....... 34,101 52.08 31,197 51.95 28,357 52.03
-------- ------ -------- ------ -------- ------
Adjustable Rate Loans:
- ----------------------
Real estate:
One-to-four family ................ 18,132 27.69 18,592 30.95 17,855 32.76
Multi-family ...................... 6,487 9.91 3,325 5.53 3,374 6.19
Commercial ........................ 6,179 9.43 6,220 10.36 4,969 9.11
-------- ------ -------- ------ -------- ------
Total real estate loans ....... 30,798 47.03 28,137 46.84 26,198 48.06
-------- ------ -------- ------ -------- ------
Deposit accounts .................... 1,828 2.79 1,830 3.05 816 1.50
-------- ------ -------- ------ -------- ------
Total loans ....................... 66,727 101.90 61,164 101.84 55,371 101.59
Less:
- -----
Deferred fees and discounts ......... (158) (0.25) (127) (0.21) (121) (0.22)
Allowance for loan losses ........... (1,083) (1.65) (978) (1.63) (745) (1.37)
-------- ------ -------- ------ -------- ------
Total loans receivable, net ....... $ 65,486 100.00% $ 60,059 100.00% $ 54,505 100.00%
======== ====== ======== ====== ======== ======
</TABLE>
LOAN MATURITY AND REPRICING SCHEDULE. The following table illustrates
the interest rate sensitivity and contractual amortization of the Association's
mortgage loan portfolio at September 30, 1997. Mortgage loans with adjustable or
renegotiable interest rates are shown as maturing in the period during which the
contract is due. The schedule does not reflect the effects of possible
prepayments or enforcement of due-on-sale clauses.
<TABLE>
<CAPTION>
MULTI-FAMILY AND
ONE-TO-FOUR FAMILY COMMERCIAL TOTAL
--------------------- -------------------- ---------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
AMOUNT RATE AMOUNT RATE AMOUNT RATE
------ ---- ------ ---- ------ ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Due during the twelve months
- ----------------------------
ending September 30,
- --------------------
1998 (1)....................................... $ 299 9.82% $ 2,870 9.42% $ 3,169 9.46%
1999........................................... 13 7.78 304 9.67 317 9.61
2000........................................... 1,317 7.86 203 10.00 1,520 8.26
2001 and 2002.................................. 676 8.96 993 9.50 1,669 9.28
2003 to 2007................................... 2,302 8.51 5,112 9.09 7,414 8.92
2008 to 2022................................... 32,952 7.73 15,353 9.02 48,305 8.13
2023 and following............................. 2,505 7.40 -- -- 2,505 7.40
------- ------- -------
Total....................................... $40,064 $24,835 $64,899
======= ======= =======
</TABLE>
- --------------------------
(1) Includes demand loans having no stated maturity.
The total amount of loans due after September 30, 1998 which have
predetermined interest rates is $30,943, while the total amount of loans due
after such dates which have floating or adjustable interest rates is $30,787.
ONE-TO-FOUR FAMILY RESIDENTIAL LOANS. The Association's primary lending
activity consists of the origination of one-to-four family residential mortgage
loans secured by property located in the Association's primary lending area.
Generally one-to-four family residential mortgage loans are originated in
amounts up to 75% of the lesser of the
39
<PAGE> 44
appraised value or purchase price of the property, with private mortgage
insurance required on loans with a loan-to-value ratio in excess of 80%.
Generally fixed rate loans are originated for terms of up to 15-years. The
Association does not sell the loans that it originates.
The Association also offers adjustable-rate mortgage ("ARM") loans with
one, three and five year adjustment periods. The interest rate on ARM loans is
indexed to the corresponding 1, 3 and 5 year Treasury constant maturity rates. A
substantial portion of the ARM loans in the Association's portfolio at September
30, 1997 provide for maximum rate adjustments of 2% per year and 5% over the
term of the loan. Residential ARM loans amortize over terms of up to 25 years.
The Association has sought to increase its origination of ARM loans; however, in
the current low interest rate environment borrowers have shown a preference for
fixed rate loans.
ARM loans decrease the risk associated with changes in market interest
rates by periodically repricing, but involve other risks because as interest
rates increase, the underlying payments by the borrower increase, thus
increasing the potential for default by the borrower. At the same time, the
marketability of the underlying collateral may be adversely affected by higher
interest rates. Upward adjustment of the contractual interest rate is also
limited by the maximum periodic and lifetime interest rate adjustment permitted
by the loan documents, and, therefore, is potentially limited in effectiveness
during periods of rapidly rising interest rates. At September 30, 1997, 45.3% of
the Association's one-to-four family residential loans had adjustable rates of
interest.
All one-to-four family residential mortgage loans originated by the
Association include "due-on-sale" clauses, which give the Association the right
to declare a loan immediately due and payable in the event that, among other
things, the borrower sells or otherwise disposes of the real property subject to
the mortgage and the loan is not repaid. However, the Association occasionally
permits assumptions of existing residential mortgage loans on a case-by-case
basis.
At September 30, 1997, approximately $40 million, or 61.2% of the
Association's loan portfolio, consisted of one-to-four family residential loans.
Approximately $598,000 (which were comprised of four loans secured by
one-to-four family properties), were included in non-performing loans as of that
date. See "--Non-Performing and Problem Assets."
MULTI-FAMILY REAL ESTATE LOANS. Loans secured by multi-family real
estate totaled approximately $13 million, or 19.8%, of the total loan portfolio
at September 30, 1997. Multi-family real estate loans generally are secured by
multi-family rental properties (including walk-up apartments and mixed-use
properties). Substantially all multi-family real estate loans were secured by
properties located within the Association's primary lending area. At September
30, 1997, the Association's multi-family real estate loans had an average
principal balance of approximately $232,000 and the largest multi-family real
estate loan had a principal balance of $594,000. Multi-family real estate loans
generally are offered with both fixed and adjustable interest rates.
Multi-family loans are originated for terms of up to 10 years with a fixed rate
of interest for the initial five year period and with a five year renewal
option. At the time of renewal, the loan's interest rate will adjust to either
the prevailing prime rate plus 200 basis points or to the 5 year Treasury Note
rate plus 250 basis points, at the borrower's option. Multi-family real estate
loans are underwritten to mature between 5 and 10 years, and to amortize over a
period of up to 20 years.
In underwriting multi-family real estate loans, the Association reviews
the expected net operating income generated by the real estate to ensure that it
is at least 125% of the amount of the monthly debt service, the age and
condition of the collateral, the financial resources and income level of the
borrower, and the borrower's experience in owning or managing similar
properties. Multi-family real estate loans are originated in amounts up to 65%
of the appraised value of the property securing the loan. Personal guarantees
are generally obtained from all multi-family real estate borrowers.
Loans secured by multi-family real estate generally involve a greater
degree of credit risk than one-to-four family residential mortgage loans and
carry larger loan balances. This increased credit risk is a result of several
40
<PAGE> 45
factors, including the concentration of principal in a limited number of loans
and borrowers, the effects of general economic conditions on income producing
properties, and the increased difficulty of evaluating and monitoring these
types of loans. Furthermore, the repayment of loans secured by multi-family real
estate typically depends upon the successful operation of the related real
estate property. If the cash flow from the project is reduced, the borrower's
ability to repay the loan may be impaired.
COMMERCIAL REAL ESTATE LOANS. At September 30, 1997, $11.9 million, or
18.1% of the total loan portfolio consisted of commercial real estate loans.
Commercial real estate loans are secured by office buildings, private schools,
religious facilities and other commercial properties. The Association generally
originates fixed rate and adjustable rate commercial real estate loans with
maximum terms of up to 10 years. The maximum loan-to-value ratio of commercial
real estate loans is 65%. At September 30, 1997, the largest commercial loan had
a principal balance of $1.1 million and was secured by commercial condominium
units. This loan was sold subsequent to September 30, 1997 and resulted in no
gain or loss to the Association. As of September 30, 1997, non-performing loans
included one commercial real estate loan totalling $549,000.
In underwriting commercial real estate loans, the Association reviews
the expected net operating income generated by the real estate to ensure that it
is at least 125% of the amount of the monthly debt service, the age and
condition of the collateral, the financial resources and income level of the
borrower and the borrower's business experience. Personal guarantees are
generally obtained from all commercial real estate borrowers.
Loans secured by commercial real estate generally are larger than
one-to-four family residential loans and involve a greater degree of risk.
Commercial real estate loans often involve large loan balances to single
borrowers or groups of related borrowers. Payments on these loans depend to a
large degree on results of operations and management of the properties or
underlying businesses, and may be affected to a greater extent by adverse
conditions in the real estate market or the economy in general. Accordingly, the
nature of the loans makes them more difficult for management to monitor and
evaluate.
ORIGINATION, PURCHASE AND SALE OF LOANS. Historically, the Association
has originated mortgage loans pursuant to underwriting standards that generally
conform with the FNMA guidelines. Loan origination activities are primarily
concentrated in Brooklyn, New York. New loans are generated primarily from
customer referrals, brokers and other parties with whom the Association does
business, and from the efforts of employees and advertising. Loan applications
are underwritten and processed at the Association's main office.
The loan approval process is intended to assess the borrower's ability
to repay the loan, the viability of the loan, and the adequacy of the value of
the property that will secure the loan. To assess the borrower's ability to
repay, the Association reviews the employment and credit history and information
on the historical and projected income and expenses of mortgagors. Loans up to
$350,000 may be approved by management. All other one- to-four family
residential mortgage loans in excess of $350,000 must be approved by the Board
of Directors. All multi-family and commercial real estate loans must be approved
by the Board of Directors. In addition, the Board of Directors ratifies all loan
commitments.
The Association requires appraisals of all real property securing
loans. Appraisals are performed by independent appraisers who are licensed by
the state, and who are approved by the Board of Directors annually. The
Association requires fire and extended coverage insurance in amounts at least
equal to the principal amount of the loan. Where appropriate, flood insurance is
also required. Private mortgage insurance for all residential mortgage loans
with loan-to-value ratios of greater than 80% is also required.
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<PAGE> 46
The following table shows the loan origination and repayment activities
of the Association for the periods indicated. The Association did not purchase
or sell any loans during the periods indicated.
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEARS ENDED
SEPTEMBER 30, MARCH 31,
-------------------- --------------------
1997 1996 1997 1996
------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Originations by Type:
- ---------------------
Adjustable rate:
Real estate:
One-to four-family..................................... $ 772 $ 138 $ 703 $ 352
Multi-family........................................... 2,279 460 810 450
Commercial............................................. 2,244 1,132 3,093 3,051
Non-real estate:
Consumer............................................... N/A N/A N/A N/A
------- ------- ------- -------
Total adjustable rate................................ 5,295 1,730 4,606 3,853
------- ------- ------- -------
Fixed rate:
Real estate:
One-to four-family..................................... 4,422 3,385 7,368 1,704
Multi-family........................................... -- -- 60 --
Commercial............................................. -- -- 650 --
Construction........................................... -- -- N/A N/A
------- ------- ------- -------
Total fixed-rate..................................... 4,422 3,385 8,078 1,704
------- ------- ------- -------
Total loans originated............................... 9,717 5,115 12,684 5,557
Principal Repayments:
- ---------------------
Total reductions......................................... 4,534 2,299 7,904 5,936
------- ------- ------- -------
Net increase (decrease).............................. $ 5,183 $ 2,816 $ 4,780 $ (379)
======= ======= ======= =======
</TABLE>
LATE FEES. The Association realizes income from late charges. Late
charges are generally assessed if payment is not received within a specified
number of days after it is due. The Association currently does not charge loan
origination fees.
NONPERFORMING AND PROBLEM ASSETS
After a mortgage loan becomes eight days past due, the Association
delivers a computer generated delinquency notice to the borrower. A second
delinquency notice is sent once the loan becomes 16 days past due. When loans
become 30 days past due, the Association sends an additional delinquency notice
and attempts to make personal contact by letter or telephone with the borrower
to establish acceptable repayment schedules. In addition, with respect to a loan
secured by a one-to-four family residence, after 45 days the Association will
attempt to assist the borrower in obtaining credit counseling. When a mortgage
loan is 90 days delinquent and no acceptable resolution has been reached, the
Association will send the borrower a five day demand letter. If the delinquency
is not cured within 120 days, the Association will generally refer the matter to
its attorney. Management is authorized to begin foreclosure proceedings on any
loan after determining that it is prudent to do so.
Mortgage loans are reviewed on a regular basis and such loans are
placed on non-accrual status when they are specifically determined to be
impaired or when they become 90 days delinquent. When loans are placed on a
non-accrual status, unpaid accrued interest is fully reserved, and further
income is recognized only to the extent received.
NONPERFORMING LOANS. At September 30, 1997, $1.8 million or 1.60% of
the Association's total assets were nonperforming (nonperforming loans and
non-accruing loans). Real estate owned ("REO") properties totaled $274,000 as of
September 30, 1997.
The table below sets forth the amounts and categories of the
Association's nonperforming loans as of September 30, 1997 and March 31, 1997
and 1996. Foreclosed assets include assets acquired in settlement of loans.
42
<PAGE> 47
The Association's policy is to review monthly all earned but uncollected
interest on all loans to determine if any portion thereof should be classified
as uncollectible for any loan that is more than 90 days past due. Delinquent
loans that are 90 days or more past due are considered nonperforming assets.
During the periods presented, the Association did not have any troubled debt
restructurings.
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
------------- --------------------
1997 1997 1996
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Non-accruing loans
One-to-four family.................................................... $ 1,203 $ 1,894 $ 1,898
Multi-family.......................................................... -- 1,217 1,758
Commercial real estate................................................ 549 230 1,147
------- ------- -------
Total............................................................... 1,752 3,341 4,803
------- ------- -------
Total nonperforming loans................................................ $ 1,752 $ 3,341 $ 4,803
======= ======= =======
Total as a percentage of total assets.................................... 1.60% 3.04% 4.55%
</TABLE>
For the six months ended September 30, 1997 and the year ended March
31, 1997, gross interest income which would have been recorded had the
non-accruing loans been current in accordance with their original terms amounted
to $21,000 and $269,000, respectively. Interest income on such loans for the six
months ended September 30, 1997 and the year ended March 31, 1997 was $43,000
and $20,000, respectively. Interest income received during the six months ended
September 30, 1997 included interest for prior periods.
At September 30, 1997, loans delinquent from 60 to 89 days totaled
approximately $662,000.
<TABLE>
<CAPTION>
LOANS DELINQUENT FOR:
------------------------------------------------------------------
60-89 DAYS 90 DAYS AND OVER TOTAL
---------------------------- ---------------------------------- -------------------------------
PERCENT PERCENT PERCENT
OF LOAN OF LOAN OF LOAN
NUMBER AMOUNT CATEGORY NUMBER AMOUNT CATEGORY NUMBER AMOUNT CATEGORY
------ ------ -------- ------ ------ -------- ------ ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real Estate:
One-to-four family....... 4 $469,119 1.17% 60 (1) $1,203,198 3.00% 64 $1,672,317 4.17%
Commercial............... 2 141,000 1.19% 1 549,000 4.63% 3 690,000 5.82%
- -------- -- ---------- -- ----------
Total................. 6 $610,119 61 $1,752,198 67 $2,362,317
= ======== == ========== == ==========
</TABLE>
- -------------------------
(1) Includes 59 loans totalling $1.1 million which are included in six pools of
loans in which the Association is a participant.
CLASSIFIED ASSETS. Federal regulations and the Association's Asset
Classification Policy provide for the classification of loans and other assets,
such as debt and equity securities, considered by the OTS to be of lesser
quality as "substandard," "doubtful" or "loss" assets. An asset is considered
"substandard" if it is inadequately protected by the current net worth and
paying capacity of the obliger or of the collateral pledged, if any.
"Substandard" assets include those characterized by the "distinct possibility"
that the institution will sustain "some loss" if the deficiencies are not
corrected. Assets classified as "doubtful" have all of the weaknesses inherent
in those classified "substandard," with the added characteristic that the
weaknesses present make "collection or liquidation in full," on the basis of
currently existing facts, conditions, and values, "highly questionable and
improbable." Assets classified as "loss" are those considered "uncollectible"
and of such little value that their continuance as assets without the
establishment of a specific loss reserve is not warranted. The Association will
classify an asset as "Special Mention" if the asset has a potential weakness
that warrants management's close attention. While such assets are not impaired,
management has concluded that if the potential weakness in the asset is not
addressed the value of the asset may deteriorate, adversely affecting the
repayment of the asset.
An insured institution is required to establish general allowances for
loan losses in an amount deemed prudent by management for loans classified
substandard or doubtful, as well as for other problem loans. General allowances
represent loss allowances which have been established to recognize the inherent
risk associated with lending activities,
43
<PAGE> 48
but which, unlike specific allowances, have not been allocated to particular
problem assets. When an insured institution classifies problem assets as "loss,"
it is required either to establish a specific allowance for losses equal to 100%
of the amount of the asset so classified or to charge off such amount. An
institution's determination as to the classification of its assets and the
amount of its valuation allowances is subject to review by the OTS which can
order the establishment of additional general or specific loss allowances.
On the basis of management's review of its assets, at September 30,
1997, the Association had classified a total of $5.5 million of its loans and
other assets as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
------------------
(IN THOUSANDS)
<S> <C>
Special Mention.......................................... $ 665
Substandard.............................................. 2,262
Doubtful assets(1)....................................... 2,560
Loss assets.............................................. 23
---------
Total........................................... $ 5,510
=========
General loss allowance................................... $ 174
Specific loss allowance.................................. 909
Charge-offs.............................................. --
</TABLE>
- ------------
(1) Doubtful assets includes a loan with a principal amount of $1.1 million
which was sold subsequent to September 30, 1997.
The loan portfolio is reviewed on a regular basis to determine whether
any loans require classification in accordance with applicable regulations. Not
all classified assets constitute non-performing assets.
ALLOWANCE FOR LOAN LOSSES
The Association provides for loan losses on the allowance method.
Accordingly, all loan losses are charged to the related allowance and all
recoveries are credited to it. Additions to the allowance for loan losses are
provided by charges to operations based on various factors which, in
management's judgment, deserve current recognition in estimating possible
losses. Such factors considered by management include the market value of the
underlying collateral, growth and composition of the loan portfolio, the
relationship of the allowance for loan losses to outstanding loans, delinquency
trends, and economic conditions. The carrying value of loans are periodically
evaluated and the allowance is adjusted accordingly. While management uses the
best information available to make evaluations, future adjustments to the
allowance may be necessary if conditions differ substantially from the
assumptions used in making the evaluations.
In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Association's allowance for loan
losses. Such agencies may require the Association to recognize additions to the
allowance based on their judgments of information available to them at the time
of their examination.
44
<PAGE> 49
SUMMARY OF LOAN LOSS EXPERIENCE. The following table analyzes changes
in the allowance for the periods presented.
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEARS ENDED
SEPTEMBER 30, MARCH 31,
------------------ ------------------
1997 1996 1997 1996
------ ------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance at beginning of period ............................ $ 978 $ 745 $ 745 $ 619
------ ------ ------ ------
Charge-offs:
One-to-four family ..................................... -- 90 318 58
Commercial real estate ................................. -- 47 220 91
------ ------ ------ ------
Total Charge-offs .................................... -- 137 538 149
------ ------ ------ ------
Net charge-offs ........................................ -- 137 538 149
------ ------ ------ ------
Provisions for loan losses ............................. 105 66 771 275
------ ------ ------ ------
Balance at end of period ............................... $1,083 $ 674 $ 978 $ 745
====== ====== ====== ======
Ratio of net charge-offs during the period to average loans
outstanding during the period ........................... 0.00% 0.25% 0.96% 0.28%
====== ====== ====== ======
</TABLE>
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES. The following table presents
an analysis of the allocation of the allowance for loan losses at the dates
indicated. The allocation of the allowance to each category is not necessarily
indicative of future loss in any particular category and does not restrict the
use of the allowance to absorb losses in other categories.
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
------------------------------ --------------------------------------------------------------
1997 1997 1996
------------------------------ ------------------------------ ------------------------------
PERCENT PERCENT PERCENT
OF LOANS OF LOANS OF LOANS
LOAN IN EACH LOAN IN EACH LOAN IN EACH
AMOUNT OF AMOUNTS CATEGORY AMOUNT OF AMOUNTS CATEGORY AMOUNT OF AMOUNTS CATEGORY
LOAN LOSS BY TO NET LOAN LOSS BY TO NET LOAN LOSS BY TO NET
ALLOWANCES CATEGORY LOANS ALLOWANCES CATEGORY LOANS ALLOWANCES CATEGORY LOANS
---------- -------- ----- ---------- -------- ----- ---------- -------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
One-to-four family..... $ 289 $40,064 61.18% $ 126 $36,862 61.38% $ 187 $30,605 56.15%
Multi-family........... 465 12,974 19.81 314 10,555 17.57 317 11,166 20.49
Commercial real estate. 155 11,861 18.11 78 11,917 19.84 228 12,784 23.45
Unallocated............ 174 -- 70 -- 13 --
------ ------- ------- ------- ------- -------
Total............. $1,083 $64,899 $ 978 $59,334 $ 745 $54,555
====== ======= ======= ======= ======= =======
</TABLE>
INVESTMENTS
INVESTMENTS AND MORTGAGE-BACKED SECURITIES. The Association's
investment portfolio consists of short-term U.S. Treasury and federal agency
securities, interest earning deposits in other financial institutions, federal
funds sold, and FHLB stock. The maturity on government agency securities is
generally less than five years. At September 30, 1997, approximately $12.6
million, or 11.50%, of the Association's total assets consisted of such
investments.
The Association also invests in mortgage-backed securities, all of
which are guaranteed by the U.S. Government or agencies thereof, and all of
which are held for investment. At September 30, 1997 mortgage-backed securities
totaled $19.0 million, or 17.34% of total assets.
45
<PAGE> 50
The following table sets forth the carrying value of the Association's
investment portfolio at the dates indicated.
<TABLE>
<CAPTION>
AT SEPTEMBER 30, AT MARCH 31,
---------------------- ------------------------------------------------
1997 1997 1996
---------------------- ---------------------- ---------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ ------- ------ -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Investment securities held for investment:
U.S. Government securities........... $ -- -- $ 3,604 13.93% $ 3,604 13.46%
Federal agency obligations........... 12,567 64.24% 13,071 50.51 12,023 44.89
------- ------- ------- ------ ------- -------
Subtotal........................... 12,567 64.24 16,675 64.44 15,627 58.35
FHLB stock........................... 583 2.98 583 2.25 528 1.97
------- ------- ------- ------ ------- -------
Total investment securities........ 13,150 67.22 17,258 66.69 16,155 60.32
Other interest-earning deposits with banks 6,413 32.78 8,618 33.31 10,626 39.68
------- ------- ------- ------ ------- -------
Total.............................. $19,563 100.00% $25,876 100.00% $26,781 100.00%
======= ======= ======= ====== ======= =======
</TABLE>
The following table sets forth the composition of the Association's
mortgage-backed securities at the dates indicated.
<TABLE>
<CAPTION>
AT SEPTEMBER 30, AT MARCH 31,
---------------------- --------------------------------------------------
1997 1997 1996
---------------------- ---------------------- -----------------------
BOOK VALUE % OF TOTAL BOOK VALUE % OF TOTAL BOOK VALUE % OF TOTAL
---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Mortgage-backed securities held for investment
GNMA ................................ $ 559 2.94% $ 611 3.21% $ 728 3.79%
FNMA................................. 6,468 34.02 6,894 36.23 7,823 40.68
FHLMC................................ 3,905 20.53 4,291 22.55 5,051 26.27
CMOs/REMICS.......................... 3,880 20.40 4,155 21.83 4,437 23.08
Other (1)............................ 4,205 22.11 3,079 16.18 1,187 6.18
-------- ------- -------- ------ ------- -------
Total mortgage-backed securities... $ 19,017 100.00% $ 19,030 100.00% $19,226 100.00%
======== ======= ======== ====== ======= =======
</TABLE>
- ------------------------
(1) Consists of a mutual fund which invests primarily in adjustable rate
mortgage loans.
The composition and maturities of the investment securities portfolio
at September 30, 1997, excluding FHLB stock, are indicated in the following
table.
<TABLE>
<CAPTION>
LESS THAN 1 TO 5 5 TO 10 OVER
1 YEAR YEARS YEARS 10 YEARS TOTAL INVESTMENT SECURITIES
------ ----- ----- -------- ---------------------------
BOOK VALUE BOOK VALUE BOOK VALUE BOOK VALUE BOOK VALUE MARKET VALUE
---------- ---------- ---------- ---------- ---------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Federal agency obligations................... $ 3,100 $ 9,467 -- -- $ 12,567 $ 12,450
Mortgage-backed securities................... -- 4,205 -- $14,812 19,017 19,157
------- ------- ------- -------- --------
Total investment securities.................. $ 3,100 $13,672 -- $14,812 $ 31,584 $ 31,607
======= ======= ======= ======== ========
Weighted average yield....................... 4.43% 6.18% -- 6.39% 6.11%
</TABLE>
SOURCES OF FUNDS
GENERAL. Deposits have traditionally been the primary source of funds
for use in lending and investment activities. In addition to deposits, funds are
derived from scheduled loan payments, investment maturities, loan prepayments,
retained earnings, income on earning assets and borrowings. While scheduled loan
payments and income on earning assets are relatively stable sources of funds,
deposit inflows and outflows can vary widely and are influenced by prevailing
interest rates, market conditions and levels of competition. Borrowings from the
FHLB of New York may be used in the short-term to compensate for reductions in
deposits and to fund loan growth, although the Association has not had to borrow
funds in recent periods.
46
<PAGE> 51
DEPOSITS. Deposits are obtained primarily from customers who live or
work in the New York City metropolitan area. The Association offers a selection
of deposit instruments, including passbook savings accounts, money market
accounts, fixed-term certificates of deposit, and individual retirement
accounts. Deposits are not actively solicited outside of the New York City
metropolitan area, and most of the Association's depositors are residents of
Brooklyn. Deposit account terms vary, with the principal differences being the
minimum balance required, the amount of time the funds must remain on deposit
and the interest rate. The Association does not pay broker fees for any
deposits.
Interest rates paid, maturity terms, service fees and withdrawal
penalties are established on a periodic basis. Deposit rates and terms are based
primarily on current operating strategies and market rates, liquidity
requirements, rates paid by competitors and growth goals. Personalized customer
service and long-standing relationships with customers are relied upon to
attract and retain deposits.
The flow of deposits is influenced significantly by general economic
conditions, changes in money market and other prevailing interest rates and
competition. The variety of deposit accounts offered allows the Association to
be competitive in obtaining funds and responding to changes in consumer demand.
In recent years, the Association has become more susceptible to short-term
fluctuations in deposit flows as customers have become more interest rate
conscious. Deposits are priced to reflect the Association interest rate risk
management and profitability objectives. Based on experience, management
believes that passbook accounts and money market accounts are relatively stable
sources of deposits. However, the ability to attract and maintain certificates
of deposit, and the rates paid on these deposits, have been and will continue to
be significantly affected by market conditions. At September 30, 1997, $60.6
million, or 60.26% of the Association's deposit accounts were certificates of
deposit, of which $41.1 million have maturities of one year or less. A
significant portion of the certificates of deposit consist of accounts that were
opened at the direction of the county or surrogate court for the benefit of
minors or others who are deemed to be incompetent to handle their affairs. At
September 30, 1997, $13.6 million of the certificates of deposit consisted of
such court-directed deposits. Court-directed deposits must remain at the
Association until the intended beneficiary attains his or her majority or is
deemed competent to handle his or her own affairs.
<TABLE>
<CAPTION>
AT SEPTEMBER 30, AT MARCH 31,
---------------------- -----------------------------------------------
1997 1997 1996
---------------------- ---------------------- ----------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
-------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Transaction and savings deposit accounts: (DOLLARS IN THOUSANDS)
- -----------------------------------------
Savings accounts ........................ $ 21,556 21.4% $ 21,593 21.4% $ 23,585 24.2%
NOW accounts ............................ 4,285 4.3 4,723 4.7 3,974 4.1
Money market accounts ................... 6,749 6.7 6,999 6.9 8,240 8.5
Money market statement savings .......... 7,360 7.3 6,785 6.7 3,498 3.6
-------- ------ -------- ------ -------- ------
Total non-certificates ............... $ 39,950 39.7 $ 40,100 39.7 $ 39,297 40.4
-------- ------ -------- ------ -------- ------
Certificates of deposits:
- -------------------------
4.00 - 5.99% ............................ 41,532 41.3 44,449 44.1 30,974 31.8
6.00 - 7.99% ............................ 18,551 18.5 15,752 15.6 26,721 27.4
8.00 - 9.99% ............................ 506 .5 497 0.5 404 0.4
-------- ------ -------- ------ -------- ------
Total certificates ................... 60,589 60.3 60,698 60.3 58,099 59.7
-------- ------ -------- ------ -------- ------
Total deposits ....................... $100,539 100.00% $100,798 100.00% $ 97,396 100.00%
======== ====== ======== ====== ======== ======
</TABLE>
47
<PAGE> 52
The following table shows weighted average rate and maturity information
regarding certificates of deposit as of
September 30, 1997.
<TABLE>
<CAPTION>
WEIGHTED
TOTAL AVERAGE PERCENT OF
BALANCE RATE TOTAL
----------- -------------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Certificate accounts maturing in quarter ending:
December 31, 1997......................... $ 12,983 5.42% 21.43%
March 31, 1998............................ 12,921 5.44% 21.33%
June 30, 1998............................. 7,968 5.66% 13.15%
September 30, 1998........................ 7,274 5.60% 12.01%
December 31, 1998......................... 2,733 5.50% 4.51%
March 31, 1999............................ 2,277 5.68% 3.76%
June 30, 1999............................. 1,724 6.22% 2.84%
September 30, 1999........................ 1,373 6.08% 2.27%
December 31, 1999......................... 1,522 6.21% 2.51%
March 31, 2000............................ 1,569 6.57% 2.59%
June 30, 2000............................. 1,091 7.06% 1.80%
September 30, 2000........................ 710 6.30% 1.17%
Thereafter................................ 6,444 6.03% 10.63%
--------- --------
Total............................ $ 60,589 5.68% 100.00%
========= ========
</TABLE>
The following table sets forth the deposit activities of the Bank for
the periods indicated.
<TABLE>
<CAPTION>
SIX MONTHS ENDED AT OR FOR THE
SEPTEMBER 30, YEAR ENDED MARCH 31,
------------------------- ------------------------
1997 1996 1997 1996
--------- --------- --------- ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Opening balance...................................... $ 100,798 $ 97,396 $ 97,396 $ 90,537
Deposits............................................. 57,223 45,629 98,186 84,269
Withdrawals.......................................... 59,784 49,483 99,141 81,554
Interest credited.................................... 2,302 2,186 4,357 4,144
--------- --------- --------- ---------
Ending balance....................................... $ 100,539 $ 95,728 $ 100,798 $ 97,396
========= ========= ========= =========
Net increase (decrease).............................. $ (259) $ (1,668) $ 3,402 $ 6,859
========= ========= ========= =========
Percent increase (decrease).......................... (.25)% (1.71)% 3.49% 7.58%
</TABLE>
The following table indicates the amount of the Association's
certificates of deposit and other deposits by time remaining until maturity as
of September 30, 1997. Of the amounts set forth below, $13.6 million is consists
of court-directed deposits.
<TABLE>
<CAPTION>
Maturity
--------------------------------------------------------------
Over Over
3 Months 3 to 6 6 to 12 Over
or Less Months Months 12 Months Total
---------- -------- ------- --------- ---------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Certificates of deposit less than $100,000... $ 9,916 $ 10,374 $ 12,611 $ 17,020 $ 49,921
Certificates of deposit of $100,000 or more.. 3,067 2,547 2,631 2,423 10,668
--------- -------- --------- --------- ---------
Total certificates of deposit................ $ 12,983 $ 12,921 $ 15,242 $ 19,443 $ 60,589
========= ======== ========= ========= =========
</TABLE>
Total deposits at September 30, 1997 were approximately $100.5 million
compared to deposits at September 30, 1996 of $95.7 million.
BORROWINGS. The Association had no borrowings outstanding at September
30, 1997.
48
<PAGE> 53
PROPERTIES
The following table provides certain information with respect to the
Association's offices as of September 30, 1997:
<TABLE>
<CAPTION>
YEAR LEASED OR NET BOOK VALUE OF REAL
LOCATION LEASED OR OWNED ACQUIRED PROPERTY
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Main Office Owned 1983 $594,026
186 Montague Street
Brooklyn, NY 11201
Branch Office Owned 1978 $523,364
1402 Avenue J
Brooklyn, NY 11230
</TABLE>
The net book value of the Association's premises, land and equipment
was approximately $1,526,558 at September 30, 1997.
SERVICE CORPORATION SUBSIDIARY
The Association does not have any subsidiary corporations. However, OTS
regulations permit federal savings associations to invest in the capital stock,
obligations or other specified types of securities of subsidiaries (referred to
as "service corporations") and to make loans to such subsidiaries and joint
ventures in which such subsidiaries are participants in an aggregate amount not
exceeding 2% of the association's assets, plus an additional 1% of assets if the
amount over 2% is used for specified community or inner-city development
purposes. In addition, federal regulations permit associations to make specified
types of loans to such subsidiaries (other than special purpose finance
subsidiaries) in which the association owns more than 10% of the stock, in an
aggregate amount not exceeding 50% of the association's regulatory capital if
the association's regulatory capital is in compliance with applicable
regulations.
EMPLOYEES
As of September 30, 1997, the Association employed 24 persons on a
full-time basis and six persons on a part-time basis. None of the Association's
employees is represented by a collective bargaining group and management
considers employee relations to be good.
LEGAL PROCEEDINGS
Although the Association is involved, from time to time, in various
legal proceedings in the normal course of business, there are no material legal
proceedings to which the Association presently is a party or to which any of its
property is subject.
MANAGEMENT OF BROOKLYN HEIGHTS BANCORP
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The Board of Directors of the Company consists of the same individuals
who serve as directors of the Association. The Company's Federal charter and
bylaws require that directors be divided into three classes with each class of
directors to serve for a three-year period. Approximately one-third of the
directors will be elected each year. The Company's officers will be elected
annually by its Board of Directors and will serve at the Board's discretion.
49
<PAGE> 54
The Company's President and Chief Executive Officer will be Stephen Irving, the
Chairman of the Board and Corporate Secretary will be John A. Maher and the
Treasurer will be Stephen Parisi. For information regarding the directors and
officers, See "Management of Atlantic Liberty Savings, F.A."
MANAGEMENT OF ATLANTIC LIBERTY SAVINGS, F.A.
DIRECTORS AND OFFICERS OF THE ASSOCIATION
The Board of Directors currently consists of seven persons. Each
director holds office for a term of three years, and one-third of the Board is
elected at each annual meeting of members.
The Board of Directors met 13 times during the fiscal year ended March
31, 1997. No director attended fewer than 75% of the aggregate number of
meetings of the Board of Directors and the Board's committees in the past 12
months.
Listed below are the current directors and officers of the Association:
<TABLE>
<CAPTION>
AGE AT CURRENT TERM
NAME SEPTEMBER 30, 1997 POSITION DIRECTOR SINCE EXPIRES
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
John A. Maher 66 Chairman of the Board 1961 2000
and Secretary
Stephen Irving 45 President, Chief 1996 1998
Executive Officer and
Director
Nunzio D'Addona 73 Director 1965 2000
Martin D. Dehler 56 Director 1996 1999
Edward W. Kelle 61 Vice Chairman of the 1962 1999
Board
Fred W. McPhilliamy 66 Director 1986 1998
Eugene F. O'Connor 79 Director 1972 1999
Barry M. Donohue 56 Vice President
Stephen Parisi 49 Vice President
</TABLE>
The business experience for the past five years for each of the
Association's directors and officers is as follows:
John A. Maher has been a professor at The Dickinson School of Law since
1973. Mr. Maher has also served as a consultant and arbitrator for various
businesses and nonprofit organizations. In 1997 Mr. Maher was named a
Commissioner of the Pennsylvania Securities Commission.
Stephen Irving has been the President and Chief Executive Officer of
the Association since 1996. He joined the Association in 1980 as a Vice
President. In 1983 Mr. Irving was elected Senior Vice President in charge of
operations.
Nunzio D'Addona is President of Home Abstract Co., a title insurance
company.
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Martin D. Dehler, Esq. is an attorney and bank consultant. He is the
former Chairman and Chief Executive Officer of New York Bancorp, and its
subsidiary Home Federal Savings Bank.
Edward W. Kelle is the President of K&L Brokerage, Inc., an insurance
agency. Mr. Kelle is also the Secretary and Treasurer of John J. Kelle, Inc., an
insurance agency.
Fred W. McPhilliamy is the President of The Helen Keller Services for
the Blind, a not-for-profit organization.
Eugene F. O'Connor, Esq. is a retired attorney. Prior to his retirement
in 1993, Mr. O'Connor was Chief Calendar Clerk of the Supreme Court, Kings
County, and thereafter Bankruptcy Clerk, U.S. District Court (Southern District
of New York).
Barry M. Donohue is the Vice President of Mortgage Lending at the
Association. Mr. Donohue previously was Senior Vice President of Crossland
Savings Bank until 1992 when he joined the Association.
Stephen Parisi is a Vice President and Treasurer of the Association. He
joined the Association in 1983.
COMMITTEES OF THE BOARDS OF DIRECTORS OF THE ASSOCIATION AND THE COMPANY
The Board of Directors of the Association has the following committees:
The Audit Committee meets quarterly to review audit reports. It also recommends
to the Board of Directors the appointment of the independent auditors for the
upcoming fiscal year.
The Management and Compensation Committee acts as the Association's
Compensation Committee. No employee director is a member of the Management and
Compensation Committee. The Association has no nominating committee.
EXECUTIVE COMPENSATION AND RELATED TRANSACTIONS OF THE ASSOCIATION
REMUNERATION OF NAMED EXECUTIVE OFFICER
The following table sets forth information as to annual, and other
compensation for services in all capacities to the President and Chief Executive
Officer for the fiscal year ended March 31, 1997. No other executive officer
earned over $100,000 in salary and bonuses during fiscal year 1997.
<TABLE>
<CAPTION>
==================================================================================================================================
SUMMARY COMPENSATION TABLE
- ----------------------------------------------------------------------------------------------------------------------------------
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION(1) AWARDS
- ------------------------------------------------------------------------------------------------------------------
OTHER RESTRICTED OPTIONS/
NAME AND PRINCIPAL FISCAL ANNUAL STOCK SARS ALL OTHER
POSITION YEAR(1) SALARY BONUS COMPENSATION AWARD (#) COMPENSATION
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Stephen Irving 1997 $114,623 $15,000 $13,602(2) -- -- $1,471
==================================================================================================================================
</TABLE>
- ----------
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(1) In accordance with the rules on executive officer and director
compensation disclosure adopted by the SEC, Summary Compensation
information is excluded for the fiscal years ended March 31, 1996 and
1995, as the Association was not a public company during such periods.
(2) Includes $8,700 of director fees.
COMPENSATION OF DIRECTORS
Nonemployee Directors of the Association receive $500 for each regular
meeting of the Board of Directors and $500 for each committee meeting of the
Board of Directors. Each committee chairman receives an additional $100 for each
committee meeting. In addition, each outside director receives an annual
retainer of $12,000. Mr. Irving receives an annual retainer of $6,000.
Directors of the Company are not currently paid directors' fees. The
Company may, if it believes it is necessary to attract qualified directors or is
otherwise beneficial to the Company, adopt a policy of paying directors' fees.
DEFERRED COMPENSATION PLAN. The Association provides directors with a
non-qualified deferred compensation plan ("Deferred Compensation Plan") under
which directors of the Association may elect to defer on a pre-tax basis, all or
a portion of their monthly directors' fees and/or annual retainer. The Deferred
Compensation Plan is an amendment of a deferred compensation plan that was
effective until December 31, 1996. Under the amended Deferred Compensation Plan,
a director's deferred fees and/or annual retainer will be credited to a deferred
compensation account. Each deferred compensation account will earn simple
interest at the rate of 8% per annum. Upon retirement, a director's benefit will
be paid over 10 years with interest on the unpaid balance accruing at the rate
of 8% per annum.
Under the prior deferred compensation plan, benefits will be paid over
15 years (9 years with respect to one director and 10 years with respect to
another). The deferred compensation benefits payable under the prior plan range
from $675 to $1,622 per month. The Association has accrued $460,000 toward its
obligation under the prior plan. The Association has purchased life insurance
policies on the lives of the individual directors with an aggregate face value
of $410,000, with the Association as the named beneficiary. The Association is
the owner and beneficiary of the life insurance policies. For calendar year
1996, under the prior plan four directors deferred a total of $16,800 of their
fees and retainers; for the period January 1, 1997 through September 30, 1997,
four directors elected to defer $28,000 of their fees and annual retainers paid
under the Deferred Compensation Plan. Mr. Stephen Irving did not elect to defer
any portion of his annual retainer. All future obligations payable under the
Deferred Compensation Plan are payable from the general assets of the
Association.
BENEFITS
INSURANCE PLANS. The Association's officers and employees are covered
by a contributory medical insurance plan.
DEFINED BENEFIT PENSION PLAN. The Association maintains a qualified
noncontributory defined benefit plan ("Retirement Plan") for employees. All
employees age 21 or older who have worked at the Association for a period of one
year and who have been credited with 1,000 or more hours of employment with the
Association during the year are eligible to accrue benefits under the Retirement
Plan. The Association annually contributes an amount to the Retirement Plan
necessary to satisfy the actuarially determined minimum funding requirements in
accordance with the Employee Retirement Income Security Act of 1974, as amended
("ERISA").
At the normal retirement age of 65, the plan is designed to provide a
single life annuity with no ancillary benefits. For a married participant, the
normal form of benefit is an actuarially reduced joint and survivor annuity
where, upon the participant's death, the participant's spouse is entitled to
receive a benefit equal to 50% of the amount paid during the participant's
lifetime. The joint and survivor annuity will be actuarially equivalent to the
single life
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annuity. The monthly retirement benefit provided is an amount equal to (i) 2% of
a participant's average monthly compensation based on the average of the five
consecutive years of the last 10 calendar years providing the highest monthly
average compensation, multiplied by (ii) the participant's years of credited
service to the normal retirement date. For years beginning after December 31,
1992, the amount of monthly retirement benefit provided is an amount equal to 2%
of a participant's average monthly compensation reduced by 1/15 for each year of
service that such participant's years of service at normal retirement date are
less than 15. Retirement benefits are also payable upon retirement due to early
and late retirement, disability or death. A reduced benefit is payable upon
early retirement at or after age 55 and the completion of 10 years of service
with the Association. Upon termination of employment other than as specified
above, a participant who has a vested benefit under the Retirement Plan is
eligible to receive his or her accrued benefit reduced for early retirement or a
deferred retirement benefit commencing on such participant's normal retirement
date. Benefits are payable in various annuity forms as well as in the form of a
single lump sum payment. At December 31, 1996, the market value of the
Retirement Plan trust fund equaled approximately $1.1 million. For the plan year
ended December 31, 1996, the Association made a contribution of $151,000 to the
Retirement Plan.
The following table indicates the annual retirement benefit that would
be payable under the Retirement Plan upon retirement at age 65 in calendar year
1997, expressed in the form of a single life annuity for the final average
salary and benefit service classification specified below.
<TABLE>
<CAPTION>
========================================================================================================================
YEARS OF BENEFIT SERVICE AT RETIREMENT
- ------------------------------------------------------------------------------------------------------------------------
FINAL
AVERAGE 15 20 25 30 35 40
COMPENSATION
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$25,000 $7,500 $10,000 $12,800 $15,000 $17,500 $20,000
- ------------------------------------------------------------------------------------------------------------------------
$50,000 $15,000 $20,000 $25,000 $30,000 $35,000 $40,000
- ------------------------------------------------------------------------------------------------------------------------
$75,000 $22,500 $30,000 $37,500 $45,000 $52,500 $60,000
- ------------------------------------------------------------------------------------------------------------------------
$100,000 $30,000 $40,000 $50,000 $60,000 $70,000 $80,000
- ------------------------------------------------------------------------------------------------------------------------
$150,000 $45,000 $60,000 $75,000 $90,000 $105,000 $120,000
- ------------------------------------------------------------------------------------------------------------------------
$160,000 and above $48,000 $64,000 $80,000 $96,000 $112,000 $125,000
========================================================================================================================
</TABLE>
As of December 31, 1996, Mr. Irving had 16 years of credited service
under the plan.
SALARY REDUCTION PLAN. The Association maintains a Salary Reduction
Plan for employees, which is a qualified, tax-exempt profit sharing plan with a
cash-or-deferred feature under Section 401(k) of the Internal Revenue Code (the
"401(k) Plan"). All employees who have attained age 21 1/2 and have completed
six months of employment are eligible to participate on the date that such
requirements are first satisfied.
Under the 401(k) Plan, participants are permitted to make salary
reduction contributions to the plan from their compensation up to the maximum
amount permitted under certain Internal Revenue Code (the "Code"). For these
purposes, "compensation" includes regular salary, wages and bonuses, including
any salary reduction contributions made under the 401(k) Plan, but does not
include overtime and commissions, or compensation in excess of the Code Section
401(a)(17) limits. The participants' salary reduction contribution will be
matched by the Association, in the amount of $.60 per $1.00 up to a maximum of
10% of the participants' salary. All employee contributions and earnings thereon
are fully and immediately vested. All employer matching contributions vest at
the rate of 20% per
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year beginning in the second year until a participant is 100% vested after six
years of service. Participants will also vest in employer matching contributions
upon the attainment of their normal retirement date (i.e., age 65), death or
disability regardless of their years of service. A participant may also withdraw
salary reduction contributions in the event the participant suffers a financial
hardship.
The 401(k) Plan permits employees to direct the investment of their own
accounts into various investment options.
Plan benefits will be paid to each participant in a lump sum payment.
At December 31, 1996, the market value of the 401(k) Plan trust fund equaled
approximately $833,000. The contribution to the 401(k) Plan for the Plan year
ended December 31, 1996 was $81,916. During the year ended December 31, 1996,
the Association contributed $5,100 to the 401(k) plan for the account of Mr.
Irving.
EMPLOYMENT AGREEMENTS. The Association intends to enter into employment
agreements with Messrs. Irving, Donohue and Parisi each for a term of up to 36
months. If the agreement is not renewed, each agreement will expire within 36
months following the anniversary date of the agreement. Under each agreement,
the executive will be entitled to receive his salary in effect on the
commencement date of the agreement, as increased from time to time (but not
decreased), discretionary bonuses, and other fringe and employee benefits which
are or may become applicable to executive personnel. Each agreement provides for
termination by the Association for cause at any time. In the event the
Association terminates the executive's employment for reasons other than for
cause or in connection with or within 12 months following a change in control of
the Association or the Company, the Association will pay the executive's salary
during the remaining term of the agreement and will also provide the executive
with health benefits during such period which are substantially the same as
those provided to the executive during employment. In the event of executive's
termination of employment in connection with or within 12 months following a
change in control, the Association will pay the executive a lump sum cash
payment equal to 299% of the average of the executive's taxable compensation
paid over the last five calendar years before the year in which the change in
control occurs (the executive's "base amount"). In addition, the Association
will provide the executive during the remaining term of the agreement with
substantially the same health benefits as he had during employment.
In the event of the executive's disability during the term of the
agreement, the agreement will continue in effect, but any payments under the
agreement will be reduced by payments made to the executive under any disability
plan maintained by the Association. In the event of the executive's death during
the term of the agreement, the Association will pay the executive's salary to
the executive's beneficiary or to his estate.
EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST
The Association has established an ESOP for eligible employees
effective in January 1998, subject to the completion of the Offering. Employees
with at least one year of employment with the Association and who have attained
age 21 are eligible to participate. As part of the Offering, the ESOP intends to
borrow funds from the Company and use those funds to purchase a number of shares
equal to up to 8.0% of the Common Stock to be sold in the Offering. Collateral
for the loan will be the Common Stock purchased by the ESOP. The loan will be
repaid principally from the Association's discretionary contributions to the
ESOP and dividends on unallocated shares over a period of no more than 10 years.
It is anticipated that the interest rate for the loan will be a floating rate
equal to the prime rate published in The Wall Street Journal from time to time.
Shares purchased by the ESOP will be held in a suspense account for allocation
among participants as the loan is repaid.
Contributions to the ESOP and shares released from the suspense
accounts in an amount proportional to the repayment of the ESOP loan will be
allocated among ESOP participants on the basis of compensation in the year of
allocation. Participants in the ESOP will receive credit for service prior to
the effective date of the ESOP. Benefits generally vest over a seven year
period. A participant will vest in 20% of his or her account balance after 2
years of credited service and will vest in an additional 20% for each subsequent
year of credited service until a participant
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<PAGE> 59
is 100% vested after seven years. A participant who terminates employment for
reasons other than death, retirement, disability or following a change in
control prior to seven years of credited serve will forfeit the nonvested
portion of his or her benefits under the ESOP. Benefits will be payable in the
form of Common Stock and cash upon death, retirement, early retirement,
disability or separation from service. Contributions by the Association to the
ESOP are discretionary, subject to the loan terms and tax law limits, and,
therefore, benefits payable under the ESOP cannot be estimated. In November
1993, the American Institute of Certified Public Accountants (the "AICPA")
issued Statement of Position ("SOP") 93-6, which requires the Association to
record compensation expense in an amount equal to the fair market value of the
shares released from the suspense account.
In connection with the establishment of the ESOP, the Association will
establish a committee of non-employee directors to administer the ESOP. The
Association will either appoint its non-employee directors or an independent
financial institution to serve as trustee of the ESOP. The ESOP committee may
instruct the trustee regarding investment of funds contributed to the ESOP. The
ESOP trustee, subject to its fiduciary duty, must vote all allocated shares held
in the ESOP in accordance with the instructions of participating employees.
Under the ESOP, nondirected shares, and shares held in the suspense account,
will be voted in a manner calculated to most accurately reflect the instructions
it has received from participants regarding the allocated stock so long as such
vote is in accordance with the provisions of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA").
STOCK OPTION PLAN
At a meeting of the Company's shareholders to be held no earlier than
six months after the completion of the Reorganization, the Board of Directors
intends to submit for shareholder approval the Stock Option Plan for directors
and officers of the Association and of the Company. If approved by the
shareholders, Common Stock in an aggregate amount equal to 10% of the shares
sold in the Offering would be reserved for issuance by the Company upon the
exercise of the stock options granted under the Stock Option Plan. Ten percent
of the shares sold in the Offering would amount to 39,100 shares, 46,000 shares,
52,900 shares or 60,835 shares at the minimum, mid-point, maximum and 15% above
the maximum of the Offering Range, respectively. No options would be granted
under the Stock Option Plan until the date on which shareholder approval is
received.
It is anticipated that options would be granted for terms of 10 years
(in the case of incentive options) or 10 years and one day (in the case of
non-qualified options), and at an option price per share equal to the fair
market value of the shares on the date of grant of the stock options. If the
Stock Option Plan is adopted within one year following the Reorganization,
options will become exercisable at a rate of 20% at the end of each 12 months of
service with the Association after the date of grant, subject to early vesting
in the event of death or disability. Options granted under the Stock Option Plan
would be adjusted for capital changes such as stock splits and stock dividends.
Notwithstanding the foregoing, awards will be 100% vested upon termination of
employment due to death or disability, and if the Stock Option Plan is adopted
more than 12 months after the Reorganization, awards would be 100% vested upon
normal retirement or a change in control of the Association or the Company.
Unless the Company decides to call an earlier special meeting of shareholders,
the date of grant of these options is expected to be the date of the Company's
annual meeting of shareholders to be held at least six months after the
Reorganization. Under OTS rules, if the Stock Option Plan is adopted within the
first 12 months after the Reorganization, no individual officer can receive more
than 25% of the awards under the plan, no outside director can receive more than
5% of the awards under the plan, and all outside directors as a group can
receive no more than 30% of the awards under the plan in the aggregate.
The Stock Option Plan would be administered by a committee of
non-employee members of the Company's Board of Directors. Options granted under
the Stock Option Plan to employees may be treated as "incentive" stock options
which offer beneficial tax treatment to the employee but no tax deduction to the
Company. Non-qualified stock options may also be granted under the Stock Option
Plan, and will be granted to the non-employee directors who receive grants of
stock options. In the event an option recipient terminates his or her employment
or service as an employee or director, the options would terminate during
certain specified periods.
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STOCK AWARD PLAN
At a meeting of the Company's shareholders to be held no earlier than
six months after the completion of the Reorganization, the Board of Directors
also intends to submit a Stock Award Plan for shareholder approval. The Stock
Award Plan will grant directors and officers an ownership interest in the
Company in a manner designed to encourage their continued service with the
Association. The Association will contribute funds to the Stock Award Plan from
time to time to enable it to acquire an aggregate amount of Common Stock equal
to up to 4% of the shares of common stock sold in the Offering, either directly
from the Company or in open market purchases. Four percent of the shares sold in
the Offering would amount to 15,640 shares, 18,400 shares, 21,160 or 24,334
shares at the minimum, midpoint, maximum and 15% above the maximum of the
Offering Range, respectively. In the event that additional authorized but
unissued shares would be acquired by the Stock Award Plan after the
Reorganization, the interests of existing shareholders would be diluted.
Executive officers and directors will be awarded Common Stock under the Stock
Award Plan without having to pay cash for the shares. No awards under the Stock
Award Plan would be made until the date the Stock Award Plan is approved by the
Company's shareholders.
Awards would be nontransferable and nonassignable, and during the
lifetime of the recipient could only be earned by him or her. If the Stock Award
Plan is adopted within one year following the Reorganization, the shares which
are subject to an award would vest and be earned by the recipient at a rate of
20% of the shares awarded at the end of each full 12 months of service with the
Association after the date of grant of the award. Any Common Stock purchased by
the Stock Award Plan will represent unearned compensation and, accordingly, will
be reflected on the Company's financial statement as a reduction to
stockholders' equity. As shares of the Common Stock awarded under the Stock
Award Plan vest, a corresponding reduction in the charge to capital will occur.
Awards would be adjusted for capital changes such as stock dividends and stock
splits. Notwithstanding the foregoing, awards would be 100% vested upon
termination of employment or service due to death or disability, and if the
Stock Award Plan is adopted more than 12 months after the Reorganization, awards
would be 100% vested upon normal retirement or a change in control of the
Association or the Company. If employment or service were to terminate for other
reasons, the award recipient would forfeit any nonvested award. If employment or
service is terminated for cause (as would be defined in the Stock Award Plan),
shares not already delivered under the Stock Award Plan would be forfeited.
Under OTS rules, if the Stock Award Plan is adopted within the first 12 months
after the Reorganization, no individual officer may receive more than 25% of the
awards under the plan, no outside director may receive more than 5% of the
awards under the plan, and all outside directors as a group may receive no more
than 30% of the awards under the plan in the aggregate.
When shares become vested under the Stock Award Plan, the participant
will recognize income equal to the fair market value of the common stock earned,
determined as of the date of vesting, unless the recipient makes an election
under Section 83(b) of the Code to be taxed earlier. The amount of income
recognized by the participant would be a deductible expense for tax purposes for
the Company. If the Stock Award Plan is adopted within one year following the
Reorganization, dividends and other earnings will accrue and be payable to the
award recipient when the shares vest. Shares not yet vested under the Stock
Award Plan will be voted by the Trustee of the Stock Award Plan, taking into
account the best interests of the recipients of the awards under the plan.
TRANSACTIONS WITH CERTAIN RELATED PERSONS
The Association offers to directors, officers, and employees real
estate mortgage loans secured by their principal residence. All loans to the
Association's directors, officers and employees are made on substantially the
same terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions, and do not involve more than minimal risk of
collectibility.
Directors Maher and Dehler, in addition to their duties as directors of
the Association, provide consulting services to the Association. Mr. Maher
receives $30,000 in annual consulting fees from the Association for providing
advice regarding regulatory compliance, development of new products and
representation before government and
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businesses. Mr. Dehler receives $12,000 in annual consulting fees from the
Association for providing advice on strategic planning in order to enhance the
Association's franchise.
REGULATION
GENERAL
As a federally chartered, SAIF-insured savings association, the
Association is subject to extensive regulation by the OTS and the FDIC. For
example, the Association must obtain OTS approval before it may engage in
certain activities and must file reports with the OTS regarding its activities
and financial condition. The OTS periodically examines the Association's books
and records and, in conjunction with the FDIC in certain situations, has
examination and enforcement powers. This supervision and regulation are intended
primarily for the protection of depositors and the FDIC insurance funds. The
Association's semi- annual assessment owed to the OTS, which is based upon a
specified percentage of assets, is approximately $31,187.
The Association is also subject to federal and state regulation as to
such matters as loans to officers, directors, or principal shareholders,
required reserves, limitations as to the nature and amount of its loans and
investments, regulatory approval of any merger or consolidation, and the
issuance or retirements of its securities. In addition, the Association's
activities and operations are subject to a number of additional detailed,
complex and sometimes overlapping federal and state laws and regulations. These
include state usury and consumer credit laws, state laws relating to
fiduciaries, the Federal Truth-In-Lending Act and Regulation Z, the Federal
Equal Credit Opportunity Act and Regulation B, the Fair Credit Reporting Act,
the Community Reinvestment Act, anti-redlining legislation and antitrust laws.
The United States Congress is considering legislation that would
require all federal savings associations, such as the Association, to either
convert to a national bank or a state-chartered bank by a specified date to be
determined. In addition, under the legislation, the Mutual Holding Company and
the Company likely would not be regulated as savings and loan holding companies
but rather as bank holding companies. This proposed legislation would abolish
the OTS and transfer its functions to other federal banking regulators. No
assurance can be given as to whether or in what form the legislation will be
enacted or its effect on the Company and the Association.
SAVINGS AND LOAN HOLDING COMPANY REGULATION
Upon completion of the Reorganization, the Mutual Holding Company and
the Company will be regulated as savings and loan holding companies under the
Home Owners' Loan Act (the "HOLA"). As such, the Mutual Holding Company and the
Company will register with and will be subject to OTS regulation and examination
and supervision as well as certain reporting requirements. The OTS has indicated
that the Company will be regulated in the same manner as a mutual holding
company pursuant to Section 10(o) of the HOLA. As a federally-insured subsidiary
of a savings and loan holding company, the Company will be subject to certain
restrictions in dealing with the Mutual Holding Company and with other persons
affiliated with the Mutual Holding Company and the Company, and will continue to
be subject to examination and supervision by the OTS.
Pursuant to Section 10(o) of the HOLA, and OTS regulations and policy,
a mutual holding company and a federally chartered mid-tier holding company may
engage in the following activities: (i) investing in the stock of a savings
association; (ii) acquiring a mutual association through the merger of such
association into a savings association subsidiary of such holding company or an
interim savings association subsidiary of such holding company; (iii) merging
with or acquiring another holding company, one of whose subsidiaries is a
savings association; (iv) investing in a corporation, the capital stock of which
is available for purchase by a savings association under federal law or under
the law of any state where the subsidiary savings association or associations
share their home offices; (v) furnishing or performing management services for a
savings association subsidiary of such company; (vi) holding, managing or
liquidating assets owned or acquired from a savings subsidiary of such company;
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(vii) holding or managing properties used or occupied by a savings association
subsidiary of such company properties used or occupied by a savings association
subsidiary of such company; (viii) acting as trustee under deeds of trust; (ix)
any other activity (A) that the Federal Reserve Board, by regulation, has
determined to be permissible for bank holding companies under Section 4(c) of
the Bank Holding Company Act of 1956, unless the Director, by regulation,
prohibits or limits any such activity for savings and loan holding companies; or
(B) in which multiple savings and loan holding companies were authorized (by
regulation) to directly engage on March 5, 1987; and (x) purchasing, holding, or
disposing of stock acquired in connection with a qualified stock issuance if the
purchase of such stock by such savings and loan holding company is approved by
the Director. If a mutual holding company acquires or merges with another
holding company, the holding company acquired or the holding company resulting
from such merger or acquisition may only invest in assets and engage in
activities listed in (i) through (x) above, and has a period of two years to
cease any non-conforming activities and divest of any non-conforming
investments.
HOLA prohibits a savings and loan holding company, including the
Company and the Mutual Holding Company, directly or indirectly, or through one
or more subsidiaries, from acquiring another savings institution or holding
company thereof, without prior written approval of the OTS. It also prohibits
the acquisition or retention of, with certain exceptions, more than 5% of a
non-subsidiary savings institution, a non-subsidiary holding company, or a
non-subsidiary company engaged in activities other than those permitted by the
HOLA; or acquiring or retaining control of an institution that is not federally
insured. In evaluating applications by holding companies to acquire savings
institutions, the OTS must consider the financial and managerial resources,
future prospects of the company and institution involved, the effect of the
acquisition on the risk to the insurance fund, the convenience and needs of the
community and competitive factors.
OTS is prohibited from approving any acquisition that would result in a
multiple savings and loan holding company controlling savings institutions in
more than one state, subject to two exceptions: (i) the approval of interstate
supervisory acquisitions by savings and loan holding companies; and (ii) the
acquisition of a savings institution in another state if the laws of the state
of the target savings institution specifically permit such acquisitions. The
states vary in the extent to which they permit interstate savings and loan
holding company acquisitions.
In addition, OTS regulations require the Mutual Holding Company to
notify the OTS of any proposed waiver of its right to receive dividends. The OTS
reviews dividend waiver notices on a case-by-case basis, and, in general, does
not object to a waiver if: (i) the mutual holding company's board of directors
determines that waiver is consistent with its fiduciary duties to the mutual
holding company's members; (ii) for as long as the savings association
subsidiary is controlled by the mutual holding company, the dollar amount of
dividends waived by the mutual holding company is considered as a restriction in
the retained earnings of the savings association, which restriction, if
material, is disclosed in the public financial statements of the savings
association as a note to the financial statements; (iii) the amount of any
dividend waived by the mutual holding company is available for declaration as a
dividend solely to the mutual holding company, and, in accordance with SFAS 5,
where the savings association determines that the payment of such dividend to
the mutual holding company is probable, an appropriate dollar amount is recorded
as a liability; (iv) the amount of any waived dividend is considered as having
been paid by the savings association in evaluating any proposed dividend under
OTS capital distribution regulations; and (v) in the event the mutual holding
company converts to stock form, the appraisal submitted to the OTS in connection
with the conversion application takes into account the aggregate amount of the
dividends waived by the mutual holding company.
FEDERAL HOME LOAN BANK SYSTEM
The Association is a member of the FHLB of New York, which is one of
twelve regional FHLBs. Each FHLB serves as a reserve or central bank for its
members within its assigned region. It is funded primarily from funds deposited
by savings associations and proceeds derived from the sale of consolidated
obligations of the FHLB system. It makes loans to members ("FHLB advances") in
accordance with policies and procedures established by the Board of Directors of
the FHLB. All FHLB advances must be fully secured by sufficient collateral as
determined by the
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FHLB. The Federal Housing Finance Board ("FHFB"), an independent agency,
controls the FHLB System, including the FHLB of New York.
As a member, the Association is required to purchase and maintain stock
in the FHLB of New York in an amount equal to at least 1% of its aggregate
unpaid residential mortgage loans, home purchase contracts, or similar
obligations at the beginning of each year. At September 30, 1997, the
Association's investment in stock of the FHLB of New York was $582,000. The FHLB
imposes various limitations on advances such as limiting the amount of certain
types of real estate-related collateral to 30% of a member's capital and
limiting total advances to a member. Interest rates charged for advances vary
depending upon maturity, the cost of funds to the FHLB of New York and the
purpose of the borrowing.
The FHLBs are required to provide funds for the resolution of troubled
savings associations and to contribute to affordable housing programs through
direct loans or interest subsidies on advances targeted for community investment
and low- and moderate-income housing projects. These contributions have
adversely affected the level of FHLB dividends paid and could continue to do so
in the future. For the fiscal year ended March 31, 1997, dividends paid by the
FHLB of New York to the Association totaled approximately $33,755 for an annual
rate of 5.79%.
INSURANCE OF DEPOSITS
DEPOSIT INSURANCE. The FDIC is an independent federal agency that
insures deposits of banks and thrift institutions up to certain specified limits
and regulates such institutions for safety and soundness. The FDIC administers
two separate insurance funds, the BIF for commercial banks and state savings
banks, and the SAIF for savings associations such as the Association and banks
that have acquired deposits from savings associations. The FDIC is required to
maintain designated levels of reserves in each fund.
ASSESSMENTS. The FDIC is authorized to establish separate annual
assessment rates for deposit insurance for members of the BIF and members of the
SAIF. The FDIC may increase assessment rates for either fund if necessary to
restore the fund's ratio of reserves to insured deposits to the target level
within a reasonable time, and may decrease these rates if the target level has
been met. The FDIC has established a risk-based assessment system for both SAIF
and BIF members. Under this system, assessments vary depending on the risk the
institution poses to its deposit insurance fund. An institution's risk level is
determined based on its capital levels, and the FDIC's level of supervisory
concern about the institution.
In 1996, federal legislation was enacted to recapitalize the SAIF and
eliminate the significant premium disparity between the BIF and the SAIF. Under
the new law, the Association was charged a one-time special assessment equal to
$.657 per $100 of assessable deposits at March 31,1995. The Association
recognized this one-time assessment as a non-recurring operating expense of
$594,000 ($238,000 after tax) during the three-month period ending September 30,
1996. The assessment was fully deductible for both federal and state income tax
purposes. Beginning January 1,1997, the Association's annual deposit insurance
premium was reduced from .23% to .0644% of total assessable deposits. BIF
institutions pay lower assessments than comparable SAIF institutions because BIF
institutions pay only 20% of the rate paid by SAIF institutions on their
deposits with respect to obligations issued by the Financing Corporation
("FICO") which provided some of the financing to resolve failing thrift
institutions in the 1980's. The 1996 law also provides for the merger of the
SAIF and the BIF by 1999, but not until such time as bank and thrift charters
are combined. Until the charters are combined, savings associations with SAIF
deposits may not transfer deposits to the BIF without paying various exit and
entrance fees, and SAIF institutions will continue to pay higher FICO
assessments. Such exit and entrance fees need not be paid if a SAIF institution
converts to a bank charter or merges with a bank, as long as the resulting bank
continues to pay applicable insurance assessments to the SAIF, and as long as
certain other conditions are met.
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SAVINGS ASSOCIATION REGULATORY CAPITAL
Currently, savings associations are subject to three separate minimum
capital-to-assets requirements: (i) a leverage limit, (ii) a tangible capital
requirement, and (iii) a risk-based capital requirement. The leverage limit
requires that savings associations maintain "core capital" of at least 3% of
total assets. Core capital is generally defined as common shareholders' equity
(including retained income), noncumulative perpetual preferred stock and related
surplus, certain minority equity interests in subsidiaries, qualifying
supervisory goodwill, purchased mortgage servicing rights and purchased credit
card relationships (subject to certain limits) less nonqualifying intangibles.
Under the tangible capital requirement, a savings association must maintain
tangible capital (core capital less all intangible assets except purchased
mortgage servicing rights which may be included after making the above-noted
adjustment in an amount up to 100% of tangible capital) of at least 1.5% of
total assets. Under the risk-based capital requirements, a minimum amount of
capital must be maintained by a savings association to account for the relative
risks inherent in the type and amount of assets held by the savings association.
The risk-based capital requirement requires a savings association to maintain
capital (defined generally for these purposes as core capital plus general
valuation allowances and permanent or maturing capital instruments such as
preferred stock and subordinated debt, less assets required to be deducted)
equal to 8.0% of risk-weighted assets. Assets are ranked as to risk in one of
four categories (0-100%). A credit risk-free asset, such as cash, requires no
risk-based capital, while an asset with a significant credit risk, such as a
non-accrual loan, requires a risk factor of 100%. Moreover, a savings
association must deduct from capital, for purposes of meeting the core capital,
tangible capital and risk-based capital requirements, its entire investment in
and loans to a subsidiary engaged in activities not permissible for a national
bank (other than exclusively agency activities for its customers or mortgage
banking subsidiaries). At September 30, 1997, the Association was in compliance
with all capital requirements imposed by law.
The OTS has promulgated a rule which sets forth the methodology for
calculating an interest rate risk component to be used by savings associations
in calculating regulatory capital. The OTS has delayed the implementation of
this rule, however. The rule requires savings associations with "above normal"
interest rate risk (institutions whose portfolio equity would decline in value
by more than 2% of assets in the event of a hypothetical 200-basis-point move in
interest rates) to maintain additional capital for interest rate risk under the
risk-based capital framework. If the OTS were to implement this regulation, the
Association would be exempt from its provisions because it has less than $300
million in assets and a risk-based capital ratio in excess of 12%. The
Association nevertheless measure its interest rate risk in conformity with the
OTS regulation. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Asset Liability Management."
If an association is not in compliance with the capital requirements,
the OTS is required to prohibit asset growth and to impose a capital directive
that may restrict, among other things, the payment of dividends and officers
compensation. In addition, the OTS and the FDIC generally are authorized to take
enforcement actions against a savings association that fails to meet its capital
requirements. These actions may include restricting the operations and
activities of the association, imposing a capital directive, cease and desist
order, or civil money penalties, or imposing harsher measures such as appointing
a receiver or conservator or forcing the association to merge into another
institution.
PROMPT CORRECTIVE REGULATORY ACTION
Federal law requires, among other things, that federal bank regulatory
authorities take "prompt corrective action" with respect to institutions that do
not meet minimum capital requirements. For these purposes, federal law
establishes five capital tiers: well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized, and critically
undercapitalized. At September 30, 1997, the Association was categorized as
"well capitalized," meaning that the Association's total risk-based capital
ratio exceeded 10%, Tier I risk-based capital ratio exceeded 6%, leverage
capital ratio exceeded 5%, and the Association was not subject to a regulatory
order, agreement or directive to meet and maintain a specific capital level for
any capital measure.
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The FDIC may order savings associations which have insufficient capital
to take corrective actions. For example, a savings association which is
categorized as "undercapitalized" would be subject to growth limitations and
would be required to submit a capital restoration plan, and a holding company
that controls such a savings association would be required to guarantee that the
savings association complies with the restoration plan. "Significantly
undercapitalized" savings associations would be subject to additional
restrictions. Savings associations deemed by the FDIC to be "critically
undercapitalized" would be subject to the appointment of a receiver or
conservator.
DIVIDEND LIMITATIONS
An OTS regulation imposes limitations upon all "capital distributions"
by savings associations, including cash dividends, payments by an association to
repurchase or otherwise acquire its shares, payments to shareholders of another
institution in a cash-out merger and other distributions charged against
capital. The regulation establishes a three-tiered system of regulation, with
the greatest flexibility given to well-capitalized associations. A savings
association which has total capital (immediately prior to and after giving
effect to the capital distribution) that is at least equal to its fully
phased-in capital requirements would be a Tier 1 institution ("Tier 1
Institution"). An association that has total capital at least equal to its
minimum capital requirements, but less than its capital requirements, would be a
Tier 2 institution ("Tier 2 Institution"). An institution having total capital
that is less than its minimum capital requirements would be a Tier 3 institution
("Tier 3 Institution"). However, an institution which otherwise qualifies as a
Tier 1 Institution may be designated by the OTS as a Tier 2 or Tier 3
Institution if the OTS determines that the institution is "in need of more than
normal supervision." The Association is currently a Tier 1 Institution.
A Tier 1 Institution may, after prior notice but without the approval
of the OTS, make capital distributions during a calendar year up to the greater
of (a) 100% of its net income to date during the calendar year plus the amount
that would reduce by one-half its "surplus capital ratio" at the beginning of
the calendar year (the smallest excess over its capital requirements), or (b)
75% of its net income over the most recent four-quarter period. Any additional
amount of capital distributions would require prior regulatory approval.
Accordingly, at September 30, 1997, the Association had available approximately
$2.0 million for distribution, without consideration of any capital infusion
from the Reorganization.
The OTS has proposed revisions to these regulations which would permit
savings associations to declare dividends in amounts which would assure that
they remain adequately capitalized following the dividend declaration. Savings
associations in a holding company system which are rated Camel 1 or 2 and which
are not in troubled condition would need to file a prior notice with the OTS
concerning such dividend declaration.
LIMITATIONS ON RATES PAID FOR DEPOSITS
FDIC regulations place limitations on the ability of insured depository
institutions to accept, renew or roll over deposits by offering rates of
interest which are significantly higher than the prevailing rates of interest on
deposits offered by other insured depository institutions having the same type
of charter in the institution's normal market area. Under these regulations,
"well-capitalized" depository institutions may accept, renew or roll such
deposits over without restriction, "adequately capitalized" depository
institutions may accept, renew or roll such deposits over with a waiver from the
FDIC (subject to certain restrictions on payments of rates), and
"undercapitalized" depository institutions may not accept, renew or roll such
deposits over. The regulations contemplate that the definitions of "well
capitalized," "adequately capitalized" and "undercapitalized" will be the same
as the definition adopted by the agencies to implement the corrective action
provisions of federal law. Management does do not believe that these regulations
will have a materially adverse effect on the Association's current operations.
SAFETY AND SOUNDNESS STANDARDS
The federal banking agencies have also adopted safety and soundness
standards for all insured depository institutions. The standards, which were
issued in the form of guidelines rather than regulations, relate to internal
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controls, information systems, internal audit systems, loan underwriting and
documentation, compensation and interest rate exposure. In general, the
standards are designed to assist the federal banking agencies in identifying and
addressing problems at insured depository institutions before capital becomes
impaired. If an institution fails to meet these standards, the appropriate
federal banking agency may require the institution to submit a compliance plan.
Failure to submit a compliance plan may result in enforcement proceedings. On
August 27, 1996, the federal banking agencies added asset quality and earning
standards to the safety and soundness guidelines.
LOANS TO ONE BORROWER
Under OTS regulations, a savings association may not make a loan or
extend credit to a single or related group of borrowers in excess of 15% of
unimpaired capital and surplus. Additional amounts may be lent, not in excess of
10% of unimpaired capital and surplus, if such loans or extensions of credit are
fully secured by readily marketable collateral, including certain debt and
equity securities, but not including real estate. In some cases, a savings
association may lend up to 30% of unimpaired capital and surplus to one borrower
for purposes of developing domestic residential housing, provided that the
association meets its regulatory capital requirements and the OTS authorizes the
association to use this expanded lending authority. At September 30, 1997, the
Association had one loan to a single or related group of borrowers in excess of
its lending limits. Subsequently, this loan was sold. Management does not
believe that the loans-to-one-borrower limits will have a significant impact on
the Association's business operations or earnings following the Reorganization.
QUALIFIED THRIFT LENDER
Savings associations must meet a QTL test. If the Association maintains
an appropriate level of qualified thrift investments ("QTIs") (primarily
residential mortgages and related investments, including certain
mortgage-related securities) and otherwise qualify as a QTL, it may exercise
full borrowing privileges from the FHLB of New York. The required percentage of
QTIs is 65% of portfolio assets (defined as all assets minus intangible assets,
property used by the association in conducting its business and liquid assets
equal to 10% of total assets). Certain assets are subject to a percentage
limitation of 20% of portfolio assets. In addition, savings associations may
include shares of stock of the FHLBs, FNMA, and FHLMC as QTIs. Compliance with
the QTL test is determined on a monthly basis in nine out of every twelve
months.
Recent legislation also expands the QTL test to provide savings
associations with greater authority to lend and diversify their portfolios. In
particular, credit card and education loans may now be made by savings
associations without regard to any percentage-of-assets limit, and commercial
loans may be made in an amount up to 10% of total assets, plus an additional 10%
for small business loans. Loans for personal, family and household purposes
(other than credit card, small business and educational loans) are now included
without limit with other assets that, in the aggregate, may account for up to
20% of total assets. At September 30, 1997, under the expanded QTL test,
approximately 87.6% of the Association's portfolio assets were qualified thrift
investments.
A savings association that fails to meet the QTL test must either
convert to a bank (but its deposit insurance assessments and payments will be
those of and paid to the SAIF) or be subject to the following penalties: (i) it
may not enter into any new activity except for those permissible for a national
bank and for a savings association; (ii) its branching activities will be
limited to those of a national bank; (iii) it will not be eligible for any new
FHLB advances; and (iv) it will be bound by regulations applicable to national
banks regarding the payment of dividends. Three years after failing the QTL test
the association must (i) dispose of any investment or activity not permissible
for a national bank and a savings association, and (ii) repay all outstanding
FHLB advances. If such a savings association is controlled by a savings and loan
holding company, then such holding company must, within a prescribed time
period, become registered as a bank holding company and become subject to all
rules and regulations applicable to bank holding companies (including
restrictions as to the scope of permissible business activities).
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ACQUISITIONS AND BRANCHING
The Bank Holding Company Act specifically authorizes a bank holding
company, upon receipt of appropriate regulatory approvals, to acquire control of
any savings association or holding company thereof wherever located. Similarly,
a savings and loan holding company may acquire control of a bank. Moreover,
federal savings associations may acquire or be acquired by any insured
depository institution. Regulations promulgated by the FRB restrict the
branching authority of savings associations acquired by bank holding companies.
Savings associations acquired by bank holding companies may be converted to
banks if they continue to pay SAIF premiums, but as such they become subject to
branching and activity restrictions applicable to banks.
Subject to certain exceptions, commonly-controlled banks and savings
associations must reimburse the FDIC for any losses suffered in connection with
a failed bank or savings association affiliate. Institutions are commonly
controlled if one is owned by another or if both are owned by the same holding
company. Such claims by the FDIC under this provision are subordinate to claims
of depositors, secured creditors, and holders of subordinated debt, other than
affiliates.
The OTS has adopted regulations which permit nationwide branching to
the extent permitted by federal statute. Federal statutes permit federal savings
associations to branch outside of their home state if the association meets the
domestic building and loan test in Section 7701(a)(19) of the Code or the asset
composition test of Section 7701(c) of the Code. Branching that would result in
the formation of a multiple savings and loan holding company controlling savings
associations in more than one state is permitted if the law of the state in
which the savings association to be acquired is located specifically authorizes
acquisitions of its state-chartered associations by state-chartered associations
or their holding companies in the state where the acquiring association or
holding company is located.
Finally, The Riegle-Neal Interstate Banking and Branching Efficiency
Act of 1994 (the "Riegle-Neal Act") permits bank holding companies to acquire
banks in other states and, with state consent and subject to certain
limitations, allows banks to acquire out-of-state branches either through merger
or de novo expansion.
TRANSACTIONS WITH AFFILIATES
The Association is subject to Sections 22(h), 23A and 23B of the
Federal Reserve Act, which restrict financial transactions between banks and
affiliated companies. The statute limits credit transactions between a bank or
savings association and its executive officers and its affiliates, prescribes
terms and conditions for bank affiliate transactions deemed to be consistent
with safe and sound banking practices, and restricts the types of collateral
security permitted in connection with a bank's extension of credit to an
affiliate.
FEDERAL SECURITIES LAW
The shares of Common Stock of the Company will be registered with the
SEC under the Securities Exchange Act of 1934 (the "1934 Act"). The Company will
be subject to the information, proxy solicitation, insider trading restrictions
and other requirements the 1934 Act and the rules of the SEC thereunder. After
three years following the reorganization to stock form, if the Company has fewer
than 300 shareholders, it may deregister its shares under the 1934 Act and cease
to be subject to the foregoing requirements.
Shares of Common Stock held by persons who are affiliates of the
Company may not be resold without registration unless sold in accordance with
the resale restrictions of Rule 144 under the 1933 Act. If the Company meets the
current public information requirements under Rule 144, each affiliate of the
Company that complies with the other conditions of Rule 144 (including those
that require the affiliate's sale to be aggregated with those of certain other
persons) would be able to sell in the public market, without registration, a
number of shares not to exceed, in any three-month period, the greater of (i) 1%
of the outstanding shares of the Company or (ii) the average weekly volume of
trading in such shares during the preceding four calendar weeks.
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COMMUNITY REINVESTMENT ACT MATTERS
Federal law requires that ratings of depository institutions under the
Community Reinvestment Act of 1977 ("CRA") be disclosed. The disclosure includes
both a four-unit descriptive rating--outstanding, satisfactory, needs to
improve, and substantial noncompliance--and a written evaluation of an
institution's performance. Each FHLB is required to establish standards of
community investment or service that its members must maintain for continued
access to long-term advances from the FHLBs. The standards take into account a
member's performance under the CRA and its record of lending to first time home
buyers. The OTS has designated the Association's record of meeting community
credit needs as "satisfactory."
TAXATION
FEDERAL TAXATION
Historically, savings associations, such as the Association, have been
permitted to compute bad debt deductions using either the experience method or
the percentage of taxable income method. However, for years beginning after
December 31, 1995, no savings association may use the percentage of taxable
income method of computing its allowable bad debt deduction for tax purposes.
Instead, all savings associations are required to compute their allowable
deduction using either the experience method or the specific charge off method.
As a result of the repeal of the percentage of taxable income method, reserves
taken after 1987 using the percentage of taxable income method generally must be
included in future taxable income over a six-year period, although a two-year
delay may be permitted for associations meeting a residential mortgage loan
origination test. In addition, the pre-1988 reserve, for which no deferred taxes
have been recorded, need not be recaptured into income unless (i) the savings
association no longer qualifies as a bank under the Code, or (ii) the savings
association pays out excess dividends contributions.
Depending on the composition of its items of income and expense, a
savings association may be subject to the alternative minimum tax. A savings
association must pay an alternative minimum tax on the amount (if any) by which
20% of alternative minimum taxable income ("AMTI"), as reduced by an exemption
varying with AMTI, exceeds the regular tax due. AMTI equals regular taxable
income increased or decreased by certain tax preferences and adjustments,
including depreciation deductions in excess of that allowable for alternative
minimum tax purposes, tax-exempt interest on most private activity bonds issued
after August 7, 1986 (reduced by any related interest expense disallowed for
regular tax purposes), the amount of the bad debt reserve deduction claimed in
excess of the deduction based on the experience method and 75% of the excess of
adjusted current earnings over AMTI (before this adjustment and before any
alternative tax net operating loss). AMTI may be reduced only up to 90% by net
operating loss carryovers, but alternative minimum tax paid can be credited
against regular tax due in later years.
For federal income tax purposes, the Association has been reporting its
income and expenses on the accrual method of accounting. The Association's
federal income tax returns have not been audited during the past five years.
STATE TAXATION
NEW YORK STATE AND NEW YORK CITY TAXATION. The Company and the
Association will report income on a combined calendar year basis to both New
York State and New York City. New York State Franchise Tax on corporations is
imposed in an amount equal to the greater of (a) 9% of "entire new income"
allocable to New York State, (b) 3% of "alternative entire net income" allocable
to New York State, (c) 0.01% of the average value of assets allocable to New
York State or (d) nominal minimum tax. Entire net income is based on federal
taxable income, subject to certain modifications. Alternative entire net income
is equal to entire net income without certain modifications. The New York City
Corporation Tax is imposed using similar alternative taxable income methods and
rates.
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A temporary Metropolitan Transportation Business Tax Surcharge on
banking corporations doing business in the Metropolitan District has been
applied since 1982. The Association transacts a significant portion of its
business within this District and is subject to this surcharge. For the tax year
ended December 31, 1996, the surcharge rate is 17% of the State franchise tax
liability. For 1996, an additional 2.5% tax surcharge on the New York State
Franchise Tax was imposed on the Company. New York City does not impose
surcharges applicable to the Company.
For further information relating to the tax consequences of the
Reorganization, see "The Reorganization--Principal Effects of Reorganization --
Tax Effects."
THE REORGANIZATION AND OFFERING
THE BOARD OF DIRECTORS OF THE ASSOCIATION AND THE OTS HAVE APPROVED THE
PLAN SUBJECT TO THE PLAN'S APPROVAL BY MEMBERS AT A SPECIAL MEETING OF MEMBERS,
AND SUBJECT TO THE SATISFACTION OF CERTAIN OTHER CONDITIONS IMPOSED BY THE OTS
IN ITS APPROVAL. OTS APPROVAL, HOWEVER, DOES NOT CONSTITUTE A RECOMMENDATION OR
ENDORSEMENT OF THE PLAN BY THE OTS.
GENERAL
On August 19, 1997 the Board of Directors unanimously adopted the Plan,
pursuant to which the Association will reorganize from a federally chartered
mutual savings and loan association into a two-tier federal mutual holding
company structure. The Plan has been approved by the OTS subject to, among other
things, approval of the Plan by the Association's members as of the Voting
Record Date. A special meeting of members has been called for this purpose, to
be held on __________, 1998, (the "Special Meeting"). The Reorganization will be
completed as follows:
(i) the Association will organize an interim stock savings bank as
a wholly-owned subsidiary ("Interim One");
(ii) Interim One will organize an interim stock savings bank as a
wholly-owned subsidiary ("Interim Two");
(iii) Interim One will organize the Company as a wholly-owned
subsidiary;
(iv) the Association will amend its charter to read in the form of
a federal stock savings association charter at which time the
Association will become the Stock Association, and Interim One
will exchange its charter for a federal mutual holding company
charter to become the Mutual Holding Company;
(v) simultaneously with step (vi), Interim Two will merge with and
into the Stock Association, and the Stock Association will be
the surviving institution;
(vi) all of the stock constructively issued by the Stock
Association will be transferred to the Mutual Holding Company
in exchange for membership interests in the Mutual Holding
Company; and
(vii) the Mutual Holding Company will contribute the Stock
Association's stock to the Company, and the Stock Association
will become a wholly-owned subsidiary of the Company.
Concurrently with the Reorganization the Company will offer for sale
46% of its Common Stock representing 46% of the pro forma market value of the
Company and the Association.
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The Association has mailed to each person eligible to vote at the
Special Meeting a proxy statement (the "Proxy Statement") containing information
concerning the business purposes of the Reorganization and the effects of the
Plan and the Reorganization on voting rights, liquidation rights, the
continuation of the Association's business and existing savings accounts, FDIC
insurance and loans. The Proxy Statement also describes the manner in which the
Plan may be amended or terminated. Included with the Proxy Statement is a proxy
card which should be used to vote on the Plan.
The following is a summary of the material aspects of the Plan, the
Subscription Offering, and the Community Offering. The Plan should be consulted
for a more detailed description of its terms.
REASONS FOR REORGANIZATION
In order to secure equity financing, the Reorganization will structure
the Association in the stock form of ownership, which is the corporate form used
by commercial banks, most major businesses and a large number of savings
institutions. The primary purpose of the Reorganization is to establish a
holding company and to convert the Association to the stock form of ownership in
order to compete and expand more effectively in the financial services
marketplace. The Reorganization also will enable customers, employees,
management and directors to have an equity ownership interest in the
Association, which management believes will enhance the long-term growth and
performance of the Association and the Company by enabling the Association to
attract and retain qualified employees who have a direct interest in the
financial success of the Association. The Reorganization will permit the Company
to issue capital stock, which is a source of capital not available to mutual
savings associations. Since the Company will not be offering all of its Common
Stock for sale in the Offering, the Reorganization will result in less capital
raised in comparison to a standard mutual-to-stock conversion. The
Reorganization, however, also will allow the Association to raise additional
capital in the future because a majority of the Company's Common Stock will be
available for sale in the event of a conversion of the Mutual Holding Company to
stock form. The Reorganization also will provide the Bank with greater
flexibility to structure and finance the expansion of its operations, both
directly and through the Company, including the potential acquisition of other
financial institutions, and to diversify into other financial services, to the
extent permissible by applicable law and regulation. Although there are no
current arrangements, understandings or agreements regarding any such
opportunities, the Company will be in a position after the Reorganization,
subject to regulatory limitations and the Company's financial position, to take
advantage of any such opportunities that may arise. Lastly, the Reorganization
will enable the Association to better manage its capital by providing broader
investment opportunities through the holding company structure and by enabling
the Company to repurchase its common stock as market conditions permit. Although
the Reorganization and Offering will create a stock savings Association and
stock holding company, only a minority of the Common Stock will be offered for
sale in the Offering. As a result, the Association's mutual form of ownership
and its ability to provide community-oriented financial services will be
preserved through the mutual holding company structure.
The Board of Directors believes that these advantages outweigh the
potential disadvantages of the mutual holding company structure to Minority
Stockholders, which may include: (i) the inability of stockholders other than
the Mutual Holding Company to obtain majority ownership of the Company and the
Stock Association, which may result in the perpetuation of the management and
Board of Directors of the Stock Association and the Company; and (ii) that the
mutual holding company structure is a relatively new form of corporate
ownership, and new regulatory policies relating to the mutual interest in the
Mutual Holding Company that may be adopted from time-to-time may have an adverse
impact on Minority Stockholders. A majority of the voting stock of the Company
will be owned by the Mutual Holding Company, which will be controlled by its
Board of Directors. While this structure will permit management to focus on the
Company's and the Association's long-term business strategy for growth and
capital redeployment without undue pressure from stockholders, it will also
serve to perpetuate the existing management and directors of the Association.
The Mutual Holding Company will be able to elect all members of the Board of
Directors of the Company, and will be able to control the outcome of all matters
presented to the stockholders of the Company for resolution by vote except for
certain matters, such as the approval of the stock plans and the stock option
plans, that, if established within the first year after the conclusion of the
Offering, must be approved by a majority
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of the votes of the Minority Stockholders of the Company. No assurance can be
given that the Mutual Holding Company will not take action adverse to the
interests of the Minority Stockholders. For example, the Mutual Holding Company
could revise the dividend policy, prevent the sale of control of the Company, or
defeat a candidate for the Board of Directors of the Company or other proposals
put forth by the Minority Stockholders.
The Reorganization does not preclude the conversion of the Mutual
Holding Company from the mutual to stock form of organization following the
reorganization. No assurance can be given when, if ever, the Mutual Holding
Company will convert to stock form or what conditions the OTS or other
regulatory agencies may impose on such a transaction.
Following the completion of the Reorganization, all depositors who had
liquidation rights with respect to the Association as of the Effective date of
the Reorganization will continue to have such rights solely with respect to the
Mutual Holding Company so long as they continue to hold deposit accounts with
the Association. In addition, all persons who become depositors of the
Association subsequent to the Reorganization will have such liquidation rights
with respect to the Mutual Holding Company.
All insured deposit accounts of the Association that are transferred to
the Stock Association will continue to be federally insured by the FDIC and the
SAIF up to the legal maximum limit in the same manner as deposit accounts
existing in the Association immediately prior to the Reorganization. Upon
completion of the Reorganization, the Association may exercise any and all
powers, rights and privileges of, and shall be subject to all limitations
applicable to, capital stock savings associations under Federal law and OTS
regulations. Although the Company will have the power to issue shares of capital
stock to persons other than the Mutual Holding Company, as long as the Mutual
Holding Company is in existence, the Mutual Holding Company will be required to
own a majority of the voting stock of the Company. The Company may issue any
amount of non-voting stock to persons other than the Mutual Holding Company, and
the Company must own 100% of the voting stock of the Association. The
Association and the Company may issue any amount of non-voting stock or debt to
persons other than the Mutual Holding Company.
TAX EFFECTS OF THE REORGANIZATION. The Association intends to proceed
with the Reorganization on the basis of an opinion from its special counsel,
Luse Lehman Gorman Pomerenk & Schick, P.C., Washington, D.C., as to certain tax
matters that are material to the Reorganization. The opinion is based, among
other things, on certain representations made by the Association, including the
representation that the exercise price of the subscription rights to purchase
the Common Stock will be approximately equal to the fair market value of the
stock at the time of the completion of the Reorganization. With respect to the
subscription rights, the Association has received an opinion of Feldman
Financial which, based on certain assumptions, concludes that the subscription
rights to be received by Eligible Account Holders, Supplemental Eligible Account
Holders and Other Members do not have any economic value at the time of
distribution or the time the subscription rights are exercised, whether or not a
Community Offering takes place, and Luse Lehman Gorman Pomerenk & Schick, P.C.'s
opinion is given in reliance thereon. Luse Lehman Gorman Pomerenk & Schick,
P.C.'s opinion provides substantially as follows:
1. The change in the Association's form from a mutual savings
association to a stock savings association (the "Stock
Association") will qualify as a reorganization under Section
368(a)(1)(F) of the Internal Revenue Code, as amended
("Code"), and no gain or loss will be recognized to the
Association in either its mutual form or stock form by reason
of the Reorganization.
2. No gain or loss will be recognized by the Association or the
Stock Association upon the transfer of the Association's
assets to the Stock Association solely in exchange for shares
of Stock Association stock and the assumption by the Stock
Association of the liabilities of the Association.
3. Stock Association's holding period in the assets received from
the Association will include the period during which such
assets were held by the Association.
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4. Stock Association's basis in the assets of the Association
will be the same as the basis of such assets in the
Association immediately prior to the Reorganization.
5. The Stock Association will succeed to and take into account
the Association's earnings and profits or deficit in earnings
and profits, as of the date of the Reorganization.
6. The Stock Association's depositors will recognize no gain or
loss solely by reason of the Reorganization.
7. The Mutual Holding Company and the Minority Stockholders will
recognize no gain or loss upon the transfer of Stock
Association stock and cash, respectively, to the Company in
exchange for Common Stock of the Company.
8. The Company will recognize no gain or loss upon its receipt of
property from the Mutual Holding Company and Minority
Stockholders in exchange for Common Stock of the Company.
9. The basis of the Company Common Stock to the Minority
Stockholders will be the actual purchase price thereof, and
the holding period for Common Stock acquired through the
exercise of subscription rights will begin on the date the
rights are exercised.
The opinions of Luse Lehman Gorman Pomerenk & Schick, P.C., unlike a
letter ruling issued by the Internal Revenue Service, are not binding on the
Service and the conclusions expressed herein may be challenged at a future date.
The Service has issued favorable rulings for transactions substantially similar
to the proposed Reorganization, but any such ruling may not be cited as
precedent by any taxpayer other than the taxpayer to whom the ruling is
addressed. The Association does not plan to apply for a letter ruling concerning
the transactions described herein.
The Association has also received an opinion from O'Reilly, Marsh,
Kearney & Corteselli, P.C. that implementation of the Plan will not result in
any New York income tax liability to the Association, its depositors and
borrowers, the Company or the Mutual Holding Company.
OFFERING OF COMMON STOCK
Under the Plan, up to 529,000 shares of common stock are being offered
for sale, initially through the Subscription Offering (subject to a possible
increase to 608,350 shares). See "--Subscription Offering." The Plan requires,
with certain exceptions, that a number of shares equal to at least 391,000
shares be sold in order for the Reorganization to be effective.
The Subscription Offering expires at __________, New York time, on
__________, 1998. OTS regulations and the Plan require that the sale of Common
Stock be completed within 45 days after the close of the Subscription Offering.
This 45-day period expires on ____________, 1998. In the event the Association
is unable to complete the sale of common stock within this 45-day period, the
Association may request an extension of this time period from the OTS. No single
extension granted by the OTS, however, may exceed 90 days. No assurance can be
given that an extension would be granted if requested. The OTS, however, has
granted extensions due to the inability of mutual financial institutions to
complete a stock offering as a result of the development of adverse conditions
in the stock market. If an extension is granted, the Association would promptly
notify subscribers of the granting of the extension of time and would promptly
return subscriptions unless subscribers affirmatively elect to continue their
subscriptions during the period of extension. Such extensions may not be made
beyond _____________, 2001.
Shares may also be offered to the public in a Community Offering, if
one is to be held. In the event a Community Offering is held, it may begin
immediately after the Subscription Offering, or any time during the Subscription
Offering. The Community Offering may end on or after the Subscription Offering,
but not later than
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February __, 1998, unless further extended with the approval of the OTS. The
actual number of shares to be sold in the Offering will depend upon market and
financial conditions at the time of the Offering, provided that no fewer than
391,000 shares or more than 608,350 shares are sold in the Offering. The per
share price to be paid by prospective purchasers in the Community Offering, if
any, for any remaining shares will be $10.00, the same price paid by subscribers
in the Subscription Offering. See "- Stock Pricing."
As permitted by OTS regulations, the Plan provides that if, for any
reason, purchasers cannot be found for an insignificant numbers of unsubscribed
shares of the common stock, the Board of Directors will seek to make other
arrangements for the sale of the remaining shares. Such other arrangements will
be subject to the approval of the OTS. If such other purchase arrangements
cannot be made, the Plan will terminate. In the event that the Offering is not
completed, the Association will remain a mutual savings association, all
subscription funds will be promptly returned to subscribers with interest earned
thereon at the passbook rate, which is currently _____% per annum (except for
payments to have been made through withdrawal authorizations which will have
continued to earn interest at the contractual account rates), and all withdrawal
authorizations will be canceled.
SUBSCRIPTION OFFERING
In accordance with OTS regulations, nontransferable rights to subscribe
for the purchase of the Company's Common Stock have been granted under the Plan
to the following persons in the following order of priority: (1) Eligible
Account Holders; (2) the ESOP; (3) Supplemental Eligible Account Holders; (4)
depositors and borrowers other than Eligible Account Holders and Supplemental
Eligible Account Holders, at the close of business on ____________, 1998, the
voting record date for the Special Meeting ("Other Members"), and (5), and
employees, officers and directors. All subscriptions received will be subject to
the availability of Common Stock after satisfaction of all subscriptions of all
persons having prior rights in the Subscription Offering, and to the maximum and
minimum purchase limitations set forth in the Plan (and described below). The
June 30, 1996 date for determining who qualifies as Eligible Account Holders,
and the December 31, 1997 date for determining who qualifies as Supplemental
Eligible Account Holders, were selected in accordance with federal regulations
applicable to the Reorganization.
CATEGORY I: ELIGIBLE ACCOUNT HOLDERS. Each Eligible Account Holder will
receive, without cost to him or her, nontransferable subscription rights to
subscribe for up to 5,000 shares of the Common Stock; provided, however, that no
Eligible Account Holder may purchase alone or with his or her Associates (as
defined in this Prospectus) and persons acting in concert, more than 5,000
shares of Common Stock. The Company may, in its sole discretion and without
further notice to, or solicitation of, subscribers or other prospective
purchasers, increase the maximum purchase limitation up to 5% of the maximum
number of shares offered in the Offering, or decrease the maximum purchase
limitation to as low as .5% of the maximum number of shares offered in the
Offering.
If sufficient shares are not available in this Category I, the
Association will allocate shares in a manner that will allow each Eligible
Account Holder purchase the lesser of 100 shares or the amount subscribed for.
Thereafter, unallocated shares will be allocated to subscribing Eligible Account
Holders in the proportion that the amounts of their respective qualifying
deposits bear to the total amount of qualifying deposits of all subscribing
Eligible Account Holders. To ensure a proper allocation of Common Stock, each
Eligible Account Holder must list on the Stock Order Form all accounts in which
he and she has an ownership interest as of June 30, 1996. Failure to list all
such qualifying deposit accounts may result in the inability of the Company or
the Association to fill all or part of a subscription order. Neither the
Company, the Association nor any of their agents shall be responsible for orders
on which all qualifying deposit accounts have not been fully and accurately
disclosed.
The "qualifying deposits" of an Eligible Account Holder is the
aggregate amount of the deposit balances (provided such aggregate balance is not
less than $50.00) in his or her deposit accounts, including money market
accounts, as of the close of business on June 30, 1996. Subscription rights
received by directors and officers in this category based upon their increased
deposits in the Association during the year preceding June 30, 1996, are
subordinated to the subscription rights of other Eligible Account Holders.
Notwithstanding the foregoing, shares of
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Common Stock with a value in excess of $50,000, may be sold to the ESOP before
satisfying the subscriptions of Eligible Account Holders in the event the number
of shares sold in the Offering is increased by more than 529,000 shares. For
allocation purposes, qualifying deposits will be divided in the case of multiple
orders.
CATEGORY II: THE EMPLOYEE STOCK OWNERSHIP PLAN ("ESOP"). The ESOP will
receive nontransferable subscription rights to purchase up to 10% of the total
number of shares of Common Stock offered in the Offering, provided that shares
remain available after satisfying the subscription rights of Eligible Account
Holders. The ESOP currently intends to purchase 8% of the shares sold in the
Offering. If the ESOP is unable to purchase all or part of the shares of Common
Stock for which it subscribes, the ESOP may purchase such shares on the open
market or may purchase authorized but unissued shares of the Company. Any
purchase by the ESOP of authorized but unissued shares would dilute the
interests of the Company's shareholders.
CATEGORY III: SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS. Each Supplemental
Eligible Account Holder will receive, without payment therefor, nontransferable
subscription rights to subscribe for up to 5,000 shares of the Common Stock;
provided, however, that no Supplemental Eligible Account Holder may purchase
alone or with his or her Associates and persons acting in concert, more than
5,000 shares of common stock. Such subscription rights will be applicable only
to shares that remain available after the subscriptions of Eligible Account
Holders and the ESOP have been satisfied. The Company may, in its sole
discretion, and without further notice to, or solicitation of, subscribers or
other prospective purchasers, increase the maximum purchase limitation to up to
5% of the maximum number of shares offered in the Offering or decrease the
maximum purchase limitation to as low as .5% of the maximum number of shares
offered in the Offering.
If sufficient shares are not available in this Category III, the
Association will allocate shares in a manner that will allow each Supplemental
Eligible Account Holder to purchase the lesser of 100 shares or the amount
subscribed for. Thereafter, unallocated shares will be allocated to subscribing
Supplemental Eligible Account Holders in the proportion that the amounts of
their respective qualifying deposits bear to the total amount of qualifying
deposits of all subscribing Supplemental Eligible Account Holders. To ensure a
proper allocation of Common Stock, each Supplemental Eligible Account Holder
must list on the Stock Order Form all accounts in which he or she has an
ownership interest as of December 31, 1997. Failure to list all such qualifying
deposit accounts may result in the inability of the Company or the Association
to fill all or part of a subscription order. Neither the Company, the
Association nor any of their agents shall be responsible for orders on which all
qualifying deposit accounts have not been fully and accurately disclosed.
The "qualifying deposits" of a Supplemental Eligible Account Holder is
the aggregate amount of the deposit balances (provided such aggregate balance is
not less than $50.00) in his or her deposit accounts, including money market
accounts, as of the close of business on December 31, 1997.
CATEGORY IV: OTHER MEMBERS. Each Other Member will receive, without
cost to him or her, nontransferable subscription rights to subscribe for up to
5,000 shares of the Common Stock; provided, however, that no Other Member may
purchase alone or with his or her Associates and persons acting in concert, more
than 5,000 shares of Common Stock. Such subscription rights will be applicable
only shares that remain available after the subscriptions of Eligible Account
Holders, the ESOP, and Supplemental Eligible Account Holders have been
satisfied. The Company may in its sole discretion increase the maximum purchase
limitation to up to 5% of the maximum number of shares offered in the Offering
or decrease the maximum purchase limitation to as low as.5% of the maximum
number of shares offered in the Offering.
If sufficient shares are not available in this Category IV, shares will
be allocated pro rata among subscribing Other Members in the same proportion
that the number of shares subscribed for by each Other Member bears to the total
number of shares subscribed for by all Other Members.
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CATEGORY V: EMPLOYEES, OFFICERS AND DIRECTORS. Employees, officers and
directors of the Association will receive, without cost to them, nontransferable
subscription rights to subscribe for up to 5,000 shares of the Common Stock;
provided that no employee, officer or director may purchase alone or with his or
her Associates and persons acting in concert more than 5,000 shares of common
stock. For purposes of the Plan directors, officers and employees are not
Associates of one another, nor are they acting in concert solely as a result of
their positions as directors, officers or employees of the Association. Such
subscription rights will only be awarded after subscriptions of Eligible Account
holders, the ESOP, Supplemental Eligible Account Holders and other Members have
been satisfied. If sufficient shares are not available in this Category V,
shares will be allocated among directors, officers and employees on a pro rata
basis based on the size of each person's order.
TIMING OF OFFERING AND METHOD OF PAYMENT. The Subscription Offering
will expire at __________, New York time, on ___________, 1998 (the "Expiration
Date"). The Expiration Date may be extended by the Association and the Company
for successive 90-day periods, subject to OTS approval, to ___________, 2000. If
the Offering is extended beyond ______________, 2000, subscribers will be given
the right to increase, decrease, confirm or modify their orders.
Before the Expiration Date, or any extension of such date, each
subscriber must return the Order Forms to the Association, properly completed,
together with checks or money orders in an amount equal to the Purchase Price
multiplied by the number of shares for which subscription is made. Payment for
stock purchases can also be accomplished through authorization on the order form
of withdrawals from accounts with the Association (including a certificate of
deposit). The Association has the right to reject any orders transmitted by
facsimile and any payments made by wire transfer.
Until completion or termination of the Reorganization, subscribers who
elect to make payment through authorization of withdrawal from accounts with the
Association will not be permitted to reduce the deposit balance in any such
accounts below the amount required to purchase the shares for which they
subscribed. In such cases interest will continue to be credited on deposits
authorized for withdrawal until the completion of the Reorganization. Interest
at the passbook rate, which is currently _____ per annum, will be paid on
amounts submitted by check. Authorized withdrawals from certificate accounts for
the purchase of Common Stock will be permitted without the imposition of early
withdrawal penalties or loss of interest. However, withdrawals from certificate
accounts that reduce the balance of such accounts below the required minimum for
specific interest rate qualification will cause the cancellation of the
certificate accounts at the effective date of the Reorganization, and the
remaining balance will earn interest at the passbook savings rate or will be
returned to the depositor. Stock subscriptions received and accepted by the
Association are final. Subscriptions may be withdrawn only in the event that the
Reorganization is not completed by __________, 1998.
MEMBERS IN NON-QUALIFIED STATES OR FOREIGN COUNTRIES. The Association
will make reasonable efforts to comply with the securities laws of all states in
the United States in which persons entitled to subscribe for stock pursuant to
the Plan reside. However, no person will be offered or sold any stock in the
Subscription Offering if such person resides in a foreign country or resides in
a state in the United States with respect to which all of the following apply:
(i) a small number of persons otherwise eligible to subscribe for shares of
Common Stock reside in such state; (ii) the granting of subscription rights or
the offer or sale of Common Stock to such persons would require the Association
or the Company or its respective officers and directors, under the securities
laws of such state, to register as a broker, dealer, salesman or selling agent,
or to register or otherwise qualify the Common Stock for sale in such state; and
(iii) such registration, qualification or filing in its judgment or in the
judgment of the Company would be impracticable or unduly burdensome for reasons
of cost or otherwise.
To assist in the Offering, the Association has established a Stock
Information Center that you may contact at (718) _________ . Callers to the
Stock Information Center will be able to request a Prospectus and other
information relating to the Offering.
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COMMUNITY OFFERING
To the extent shares remain available for purchase after filling all
orders received in the Subscription Offering, the Company may offer shares of
the common stock in a Community Offering to the general public, with preference
given to residents in Brooklyn, the borough where the Association maintains its
offices. The right of any person to purchase shares in the Community Offering is
subject to the Association's right to accept or reject such purchase in whole or
in part. The Association may terminate the Community Offering as soon as it has
received orders for at least the minimum number of shares available for purchase
in the Offering.
Persons wishing to purchase stock in the Community Offering, if
conducted, should return the Order Form to the Association, properly completed,
together with a check or money order in the amount equal to the Purchase Price
multiplied by the number of shares which that person desires to purchase. Order
Forms will be accepted until the completion of the Community Offering. However,
the Association may terminate the Community Offering as soon as orders are
received for at least the minimum number of shares available for purchase in the
Offering.
The maximum number of shares of Common Stock which may be purchased in
the Community Offering by any person (including such person's Associates) or
persons acting in concert is 5,000 in the aggregate. A member who, together with
his Associates and persons acting in concert, has subscribed for shares in the
Subscription Offering may subscribe for a number of additional shares in the
Community Offering that does not exceed the lesser of (i) 5,000 shares or (ii)
the number of shares which, when added to the number of shares subscribed for by
the member (and his Associates and persons acting in concert) in the
Subscription Offering, would not exceed 5,000. The Association reserves the
right to reject any orders received in the Community Offering in whole or in
part.
If all the Common Stock offered in the Subscription Offering is
subscribed for, no Common Stock will be available for purchase in the Community
Offering. In the event of an oversubscription, purchase orders received during
the Community Offering will be filled up to a maximum of 1,000 shares of Common
Stock issued in the Offering, with any remaining unfilled purchase orders to be
allocated on a pro rata basis based on the amount of their respective
subscriptions. If the Community Offering continues for more than 45 days after
the expiration of the Subscription Offering, subscribers will have the right to
increase, decrease or rescind subscriptions for stock previously submitted. All
sales of Common Stock in the Community Offering will be at the same price per
share as the sales of Common Stock in the Subscription Offering.
Cash and checks received in the Community Offering will be placed in an
interest bearing account with the Association, and will earn interest at the
passbook rate, which is currently _____% per annum, from the date of deposit
until completion or termination of the Reorganization. In the event that the
Reorganization is not consummated for any reason, all funds submitted pursuant
to the Community Offering will be promptly refunded with interest as described
above.
SYNDICATED COMMUNITY OFFERING
Any shares of Common Stock not sold in the Subscription Offering or in
the Community Offering, if any, may be offered for sale to the general public by
a selling group of broker-dealers to be managed by Ryan Beck & Co. in a
Syndicated Community Offering, subject to terms, conditions and procedures as
may be determined by the Association and the Company in a manner that is
intended to achieve the widest distribution of the Common Stock subject to the
rights of the Company to accept or reject in whole or in part all orders in the
Syndicated Community Offering. It is expected that the Syndicated Community
Offering will commence as soon as practicable after termination of the
Subscription Offering and the Community Offering, if any. The Syndicated
Community Offering shall be completed within 45 days after the termination of
the Subscription Offering, unless such period is extended as provided herein.
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If for any reason a Syndicated Community Offering of unsubscribed
shares of Common Stock cannot be effected and any shares remain unsold after the
Subscription Offering and any Community Offering, the Boards of Directors of the
Company and the Association will seek to make other arrangements to sell the
remaining shares. Such other arrangements will be subject to OTS approval and to
compliance with applicable state and federal securities laws.
PROSPECTUS DELIVERY AND PROCEDURE FOR PURCHASING COMMON STOCK
To ensure that each purchaser receives a Prospectus at least 48 hours
prior to the end of the Offering, in accordance with Rule 15c2-8 under the
Securities Exchange Act of 1934, no Prospectus will be mailed later than five
days or hand delivered any later than two days prior to the end of the Offering.
Execution of the Order Form will confirm receipt or delivery of a Prospectus in
accordance with Rule 15c2-8. Order Forms will be distributed only with a
Prospectus. Neither the Company, the Association, nor Ryan, Beck & Co. is
obligated to deliver a Prospectus and an Order From by any means other than the
U.S. Postal Service.
To ensure that Eligible Account Holders, Supplemental Eligible Account
Holders, and Other Members are properly identified as to their stock purchase
priorities, such parties must list all deposit accounts, or in the case of other
members who are borrowers only, loans held at the Association, on the Order Form
giving all names on each deposit account and/or loan and the account and/or loan
numbers at the applicable eligibility date.
Full payment by check, cash (except by mail), money order, bank draft
or withdrawal authorization (payment by wire transfer will not be accepted) must
accompany an original Order Form. THE COMPANY IS NOT OBLIGATED TO ACCEPT AN
ORDER SUBMITTED ON PHOTOCOPIED OR TELECOPIED ORDER FORMS. ORDERS CANNOT AND WILL
NOT BE ACCEPTED WITHOUT THE EXECUTION OF THE CERTIFICATION APPEARING ON THE
ORDER FORM.
If the ESOP purchases shares of Common Stock, it will not be required
to pay for such shares until consummation of the Offering, provided that there
is in force from the time the order is received a loan commitment to lend to the
ESOP the amount of funds necessary to purchase the number of shares ordered.
DELIVERY OF CERTIFICATES
Certificates representing shares issued in the Subscription Offering
and in the Community Offering, if any, pursuant to Order Forms will be mailed to
the persons entitled to them at the last addresses of such persons appearing on
the books of the Association or to such other addresses as may be specified in
properly completed Order Forms as soon as practicable following consummation of
the Reorganization. The Company will not accept orders registered "in care of"
or instructed to be mailed to a third party. Any certificates returned as
undeliverable will be held by the Company until claimed by the person legally
entitled to them or otherwise disposed of in accordance with applicable law.
Purchasers may not be able to sell the shares of Common Stock which they
purchase until certificates for the common stock are available and delivered to
them, even though trading of the common stock may have commenced. Shares sold
prior to receipt of a stock certificate are the responsibility of the purchaser.
MARKETING AGENT
To assist the Association and the Company in marketing the Common
Stock, Ryan, Beck & Co. has been retained as the Association's financial
advisor. Ryan, Beck & Co. is a broker-dealer registered with the Securities and
Exchange Commission (the "SEC") and a member of the National Association of
Securities Dealers, Inc. (the "NASD"). Ryan, Beck & Co. will assist the Company
and the Association in the Offering by providing advisory assistance to the
Association, helping with the supervision and administration of the Stock
Information Center and assisting in the marketing of the Common Stock in the
Offering. For providing these services, Ryan, Beck & Co. will be paid an
advisory and marketing fee of $120,000. Ryan, Beck & Co. will also be reimbursed
for out-of-pocket expenses, which are not to exceed $10,000 without the
Association's consent (excluding certain reimbursable
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expenses), and for legal fees, which are not to exceed $30,000 without the
Association's consent. Offers and sales in the Community Offering will be on a
best efforts basis and, as a result, Ryan, Beck & Co. is not obligated to
purchase any shares of the Common Stock. Ryan, Beck & Co. intends to make a
market in the Common Stock, although it is under no obligation to do so.
The Association has also agreed to indemnify Ryan, Beck & Co., under
certain circumstances, against liabilities and expenses (including legal fees)
arising out of Ryan, Beck & Co.'s engagement , including liabilities under the
Securities Act of 1933 (the"1933 Act").
SELECTED DEALERS
Depending on market conditions, the Common Stock may be offered for
sale to the general public on a best efforts basis in the Syndicated Community
Offering by a selling group of broker-dealers ("Selected Dealers") to be managed
by Ryan Beck & Co. Selected Dealers, which may include Ryan, Beck & Co. will
receive commissions at an agreed upon rate for all shares sold by such Selected
Dealers. During the Community Offering, Selected Dealers may only solicit
indications of interest from their customers to place orders with us as of a
certain date (the "Order Date") for the purchase of shares of Common Stock. When
and if the Company, the Association and Ryan, Beck & Co. believe that enough
indications of interest and orders have been received in the Subscription
Offering and the Community Offering, if any, to consummate the Offering, Ryan,
Beck & Co. will request, as of the Order Date, Selected Dealers to submit orders
to purchase shares for which they have previously received indications of
interest from the customers. Selected Dealers will send confirmations of the
orders to such customers on the next business day after the Order Date. Selected
Dealers will debit the accounts of their customers on the date which will be
three business days from the Order Date (the "Settlement Date"). On the
Settlement Date, funds received by Selected Dealers will be remitted to the
Association. The Association will pay a fee equal to 5.5% of the total dollar
amount of common stock sold by Selected Dealers. It is anticipated that the
Reorganization and Offering will be consummated on the Settlement Date. However,
if consummation is delayed after payment has been received by the Association
from Selected Dealers, funds will earn interest at the passbook rate, which is
currently _____% per annum until the completion of the offering. Funds will be
returned promptly in the event the Reorganization and Offering is not
consummated.
LIMITATIONS ON COMMON STOCK PURCHASES
The Plan includes a number of limitations on the number of shares of
Common Stock which may be purchased in the Offering. These are summarized below:
1. The aggregate amount of outstanding Common Stock owned or
controlled by persons other than the Mutual Holding Company at
the close of the Offering shall be less than 50% of the total
outstanding Common Stock.
2. No Person, Associate thereof, or group of persons acting in
concert, may purchase more than $50,000 of Common Stock
offered in the Offering to persons other than the Mutual
Holding Company except that: (i) the Company may, in its sole
discretion and without further notice to or solicitation of
subscribers or other prospective purchasers, increase the
maximum purchase limitation to up to 5% of the number of
shares offered in the Offering; (ii) Tax-Qualified Employee
Plans may purchase up to 10% of the shares offered in the
Offering; and (iii) shares held by any Tax-Qualified Employee
Plan and attributable to a person will not be aggregated with
other shares purchased directly by or otherwise attributable
to such person.
3. The aggregate amount of Common Stock acquired in the Offering
by all officers and directors of the Association or any
affiliate of the Association, and any person acting in concert
with such officer or director and their Associates, exclusive
of any stock acquired by such persons in the secondary
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market, may not exceed 34% of the outstanding shares of Common
Stock held by persons other than the Mutual Holding Company at
the close of the Offering. In calculating the number of shares
held by officers or directors of the Association or any
Affiliate of the Association and any person acting in concert
with any such officer or director and their Associates under
this paragraph or under the provisions of Section 4 of this
section, shares held by any Tax-Qualified Employee Benefit
Plans of the Association that are attributable to such persons
shall not be counted.
4. The aggregate amount of Common Stock acquired in the Offering
by all officers and directors of the Association or any
affiliate of the Association and any person acting in concert
with any such officer or director and their Associates,
exclusive of any Common Stock acquired by such plans or
persons in the secondary market, may not exceed 34% of the
stockholders' equity of the Company other than the Mutual
Holding Company at the close of the Offering.
5. The Boards of Directors of the Association and the Company
may, in their sole discretion, increase the maximum purchase
limitation to up to 9.9%, provided that the percentage amount
by which any order for Common Stock exceeds 5% of the total
number of shares of Common Stock offered in the Offering shall
not, when aggregated with the percentage amount by which any
other order exceeds 5% of the total number of shares of Common
Stock offered in the Offering, exceed 10% of the total shares
of Common Stock offered in the Offering (except that this
limitation shall not apply to purchases by Tax-Qualified
Employee Plans). If such 5% limitation is increased,
subscribers for the maximum amount will be, and certain other
large subscribers in the sole discretion of the Company and
the Association may be, given the opportunity to increase
their subscriptions up to the then applicable limit. Requests
to purchase additional shares of Common Stock under this
provision will be determined by the Board of Directors of the
Company, in its sole discretion.
6. Notwithstanding any other provision of this Plan, no person
shall be entitled to purchase any Common Stock to the extent
such purchase would be illegal under any federal law or state
law or regulation or would violate regulations or policies of
the National Association of Securities Dealers, Inc.,
particularly those regarding free riding and withholding. The
Company and/or its agents may ask for an acceptable legal
opinion from any purchaser as to the legality of such purchase
and may refuse to honor any purchase order if such opinion is
not timely furnished.
7. The Board of Directors of the Company has the right in its
sole discretion to reject any order submitted by a person
whose representations the Board of Directors believes to be
false or who it otherwise believes, either alone or acting in
concert with others, is violating, circumventing, or intends
to violate, evade or circumvent the terms and conditions of
this Plan.
OTS regulations define "acting in concert" as (i) knowing participation
in a joint activity or interdependent conscious parallel action towards a common
goal whether or not pursuant to an express agreement, or (ii) a combination or
pooling of voting or other interests in the securities of an issuer for a common
purpose pursuant to any contract, understanding, relationship, agreement or
other arrangement, whether written or otherwise. THE ASSOCIATION WILL PRESUME
THAT CERTAIN PERSONS ARE ACTING IN CONCERT BASED UPON VARIOUS FACTS, INCLUDING
THE FACT THAT PERSONS HAVE JOINT ACCOUNT RELATIONSHIPS OR THE FACT THAT SUCH
PERSONS HAVE FILED JOINT SCHEDULES 13D WITH THE SEC WITH RESPECT TO OTHER
COMPANIES.
Directors are not treated as Associates of one another solely because
of their board membership. Compliance with the foregoing limitations does not
necessarily constitute compliance with other regulatory restrictions on
acquisitions of the Common Stock. For a further discussion of limitations on
purchases of the Common Stock during and subsequent to Reorganization, see
"--Restrictions on Sale of Stock by Directors and Officers," "--Restrictions
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on Purchase of Stock by Directors and Officers Following Reorganization," and
"Restrictions on Acquisition of the Company."
RESTRICTIONS ON REPURCHASE OF STOCK BY THE COMPANY
Repurchases of its shares by the Company will be restricted for a
period of three years from the date of the completion of Reorganization. OTS
regulations currently prohibit the Company from repurchasing any of its shares
within three years following the Reorganization except in exceptional
circumstances. The Company may not, for a period of three years from the date of
the Reorganization, repurchase any of its capital stock from any person, except
in the event of an offer to purchase by the Company on a pro rata basis from all
of its shareholders (excluding the Mutual Holding Company) which is approved in
advance by the OTS, the repurchasing of qualifying shares of a director or
purchases of shares required to fund a tax qualified or non-tax qualified plan.
RESTRICTIONS ON SALE OF STOCK BY DIRECTORS AND OFFICERS
Any shares of the Common Stock purchased in the Offering by directors
and officers of the Association or the Company may not be sold or otherwise
disposed of for value for a period of one year following the date of purchase,
except for any disposition of such shares (i) following the death of the
original purchaser or (ii) by reason of an exchange of securities in connection
with a merger or acquisition approved by the applicable regulatory authorities.
Sales of shares of the Common Stock by the Company's directors and officers will
also be subject to certain insider trading and other transfer restrictions under
the federal securities laws. See "Regulation -- Federal Securities Laws" and
"Description of Capital Stock."
Each certificate for such restricted shares will bear a legend
prominently stamped on its face giving notice of the restrictions on transfer,
and instructions will be issued to the Company's transfer agent to the effect
that any transfer within such time period of any certificate or record ownership
of such shares other than as provided above is a violation of the restriction.
Any shares of Common Stock issued pursuant to a stock dividend, stock split or
otherwise with respect to restricted shares will be subject to the same
restrictions on sale.
RESTRICTIONS ON PURCHASE OF STOCK BY DIRECTORS AND OFFICERS IN THE
REORGANIZATION AND OFFERING
OTS regulations provide that for a period of three years following the
Reorganization, without prior written approval of the OTS, neither directors or
officers of the Association or the Company, nor their Associates, may purchase
the Common Stock of the Company except from a dealer registered with the SEC.
This restriction, however, does not apply to negotiated transactions involving
more than 1% of the Company's outstanding Common Stock, to shares purchased
pursuant to stock option or other incentive stock plans approved by the
Company's shareholders, or to shares purchased by employee benefit plans
maintained by the Company which may be attributable to individual officers or
directors.
RESTRICTIONS ON TRANSFER OF SUBSCRIPTION RIGHTS AND COMMON STOCK
Prior to the completion of the Reorganization, OTS regulations and the
Plan prohibit any person with subscription rights, including Eligible Account
Holders, Supplemental Eligible Account Holders and Other Members and directors,
officers and employees from transferring or entering into any agreement or
understanding to transfer the legal or beneficial ownership of the subscription
rights issued under the Plan or the shares of Common Stock to be issued upon
their exercise. Such rights may be exercised only by the person to whom they are
granted and only for his or her account. Each person exercising such
subscription rights will be required to certify that he or she is purchasing
shares solely for his or her own account and that there is no agreement or
understanding regarding the sale or transfer of such shares. The regulations
also prohibit any person from offering or making an announcement of an offer or
intent to make an offer to purchase such subscription rights or shares of Common
Stock prior to the completion of the Reorganization and Offering. THE
ASSOCIATION INTENDS TO PURSUE ANY AND ALL LEGAL AND EQUITABLE
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REMEDIES IN THE EVENT IT BECOMES AWARE OF THE TRANSFER OF SUBSCRIPTION RIGHTS
AND WILL NOT HONOR ORDERS KNOWN TO INVOLVE THE TRANSFER OF SUCH RIGHTS. IN
ADDITION, PERSONS WHO VIOLATE THE PURCHASE LIMITATIONS MAY BE SUBJECT TO
SANCTIONS AND PENALTIES IMPOSED BY THE OTS.
STOCK PRICING
The aggregate purchase price of the Company common stock being sold in
the Reorganization will be based on the appraised aggregate pro forma market
value of the Common Stock, as determined by the Independent Valuation. Feldman
Financial, which is experienced in the valuation and appraisal of financial
institutions, including savings associations forming mutual holding companies,
has been retained to prepare the Independent Valuation. Feldman Financial will
receive a fee of $14,000 for its appraisal and business plan services, including
out-of-pocket expenses. The Association has agreed to indemnify Feldman
Financial, under certain circumstances, against liabilities and expenses
(including legal fees) arising out of Feldman Financial's engagement.
The Independent Valuation states that the pro forma market value of the
Common Stock was $10 million as of December 11, 1997. A copy of the appraisal is
on file and available for inspection at the offices of the OTS, 1700 G Street,
N.W., Washington, D.C. 20552 and the Northeast Regional Office of the OTS, 10
Exchange Place, Jersey City, New Jersey. The Independent Valuation has also been
filed as an exhibit to the Company's Registration Statement with the SEC, and
may be reviewed at the SEC's public reference facilities. See "Additional
Information." The Independent Valuation involved a comparative valuation of the
Association's operating and financial statistics with those of other financial
institutions. The Independent Valuation also took into account such other
factors as the market for savings associations generally, prevailing economic
conditions, both nationally and in New York, which affect the operations of
savings associations, the competitive environment within which the Association
operates, and the effect of the Association becoming a subsidiary of the
Company. No detailed individual analysis of the separate components of the
Association's and the Company's assets and liabilities was performed in
connection with the valuation. The Board of Directors reviewed with management
Feldman Financial's methods and assumptions, and accepted Feldman Financial's
appraisal as reasonable and adequate. The Association has determined to
establish an Offering Range of 391,000 shares to 529,000 shares at the minimum
and maximum of the Estimated Valuation Range. Notwithstanding any change in the
number of shares sold in the Offering due to a change to the Independent
Valuation, the Minority Ownership Interest sold in the Offering will remain 46%.
The Association, in consultation with Ryan, Beck & Co., has determined to offer
the Common Stock in the Offering at a price of $10.00 per share. The
Association's decision regarding the Purchase Price was based solely on its
determination that $10.00 per share is a customary purchase price in initial
public offerings for mutual savings associations converting to stock form. The
Offering Range may be increased or decreased to reflect market and financial
conditions prior to the completion of the Offering.
Promptly after the completion of the Subscription Offering and the
Community Offering, if any, Feldman Financial will confirm to the Association
that, to the best of its knowledge and judgment, nothing of a material nature
has occurred which would cause it to conclude that the amount of the aggregate
proceeds received from the sale of the Common Stock in the Offering was
incompatible with Feldman Financial's estimate of the Company's total pro forma
market value at the time of the sale. If, however, the facts do not justify such
a statement, a new Offering Range and price per share may be set. Under such
circumstances, the Company will be required to resolicit subscriptions. In that
event, subscribers would have the right to modify or rescind their subscriptions
and to have their subscription funds returned promptly with interest and holds
on funds authorized for withdrawal from deposit accounts would be released or
reduced; provided that if the Association's pro forma market value upon
reorganization has increased to an amount which does not exceed $13,225,000 (15%
above the maximum of the Independent Valuation), the Company and the Association
do not intend to resolicit subscriptions unless it is determined after
consultation with the OTS that a resolicitation is required.
Depending upon market and financial conditions, the number of shares
issued may be more or less than the range in number of shares shown above. In
the event of an increase in the maximum number of shares being offered,
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persons who exercise their maximum subscription rights will be notified of such
increase and of their right to purchase additional shares. Conversely, in the
event of a decrease in the maximum number of shares being offered, persons who
exercise their maximum subscription rights will be notified of such decrease and
of the concomitant reduction in the number of shares for which subscriptions may
be made. In the event of a resolicitation, subscribers will be afforded the
opportunity to increase, decrease or maintain their previously submitted order.
The Company will be required to resolicit if the price per share is changed such
that the total aggregate purchase price is not within the minimum and 15% above
the maximum of the Offering Range.
THE INDEPENDENT VALUATION IS NOT INTENDED AND MUST NOT BE CONSTRUED AS
A RECOMMENDATION OF ANY KIND AS TO THE ADVISABILITY OF VOTING TO APPROVE THE
REORGANIZATION OR OF PURCHASING THE SHARES OF THE COMMON STOCK. MOREOVER,
BECAUSE SUCH VALUATION IS NECESSARILY BASED UPON ESTIMATES AND PROJECTIONS OF A
NUMBER OF MATTERS (INCLUDING CERTAIN ASSUMPTIONS AS TO THE AMOUNT OF NET
PROCEEDS AND THE EARNINGS THEREON), ALL OF WHICH ARE SUBJECT TO CHANGE FROM TIME
TO TIME, NO ASSURANCE CAN BE GIVEN THAT PERSONS PURCHASING SHARES IN THE
OFFERING WILL THEREAFTER BE ABLE TO SELL THE SHARES AT PRICES RELATED TO THE
FOREGOING VALUATION OF THE PRO FORMA MARKET VALUE.
NUMBER OF SHARES TO BE ISSUED
It is anticipated that the total offering of Common Stock (the number
of shares of Common Stock issued in the Offering multiplied by the Purchase
Price of $10.00 per share) will be within the current minimum and 15% above the
maximum of the Offering Range. Unless otherwise required by the OTS, no
resolicitation of subscribers will be made and subscribers will not be permitted
to modify or cancel their subscriptions so long as the change in the number of
shares to be issued in the Offering, in combination with the Purchase Price,
results in an offering of at least the minimum and no more than 15% above the
maximum of the Offering Range.
Any increase in the total number of shares of Common Stock to be issued
in the Offering would decrease both an individual subscriber's ownership
interest and the Company's pro forma net worth and net income on a per share
basis while increasing (assuming no change in the per share price) pro forma net
income and net worth on an aggregate basis. A decrease in the number of shares
to be issued in the Offering would increase both an individual subscriber's
ownership interest and the Company's pro forma net worth and net income on a per
share basis while decreasing (assuming no change in the per share price) pro
forma net income and net worth on an aggregate basis. For a presentation of the
effects of such changes, see "Pro Forma Data."
INTERPRETATION AND AMENDMENT OF THE PLAN
To the extent permitted by law, all interpretations of the Plan by the
Association and the Company will be final. The Plan provides that, if deemed
necessary or desirable by the Boards of Directors of the Company and the
Association, the Plan may be substantively amended by the Boards of Directors,
as a result of comments from regulatory authorities or otherwise, with the
concurrence of the OTS. Moreover, if the Plan is so amended, subscriptions which
have been received prior to such amendment will not be refunded unless otherwise
required by the OTS.
CONDITIONS AND TERMINATION
Completion of the Reorganization requires the approval of the Plan by
the affirmative vote of not less than a majority of the total number of votes of
members eligible to be cast at the Special Meeting and the sale of all shares of
the Common Stock within 24 months following approval of the Plan by the members.
If these conditions are not satisfied, the Plan will be terminated and the
Association will continue business in the mutual form of organization. The Plan
may be terminated by the Board of Directors of the Association at any time prior
to the Special Meeting and,
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with the approval of the OTS, by such Board of Directors at any time thereafter.
Furthermore, OTS regulations and the Plan require that the Company complete the
sale of Common Stock within 45 days after the close of the Subscription
Offering. The OTS may grant an extension of this time period if necessary, but
no assurance can be given that an extension would be granted. See "-- Offering
of common stock."
RESTRICTIONS ON THE ACQUISITION OF THE COMPANY
GENERAL
The following discussion is a general summary of regulatory and other
restrictions on the acquisition of the Common Stock. In addition, the following
discussion generally summarizes certain provisions of the Company's Federal
Charter ("Charter") and Bylaws and certain regulatory provisions that may be
deemed to have an "anti-takeover" effect.
MUTUAL HOLDING COMPANY STRUCTURE
The mutual holding company structure restricts the ability of
stockholders of the Company to effect a change of control of management because
the Mutual Holding Company, as long as it remains in existence, will control a
majority of the voting stock of the Company. In addition, the Mutual Holding
Company will be owned by members of the Association (i.e., depositors) and such
members have granted proxies to the Board of Directors of the Association. In
the future proxies will be granted to the Mutual Holding Company. As such, the
Board of Directors of the Mutual Holding Company will be able to exert voting
control over the Company.
CHANGE IN BANK CONTROL ACT AND SAVINGS AND LOAN HOLDING COMPANY PROVISIONS OF
THE HOLA
The Change in Bank Control Act provides that no person, acting directly
or indirectly or through or in concert with one or more other persons, may
acquire control of a savings association unless the OTS has been given 60 days'
prior written notice. The Home Owners' Loan Act provides that no company may
acquire "control" of a savings association without the prior approval of the
OTS. Any company that acquires such control becomes a "savings and loan holding
company" subject to registration, examination, and regulation by the OTS.
Pursuant to federal regulations, control of a savings association is
conclusively deemed to have been acquired by, among other things, the
acquisition of more than 25% of any class of voting stock of an association or
the ability to control the election of a majority of the directors of an
association. Moreover, control is presumed to have been acquired, subject to
rebuttal, upon the acquisition of more than 10% of any class of voting stock, or
of more than 25% of any class of stock, of a savings association, where certain
enumerated "control factors" are also present in the acquisition. The OTS may
prohibit an acquisition of control if (i) it would result in a monopoly or
substantially lessen competition, (ii) the financial condition of the acquiring
person might jeopardize the financial stability of the institution, or (iii) the
competence, experience, or integrity of the acquiring person indicates that it
would not be in the interest of the depositors or of the public to permit the
acquisition of control by such person. The foregoing restrictions do not apply
to the acquisition of the Company's capital stock by one or more tax-qualified
employee stock benefit plans, provided that the plan or plans do not have
beneficial ownership in the aggregate of more than 25% of any class of equity
security of the Company.
THE COMPANY'S CHARTER AND BYLAWS
The Company's Charter and Bylaws contain provisions that affect
corporate governance as well as the voting and ownership rights of stockholders.
The following discussion is a general summary of certain provisions of the
Company's Charter and Bylaws relating to provisions which may be deemed to have
an "anti-takeover" effect. The description of these provisions is necessarily
general, and reference should be made in each case to the Charter and Bylaws of
the Company.
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CLASSIFIED BOARD OF DIRECTORS AND RELATED PROVISIONS
The Company's Charter provides that the Board of Directors is to be
divided into three classes which shall be as nearly equal in number as possible.
The initial directors in each class will hold office for terms either of one
year, two years or three years, and, upon reelection, will serve for terms of
three years and until their successors are elected and qualified. Each director
serves until his successor is elected and qualified. The Bylaws provide that a
director may be removed only by the affirmative vote of the holders of at least
a majority of the outstanding shares entitled to vote.
A classified board of directors may make it more difficult for
stockholders, including those holding a majority of the outstanding shares, to
force an immediate change in the composition of a majority of the Board of
Directors. Because the terms of only one-third of the incumbent directors expire
each year, it requires at least two annual elections for the stockholders to
change a majority, whereas a majority of a non-classified board may be changed
in one year. In the absence of provisions in the Company's Charter or Bylaws
that classify the Board of Directors, all of the directors would be elected each
year.
Management of the Company believes that the staggered election of
directors tends to promote continuity of management, although continuity of
management has not been a problem in the past, because only one-third of the
Board of Directors is subject to election each year. Staggered terms guarantee
that in the ordinary course approximately two-thirds of the directors at any one
time have had at least one year's experience as directors of the Company, and
moderate the pace of changes in the Board of Directors by extending the minimum
time required to elect a majority of directors from one to two years.
ABSENCE OF CUMULATIVE VOTING
The Company's Charter provides that there shall be no cumulative voting
for the election of directors.
AUTHORIZATION OF PREFERRED STOCK
The Federal Charter authorizes 10,000,000 shares of serial preferred
stock, without par value. The Company is authorized to issue preferred stock
from time to time in one or more series subject to applicable provisions of law,
and the Board of Directors is authorized to fix the designations, and relative
preferences, limitations, voting rights, if any, including without limitation,
conversion rights of such shares (which could be multiple or as a separate
class). In the event of a proposed merger, tender offer or other attempt to gain
control of the Company that the Board of Directors does not approve, it might be
possible for the Board of Directors to authorize the issuance of a series of
preferred stock with rights and preferences that would impede the completion of
such a transaction. An effect of the possible issuance of preferred stock,
therefore, may be to deter a future takeover attempt. The Board of Directors has
no present plans or understandings for the issuance of any preferred stock but
it may issue any preferred stock on terms which the Board deems to be in the
best interests of the Company and its stockholders.
INSIDER VOTING CONTROL
Directors and executive officers are expected to purchase up to 29,500
shares of Common Stock in the Offering and are expected to control the voting of
6.4% of the shares of Common Stock sold in the Offering, assuming the sale of
460,000 shares, and may control the voting of an additional 8% of the shares of
Common Stock sold in the Offering through the ESOP. In addition, current
officers and directors of the Association will be officers and directors of the
Mutual Holding Company which, after the Reorganization and Stock Offering, will
own 54% of the total number of shares outstanding. The Company intends to adopt
a Stock Option Plan which may award options to purchase shares of Common Stock
in an amount equal to up to 10% of the shares sold in the Offering and a Stock
Award Plan which may award shares of Common Stock in an amount equal to 4% of
the shares sold in the Offering.
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DESCRIPTION OF CAPITAL STOCK
COMPANY CAPITAL STOCK
The 30,000,000 shares of capital stock authorized by the Company's
Federal Charter are divided into two classes, consisting of 20,000,000 shares of
common stock ($1.00 par value) and 10,000,000 shares of serial preferred stock.
The Company currently expects to issue between 391,000 and 529,000 shares, with
an adjusted maximum of 608,350 shares, of Common Stock in the Offering. The
aggregate stated value of the issued shares will constitute the capital account
of the Company on a consolidated basis. The balance of the Purchase Price of
Common Stock, less expenses of the Reorganization and Offering, will be
reflected as paid-in capital on a consolidated basis. See "Capitalization." Upon
payment of the Purchase Price for the Common Stock, all such stock will be duly
authorized, fully paid, validly issued and nonassessable.
COMMON STOCK. Each share of the Common Stock will have the same
relative rights and will be identical in all respects with each other share of
the Common Stock. THE COMMON STOCK OF THE COMPANY WILL REPRESENT
NON-WITHDRAWABLE CAPITAL, WILL NOT BE OF AN INSURABLE TYPE AND WILL NOT BE
INSURED BY THE FDIC.
The holders of the Common Stock will possess exclusive voting power in
the Company. Each stockholder will be entitled to one vote for each share held
on all matters voted upon by stockholders. If the Company issues preferred stock
subsequent to the Reorganization, holders of the preferred stock may also
possess voting powers.
LIQUIDATION OR DISSOLUTION. In the unlikely event of the complete
liquidation or dissolution of the Association, the holders of the Common Stock
will be entitled to receive all the assets of the Association available for
distribution in or in kind, after payment or provision for payment of (i) all
debts and liabilities of the Association, (ii) any accrued dividend claims, and
(iii) the liquidation preference of any serial preferred stock that may be
issued in the future.
NO PREEMPTIVE RIGHTS. Holders of the Common Stock will not be entitled
to preemptive rights with respect to any shares which may be issued. The Common
Stock may not be redeemed at the option of the stockholders and, upon receipt by
the Company of the full purchase price for the stock, each share of the Common
Stock will be fully paid and nonassessable.
PREFERRED STOCK. After the Reorganization, the Board of Directors of
the Company will be authorized to issue preferred stock in series and to fix and
state the voting powers, designations, preferences and relative, participating,
optional or other special rights of the shares of each such series and the
qualifications, limitations and restrictions thereof. Preferred stock may rank
prior to the Common Stock as to dividend rights, liquidation preferences, or
both, and may have full or limited voting rights. The holders of preferred stock
will be entitled to vote as a separate class or series under certain
circumstances, regardless of any other voting rights which such holders may
have.
Except as discussed in this Prospectus, the Company has no present
plans for the issuance of the additional authorized shares of Common Stock or
for the issuance of any shares of preferred stock. In the future, the authorized
but unissued and unreserved shares of Common Stock will be available for general
corporate purposes including but not limited to possible issuance as stock
dividends or stock splits, in future mergers or acquisitions, under a cash
dividend reinvestment and stock purchase plan, in a future underwritten or other
public offering or under an employee stock ownership plan, stock option or
restricted stock plan. The authorized but unissued shares of preferred stock
will similarly be available for issuance in future mergers or acquisitions, in a
future underwritten public offering or private placement or for other general
corporate purposes. Except as described above or as otherwise required to
approve the transaction in which the additional authorized shares of Common
Stock or authorized shares of preferred stock would be issued, no stockholder
approval will be required for the issuance of these shares. Accordingly, the
Board
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of Directors of the Company, without stockholder approval, can issue preferred
stock with voting and conversion rights which could adversely affect the voting
power of the holders of Common Stock.
DIVIDENDS. When the Reorganization is completed, the Company's only
asset will be the common stock of the Association and up to 50% of the net
proceeds of the Offering. As a result, dividends from the Association will be an
important source of future income for the Company. Should the Association elect
to retain its income, the ability of the Company to pay dividends to its own
shareholders may be adversely affected. Furthermore, if at any time in the
future the Company owns less than 100% of the outstanding stock of the
Association, certain tax benefits under the Code as to inter-company
distributions would not be fully available to the Company and it would be
required to pay federal income tax on a portion of the dividends received from
the Association, thereby reducing the amount of income available for
distribution to the shareholders of the Company.
TRANSFER AGENT
________________________ will act as transfer agent and registrar for
the Common Stock. __________________'s phone number is (_____) ________________
or (800) __________________.
REGISTRATION REQUIREMENTS
The Company's Common Stock will be registered pursuant to Section 12(g)
of the 1934 Act and may not be deregistered for a period of at least three years
following the Reorganization. As a result of the registration under the 1934
Act, certain holders of Common Stock will be subject to certain reporting and
other requirements imposed by the 1934 Act. For example, beneficial owners of
more than 5% of the outstanding Common Stock will be required to file reports
pursuant to Section 13(d) or Section 13(g) of the 1934 Act, and officers,
directors and 10% shareholders of the Company will generally be subject to
reporting requirements of Section 16(a) and to the liability provisions for
profits derived from purchases and sales of Company Common Stock occurring
within a six-month period pursuant to Section 16(b) of the 1934 Act. In
addition, certain transactions in Common Stock, such as proxy solicitations and
tender offers, will be subject to the disclosure and filing requirements imposed
by Section 14 of the 1934 Act and the regulations promulgated thereunder.
LEGAL AND TAX MATTERS
Luse Lehman Gorman Pomerenk & Schick, P.C., 5335 Wisconsin Avenue,
N.W., Suite 400, Washington, D.C. 20015, special counsel to the Association,
will pass upon the legality and validity of the shares of Common Stock being
issued in the Offering. Luse Lehman Gorman Pomerenk & Schick, P.C. has issued an
opinion concerning certain federal income tax aspects of the Reorganization and
that the Reorganization, as proposed, constitutes a tax-free reorganization
under federal law. O'Reilly, Marsh & Corteselli, P.C., 1000 Franklin Avenue,
Garden City, New York 11530, has issued an opinion concerning certain state
income tax aspects of the Reorganization. Luse Lehman Gorman Pomerenk & Schick,
P.C. and O'Reilly, Marsh & Corteselli, P.C. have consented to the references
herein to their opinions. Certain legal matters related to the Offering will be
passed upon for Ryan, Beck & Co. by Stevens & Lee, P.C., 1275 Drummers Lane,
Wayne, Pennsylvania 19087.
EXPERTS
The Association's financial statements at March 31,1997 and 1996, and
for each of the two years in the period ended March 31, 1997 appearing in this
Prospectus and Registration Statement have been audited by Sol Masch & Co.
independent auditors, as set forth in their report thereon appearing elsewhere
herein, and are included in reliance upon such report given upon the authority
of such firm as experts in accounting and auditing.
Feldman Financial has consented to the publication of the summary
herein of its appraisal report as to the estimated pro forma market value of the
Common Stock of the Company to be issued in the Offering, to the reference
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to its opinion relating to the value of the subscription rights, and to the
filing of the Independent Valuation as an exhibit to the registration statement
filed by the Company under the 1933 Act.
ADDITIONAL INFORMATION
The Company has filed with the SEC a registration statement under the
1933 Act with respect to the Common Stock offered hereby. As permitted by the
rules and regulations of the SEC, this Prospectus does not contain all the
information set forth in the registration statement. Such information can be
inspected and copied at the SEC's public reference facilities located at 450
Fifth Street, N.W., Washington, D.C. 20549 and at the SEC's Regional Office in
New York (Seven World Trade Center, 13th Floor, New York, New York 10048) and
Chicago (Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511) and copies of such material can be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549 at prescribed rates. This information can also be found on the SEC's
website, located at http://www.sec.gov.
In connection with the Reorganization, the Association filed with the
OTS a notice of its intent to reorganize into a mutual holding company and to
conduct a minority stock issuance, and the Company filed with the OTS an
application to become a savings and loan holding company. This Prospectus omits
certain information contained in such applications. The applications may be
inspected at the offices of the OTS, 1700 G Street, N.W., Washington, D.C. 20552
and at the Northeast Regional Office of the OTS, 10 Exchange Place, Jersey City,
New Jersey 07302.
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GLOSSARY
- --------
1933 Act Securities Act of 1933, as amended.
1934 Act Securities Exchange Act of 1934, as amended.
Associate The term "Associate" of a person means:
(i) any corporation or organization (other
than the Association or its subsidiaries or
the Company) of which such person is a
director, officer, partner or 10%
shareholder;
(ii) any trust or other estate in which such
person has a substantial beneficial interest
or serves as trustee or in a similar
fiduciary capacity; provided, however that
such term shall not include any employee
stock benefit plan of the Company or the
Association in which such a person has a
substantial beneficial interest or serves as
a trustee or in a similar fiduciary
capacity, and
(iii) any relative or spouse of such person,
or relative of such spouse, who either has
the same home as such person or who is a
director or officer of the Association or
its subsidiaries or the Company.
Association Atlantic Liberty Savings, F.A. in its
pre-Reorganization mutual form
ATM Automated Teller Machine
BIF Bank Insurance Fund of the FDIC
Code The Internal Revenue Code of 1986, as
amended
Common Stock The shares of Common Stock, par value of
$1.00 per share, issued by Brooklyn Heights
Bancorp in connection with the
Reorganization and Offering
Community Offering The offering for sale to members of the
general public of any shares of Common
Stock not subscribed for in the Subscription
Offering
Company Brooklyn Heights Bancorp
Eligible Account Holders Deposit account holders of the Association
with aggregate account balances of at least
$50 as of the close of business on June 30,
1996
ERISA Employee Retirement Income Security Act of
1974, as amended
ESOP The Atlantic Liberty Savings, F.A. Employee
Stock Ownership Plan and Trust
Estimated Valuation Range The range of the estimated pro forma market
value of the total number of shares of
Common Stock to be issued by the Company to
the Mutual Holding Company and to Minority
Stockholders, as determined by Feldman
Financial.
Expiration Date ______________, New York Time,
on __________,1998
G-1
<PAGE> 89
FASB Financial Accounting Standards Board
FDIC Federal Deposit Insurance Corporation
Feldman Financial Feldman Financial Advisors, Inc.
FHLB Federal Home Loan Bank
FNMA Federal National Mortgage Association
Independent Valuation The estimated pro forma market value of the
Company and the Association prepared by
Feldman Financial
IRA Individual retirement account or arrangement
IRS Internal Revenue Service
Minority Ownership Interest The shares of Common Stock of the Company
owned by persons other than the Mutual
Holding Company
Mutual Holding Company Atlantic Liberty, MHC, a federal mutual
holding company and majority stockholder of
the Company
NASD National Association of Securities Dealers,
Inc.
NPV Net portfolio value
Offering The Subscription Offering and to the extent
shares remain available for subscription,
the Community Offering and Syndicated
Community Offering.
Offering Range The offering of the Common Stock in the
Offering at an aggregate Purchase Price
ranging from $3,910,000 to $5,290,000,
subject to adjustment up to $6,083,500
Order Form The form for ordering stock accompanied by a
certification concerning certain matters
Other Members Persons holding a deposit account at the
Association (other than Eligible Account
Holders and Supplemental Eligible Account
Holders) on the Voting Record Date or who
have borrowings outstanding from the
Association on the Voting Record Date, and
who are entitled to vote at the Special
Meeting
OTS Office of Thrift Supervision
Plan or Plan of Reorganization The Atlantic Liberty Savings, F.A. Plan of
Reorganization from a Mutual Savings
Association to a Mutual Holding Company and
Stock Issuance Plan, which will (i)
reorganize the Association from a
federally-chartered mutual savings
association to a federally chartered mutual
holding company and (ii) establish the
Company as a mid-tier stock holding company
which will own all of the outstanding
capital stock of the Association.
Purchase Price $10.00 per share price of the Common Stock
G-2
<PAGE> 90
QTI Qualified thrift investment
QTL Qualified thrift lender
REO Real Estate Owned
Reorganization The simultaneous (i) reorganization of the
Association into the mutual holding company
form of ownership, (ii) offering of 46% of
the Common Stock of the Company to
qualifying depositors, the ESOP and the
public, and (iii) issuance of the remaining
54% of the Common Stock of the Company to
the Mutual Holding Company. The
Reorganization will create (i) the Mutual
Holding Company as a federal mutual holding
company, (ii) the Company as a federal stock
holding company that is majority-owned by
the Mutual Holding Company and (iii) the
Stock Association, as a federal stock
savings association wholly-owned by the
Company.
SAIF Savings Association Insurance Fund of the
FDIC
SEC Securities and Exchange Commission
Special Meeting Special Meeting of members of the
Association called for the purpose of
approving the Plan
Stock Association Atlantic Liberty Savings, F.A., in its
post-Reorganization stock form.
Stock Award Plan The stock award plan that will grant Common
Stock to certain officers and directors of
the Association, that will be submitted for
approval of the Company's stockholders no
earlier than six months after the completion
of the Reorganization
Stock Option Plan The stock option plan that will grant
options to purchase up to 10% of the Common
Stock issued in the Stock Offering to
certain officers and directors, which will
be submitted for approval at a meeting of
the Company's stockholders no earlier than
six months after the completion of the
Reorganization
Subscription Offering The offering of non-transferable rights to
subscribe for the Common Stock, in order of
priority, to Eligible Account Holders, the
ESOP, Supplemental Eligible Account Holders,
Other Members and employees, officers and
directors of the Association
Supplemental Eligible
Account Holders Depositor account holders of the Association
with aggregate account balances of at least
$50 as of the close of business on December
31, 1997, who are not Eligible Account
Holders or Supplemental Eligible Account
Holders
Voting Record Date The close of business on _____________,
1998, the date for determining members
entitled to vote at the Special Meeting
G-3
<PAGE> 91
ATLANTIC LIBERTY SAVINGS, F.A.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditor's Report.............................................................................F-1
Balance Sheets...........................................................................................F-2
Statements of Operations .................................................................................26
Statements of Retained Earnings ........................................................................F-3
Statements of Cash Flows.................................................................................F-4
Notes to Financial Statements............................................................................F-5
</TABLE>
######
All schedules are omitted as they are not required or are not applicable, or
required information is shown in the applicable financial statements or notes
thereto.
Financial statements are not provided for the Company because to date the
Company has not engaged in any operations.
<PAGE> 92
ATLANTIC LIBERTY SAVINGS, F.A.
FINANCIAL STATEMENTS
SIX MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
AND YEARS ENDED MARCH 31, 1997 AND 1996
<PAGE> 93
SOL MASCH & COMPANY
CERTIFIED PUBLIC ACCOUNTANTS
P.O. BOX 670
CROTON-ON-HUDSON, NEW YORK 10520-0670
------
(914) 734-2300
FAX: (914) 734-2470
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Atlantic Liberty Savings, F.A.
We have audited the accompanying statements of financial condition of Atlantic
Liberty Savings, F.A. as of March 31, 1997 and 1996, and the related statements
of operations, retained earnings, and cash flows for the years then ended. These
financial statements are the responsibility of the Association's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Atlantic Liberty Savings, F.A.
as of March 31, 1997 and 1996, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
As more fully described in note 17, subsequent to the issuance of the
Association's 1997 financial statements and our report thereon dated August 5,
1997, we became aware that those financial statements did not reflect all items
applicable to the period's transactions involving the Association's allowance
for loan losses and its deferred tax accounts. In our original report we
expressed unqualified opinions on the 1997 and 1996 financial statements, and
our opinion on the revised statements, as expressed herein, remains unqualified.
/S/ SOL MASCH & COMPANY
Croton-on-Hudson, New York
August 5, 1997, except for note 17, as
to which date is November 14, 1997
F-1
<PAGE> 94
ATLANTIC LIBERTY SAVINGS, F.A.
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1997 1996 1997 1996
---- ---- ---- ----
UNAUDITED
---------
<S> <C> <C> <C> <C>
Assets
Cash and cash equivalents $9,440,915 $7,587,021 $10,285,364 $11,225,391
Investment securities, held-to-maturity (estimated market
value of $32,190,133 $36,630,451, $35,599,705, and $34,955,723
(Note 2) 32,167,166 37,031,695 36,288,248 35,381,278
Loans receivable, net (Notes 3 and 4) 65,485,670 57,320,968 60,058,821 54,504,599
Accrued interest receivable (Note 5) 194,795 232,007 222,810 216,026
Foreclosed real estate, net of allowance for losses of $6,979,
$29,258, $21,979, and $143,222)(Note 6) 274,253 390,596 384,753 1,313,595
Real estate held for investment (Note 6) 78,468 78,468 78,468 78,468
Premises and equipment (Note 7) 1,526,558 1,572,428 1,544,083 1,631,916
Other assets 719,076 1,083,323 931,285 1,390,356
------- --------- ------- ---------
Total assets $109,886,901 $105,296,506 $109,793,832 $105,741,629
------------ ------------ ------------ ------------
Liabilities and Retained Earnings
Deposits (Note 8) $100,539,486 $95,728,403 $100,797,875 $97,395,595
Advances from borrowers for taxes and insurance 763,195 785,687 993,965 802,200
Income taxes payable (Note 9) 28,179 0 0 0
Other liabilities 1,347,529 1,385,230 1,128,872 794,239
--------- --------- --------- -------
Total liabilities 102,678,389 97,899,320 102,920,712 98,992,034
Commitments and contingencies (Note 13)
Retained earnings (Note 16) 7,208,512 7,397,186 6,873,120 6,749,595
--------- --------- --------- ---------
Total liabilities and retained earnings $109,886,901 $105,296,506 $109,793,832 $105,741,629
------------ ------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE> 95
ATLANTIC LIBERTY SAVINGS, F.A.
STATEMENTS OF RETAINED EARNINGS
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEARS ENDED
SEPTEMBER 30, MARCH 31,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Balance at beginning of period $6,873,120 $6,749,595 $6,749,595 $6,553,507
Net income 335,392 647,591 123,525 196,088
------- ------- ------- -------
Balance at end of period $7,208,512 $7,397,186 $6,873,120 $6,749,595
---------- ---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 96
ATLANTIC LIBERTY SAVINGS, F.A.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEARS ENDED
SEPTEMBER 30, MARCH 31,
1997 1996 1997 1996
---- ---- ---- ----
UNAUDITED
---------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $335,392 $647,591 $123,525 $196,088
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of:
Deferred loan origination fees (13,691) (10,242) (19,879) (31,470)
Premiums and discounts on investment securities,
mortgage-backed and related securities, and loans 1,684 11,950 18,106 1,456
Provision for loan losses 105,473 65,643 771,178 274,981
Net gain (loss) on sale of foreclosed real estate (28,838) (123,089) (148,394) 135,247
Depreciation of premises and equipment 48,249 59,488 119,847 111,202
Decrease (Increase) in other assets 212,209 307,032 459,071 (704,977)
Increase in accrued expenses and other liabilities 218,657 590,992 334,633 317,992
Decrease (Increase) in accrued interest receivable 28,015 (15,981) (6,784) 56,274
Increase (Decrease) in income taxes payable 28,179 0 0 (44,500)
------ - - -------
Total adjustments 599,937 885,793 1,527,778 116,205
------- ------- --------- -------
Net cash provided by operating activities 935,329 1,533,384 1,651,303 312,293
------- --------- --------- -------
Cash flows from investing activities:
Net increase in loan originations less principal
payment on loans (5,274,945) (2,910,853) (6,468,988) (2,010,562)
Proceeds from maturities and principal reductions of
investment securities 5,244,659 1,372,516 5,994,079 7,126,404
Purchases of marketable securities (1,125,261) (3,034,882) (6,864,555) (10,585,696)
Purchase of Federal Home Loan Bank stock 0 0 (54,600) 0
Proceeds from sales of foreclosed real estate 139,338 1,085,171 1,240,703 1,119,050
Purchases of premises and equipment (30,724) 0 (32,014) (229,885)
------- - -------- ---------
Net cash used by investing activities (1,046,933) (3,488,048) (6,185,375) (4,580,689)
---------- ---------- ---------- ----------
Cash flows from financing activities:
Net increase (decrease) in deposit accounts (502,075) (1,667,192) 3,402,280 6,932,728
Net increase in advance payments from borrowers for
taxes and insurance (230,770) (16,513) 191,765 29,664
-------- ------- ------- ------
Net cash provided by financing activities (732,845) (1,683,705) 3,594,045 6,962,392
-------- ---------- --------- ---------
Net increase (decrease) in cash/equivalents (844,449) (3,638,369) (940,027) 2,693,996
Cash/Equivalents at beginning of period 10,285,364 11,225,391 11,225,391 8,531,395
---------- ---------- ---------- ---------
Cash/Equivalents at end of period $9,440,915 $7,587,022 $10,285,364 $11,225,391
---------- ---------- ----------- -----------
Supplemental Disclosures
Cash paid for:
Interest on deposits $2,302,380 $2,187,048 $4,363,127 $4,150,258
Income taxes $0 $48,000 $48,000 $207,969
Transfers from loans to real estate acquired
through foreclosure $0 $39,083 $163,467 $1,317,963
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 97
ATLANTIC LIBERTY SAVINGS, F.A.
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
AND YEARS ENDED MARCH 31, 1997 AND 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) DESCRIPTION OF BUSINESS
Atlantic Liberty Savings, F.A.'s primary business activities include attracting
deposits from the general public and originating residential property loans
(one-to-four family home mortgage, cooperative apartment and multi-family
property loans). The Association also makes commercial real estate and consumer
loans. The Association is subject to competition from other financial
institutions. Deposits at the Association are insured up to the applicable
limits by the Savings Association Insurance Fund, (SAIF), administered by the
Federal Deposit Insurance Corporation, (FDIC).
(b) CASH EQUIVALENTS
For purposes of the statements of cash flows, the Association considers all
highly liquid debt instruments with original maturities when purchased of three
months or less to be cash equivalents.
(c) USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for losses on loans and the
valuation of real estate acquired in connection with foreclosures or in
satisfaction of loans. In connection with the determination of the allowances
for losses on loans and foreclosed real estate, management obtains independent
appraisals for significant properties.
A majority of the Association's loan portfolio consists of single-family
residential loans. Accordingly, the ultimate collectibility of a substantial
portion of the Association's loan portfolio and the recovery of a substantial
portion of the carrying amount of foreclosed real estate are susceptible to
changes in market conditions.
While management uses available information to recognize losses on loans and
foreclosed real estate, future additions to the allowances may be necessary
based on changes in local economic conditions. In addition, regulatory agencies,
as an integral part of their examination process, periodically review the
Association's allowances for losses on loans and foreclosed real estate. Such
agencies may require the Association to recognize additions to the allowances
based on their judgments about information available to them at the time of
their examination. Because of these factors, it is reasonably possible that the
allowances for losses on loans and foreclosed real estate may change materially
in the near term.
(d) INVESTMENT SECURITIES
Bonds, notes, debentures, and mortgage-backed securities are carried at cost,
adjusted for premiums and discounts that are recognized in interest income using
the interest method over the period to maturity. The Association has the
positive intent and ability to hold such investments to maturity. Should any be
sold, gains and losses will be recognized based on the specific identification
method.
Premiums and discounts are amortized to expense or accreted to income over the
term of the related securities using the interest method, adjusted for
prepayments.
Federal law requires a member institution of the Federal Home Loan Bank,
(FHLB), system to hold stock of its district FHLB according to a predetermined
formula. This stock is recorded at cost and is classified as held-to-maturity.
F-5
<PAGE> 98
ATLANTIC LIBERTY SAVINGS, F.A.
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
AND YEARS ENDED MARCH 31, 1997 AND 1996
(e) LOANS RECEIVABLE
Loans receivable that Management has the intent and ability to hold for the
foreseeable future or until maturity or payoff are stated at unpaid principal
balances, less the allowance for loan losses, and net deferred loan-origination
fees and discounts.
Discounts on consumer and other loans are recognized over the lives of the loans
using the interest method.
The allowance for loan losses is increased by charges to income and decreased by
charge-offs (net of recoveries). Management's periodic evaluation of the
adequacy of the allowance is based on the Association's past loan loss
experience, known and inherent risks in the portfolio, adverse situations that
may affect the borrower's ability to repay, the estimated value of any
underlying collateral, and current economic conditions.
Uncollectible interest on loans that are in excess of ninety days past due is
charged off, or an allowance is established based on management's periodic
evaluation. The allowance is established by a charge to interest income equal to
all interest previously accrued, and income is subsequently recognized only to
the extent that cash payments are received until, in management's judgment, the
borrower's ability to make periodic interest and principal payments is back to
normal, in which case the loan is returned to accrual status.
(f) LOAN-ORIGINATION FEES AND RELATED COSTS
Loan fees and certain direct loan origination costs are deferred, and the net
fee or cost is recognized as an adjustment to interest income over the
contractual life of the loans, adjusted for prepayments based on the
Association's prepayment experience.
(g) REAL ESTATE HELD FOR INVESTMENT AND FORECLOSED REAL ESTATE
Real estate properties acquired through loan foreclosure are initially recorded
at fair value at the date of foreclosure. Thereafter, they are carried at the
lower of carrying value or fair value, less costs to sell. Real estate
properties held for investment are carried at the lower of cost, including cost
of improvements and amenities incurred subsequent to acquisition, or net
realizable value. Costs relating to development and improvement of property are
capitalized, whereas costs relating to the holding of property are expensed.
Valuations are periodically performed by independent appraisers, and an
allowance for losses is established by a charge to operations if the carrying
value of a property exceeds its fair value less estimated costs to sell.
Profit on real estate sales transactions is not recognized by the full accrual
method until a sale is consummated, the buyer's initial and continuing
investments are adequate to demonstrate a commitment to pay for the property,
the Association's receivable is not subject to future subordination, and the
Association has transferred to the buyer the usual risks and rewards of
ownership.
(h) PREMISES AND EQUIPMENT
Land is carried at cost. Buildings and furniture, fixtures, and equipment are
carried at cost, less accumulated depreciation. Buildings and furniture,
fixtures, and equipment are depreciated using the straight-line method over the
estimated useful lives of the assets.
(i) FAIR VALUES OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, Disclosures about Fair
Value of Financial Instruments, (SFAS 107), requires
F-6
<PAGE> 99
ATLANTIC LIBERTY SAVINGS, F.A.
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
AND YEARS ENDED MARCH 31, 1997 AND 1996
disclosure of fair value information about financial instruments, whether or
not recognized in the balance sheet. In cases where quoted market prices are
not available, fair values are based on estimates using present value or other
valuation techniques. Those techniques are significantly affected by the
assumptions used, including the discount rate and estimates of future cash
flows. In that regard, the derived fair value estimates cannot be substantiated
by comparison to independent markets and, in many cases, could not be realized
in immediate settlement of the instruments. Statement No. 107 excludes certain
financial instruments and all nonfinancial instruments from its disclosure
requirements. Accordingly, the aggregate fair value amounts presented do not
represent the underlying value of the Association.
The following methods and assumptions were used by the Association in estimating
its fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amounts reported in the statement of
financial condition for cash and cash equivalents approximate those assets' fair
values.
Investment securities: Fair values for investment securities are based on quoted
market prices, where available, from securities dealers.
Loans: For variable-rate loans that reprice frequently and with no significant
change in credit risk, fair values are based on carrying amounts. The fair
values for other loans (for example, fixed rate commercial real estate and
rental property mortgage loans) are estimated using discounted cash flow
analysis, based on interest rates currently being offered for loans with similar
terms to borrowers of similar credit quality. Loan fair value estimates include
judgments regarding future expected loss experience and risk characteristics.
The carrying amount of accrued interest receivable approximates its fair value.
Deposits and advances from borrowers for taxes and insurance: The fair values
disclosed for deposits with no stated maturity, (for example, interest-bearing
checking accounts and passbook accounts) are equal to the amount payable on
demand at the reporting date (that is, their carrying amounts). The fair values
for certificates of deposit are estimated using a discounted cash flow
calculation that applies interest rates currently being offered on certificates
to a schedule of aggregated contractual maturities on such time deposits. The
fair value of advances from borrowers for taxes and insurance, which has no
stated maturity, is equal to the amount on deposit.
Limitations: Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instruments.
These estimates do not reflect any premium or discount that could result from
offering for sale at one time the Association's entire holdings or of a
particular financial instrument. Because no market exists for a significant
portion of the Association's financial instruments, fair value estimates are
based on judgements regarding future expected loss experience, current economic
conditions, risk characteristics of various financial instruments and other
factors. These estimates are subjective in nature and involve uncertainties and
matters of significant judgement and therefore cannot be determined with
precision. Changes in assumptions could significantly affect the estimates.
Management is concerned that reasonable comparability between financial
institutions may not be likely due to the wide range of permitted valuation
techniques and the estimates and assumptions that must be made.
(j) INTERIM FINANCIAL STATEMENTS
The accompanying financial statements and related information contained in these
footnotes as of September 30, 1997 and September 30, 1996 and for the six months
ended September 30, 1997 and September 30, 1996 are unaudited but, in
management's opinion, reflect all adjustments, consisting only of normal
recurring accruals, necessary for fair presentation.
F-7
<PAGE> 100
ATLANTIC LIBERTY SAVINGS, F.A.
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
AND YEARS ENDED MARCH 31, 1997 AND 1996
(2) INVESTMENT SECURITIES
Investment securities at September 30, 1997 is summarized as follows:
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED
AMORTIZED HOLDING HOLDING FAIR
COST GAINS LOSSES VALUE
---- ----- ------ -----
HELD-TO-MATURITY:
<S> <C> <C> <C> <C>
U.S. Government and agencies $12,567,585 $4,919 122,169 $12,450,335
Federal Home Loan Bank Stock 582,700 0 0 582,700
Asset Management fund, Inc. adjustable rate mortgage portfolio 4,204,511 160,000 0 4,364,511
Mortgage-backed securities:
FNMA certificates 6,468,038 12,572 30,290 6,450,320
FHLMC certificates 3,904,801 94,082 25,913 3,972,970
GNMA certificates 559,032 29,206 0 588,238
FNMA CMO's 1,859,314 0 97,692 1,761,622
FHLMC CMO's 2,021,185 11,245 12,993 2,019,437
--------- ------ ------ ---------
Total mortgage-backed securities 14,812,370 147,105 166,888 14,792,587
---------- ------- ------- ----------
Total securities held-to-maturity $32,167,166 $312,024 $289,057 $32,190,133
----------- -------- -------- -----------
</TABLE>
Investment securities at March 31,1997 are summarized as follows:
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED
AMORTIZED HOLDING HOLDING FAIR
COST GAINS LOSSES VALUE
---- ----- ------ -----
<S> <C> <C> <C> <C>
HELD-TO-MATURITY:
U.S. Government and agencies $16,675,255 $630 311,293 $16,364,592
Federal Home Loan Bank Stock 582,700 0 0 582,700
Asset Management fund, Inc. adjustable rate mortgage portfolio 3,079,250 0 2,338 3,076,912
Mortgage-backed securities:
FNMA certificates 6,894,345 15,477 42,814 6,867,009
FHLMC certificates 4,290,911 50,912 27,743 4,314,080
GNMA certificates 610,700 16,295 0 626,995
FNMA CMO's 1,859,410 0 136,117 1,723,293
FHLMC CMO's 2,295,677 18,889 270,442 2,044,124
--------- ------ ------- ---------
Total mortgage-backed securities 15,951,043 101,573 477,115 15,575,501
---------- ------- ------- ----------
Total securities held-to-maturity $36,288,248 $102,203 $790,746 $35,599,705
----------- -------- -------- -----------
</TABLE>
F-8
<PAGE> 101
ATLANTIC LIBERTY SAVINGS, F.A.
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
AND YEARS ENDED MARCH 31, 1997 and 1996
Investment securities at March 31, 1996 are summarized as follows:
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED
AMORTIZED HOLDING HOLDING FAIR
COST GAINS LOSSES VALUE
---- ----- ------ -----
<S> <C> <C> <C> <C>
HELD-TO-MATURITY:
U.S. Government and agencies $15,627,252 $2,073 286,244 $15,343,081
Federal Home Loan Bank Stock 528,100 0 0 528,100
Asset Management fund, Inc. adjustable rate mortgage portfolio 1,187,408 0 9,560 1,177,848
Mortgage-backed securities:
FNMA certificates 7,821,925 27,206 23,150 7,825,981
FHLMC certificates 5,050,837 81,545 19,966 5,112,416
GNMA certificates 728,477 14,264 0 742,741
FNMA CMO's 1,859,746 0 82,897 1,776,849
FHLMC CMO's 2,577,533 6,250 135,076 2,448,707
--------- ----- ------- ---------
Total mortgage-backed securities 18,038,518 129,265 261,089 17,906,694
---------- ------- ------- ----------
Total securities held-to-maturity $35,381,278 $131,338 $556,893 $34,955,723
----------- -------- -------- -----------
</TABLE>
The amortized cost and fair value of investment securities are shown below.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 MARCH 31, 1997 MARCH 31, 1996
AMORTIZED FAIR AMORTIZED FAIR AMORTIZED
COST VALUE COST VALUE COST
---- ----- ---- ----- ----
<S> <C> <C> <C> <C> <C>
HELD-TO-MATURITY:
Due in one year or less $3,100,856 $3,074,805 $3,101,712 $3,074,514 $3,909,503
Due after one year through five years 9,466,728 9,375,530 11,573,543 11,311,948 7,707,749
Due after five years through ten years 0 0 2,000,000 1,978,130 4,000,000
Federal Home Loan Bank Stock 582,700 582,700 582,700 582,700 528,100
Mortgage-backed securities 19,016,882 19,157,098 19,030,293 18,652,413 19,225,926
---------- ---------- ---------- ----------- -----------
$32,167,166 $32,190,133 $36,288,248 $35,599,705 $35,371,278
----------- ----------- ----------- ------------ -----------
</TABLE>
(3) LOANS RECEIVABLE, NET
Loans receivable are summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 MARCH 31, 1997 MARCH 31, 1996
------------------ -------------- --------------
<S> <C> <C> <C>
First mortgage loans (principally conventional):
Principal balances:
Secured by one-to-four family residences $40,064,269 $36,862,365 $30,604,762
Secured by other residential properties 12,973,968 10,554,762 11,166,411
Commercial mortgages 11,860,580 11,917,073 12,784,146
---------- ---------- ----------
64,898,817 59,334,200 54,555,319
Less:
Net deferred loan-origination fees 157,061 127,444 120,782
------- ------- -------
Total first mortgage loans 64,741,756 59,206,756 54,434,537
---------- ---------- ----------
Consumer loans:
Principal balances:
Secured 243,686 0 0
Unsecured 1,583,534 1,829,894 815,278
--------- --------- -------
Total consumer loans 1,827,220 1,829,894 815,278
Less: Allowances for loan and lease losses 1,083,302 977,829 745,216
--------- ------- -------
$65,485,674 $60,058,821 $54,504,599
----------- ----------- -----------
</TABLE>
F-9
<PAGE> 102
ATLANTIC LIBERTY SAVINGS, F.A.
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
AND YEARS ENDED MARCH 31, 1997 AND 1996
Activity in the allowance for loan losses is summarized as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEARS ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996 MARCH 31, 1997 MARCH 31, 1996
------------------ ------------------ -------------- --------------
<S> <C> <C> <C> <C>
Balance at beginning of year $977,829 $745,216 $ 745,216 $619,611
Provision charged to income 105,473 65,643 771,178 274,981
Charge-offs and recoveries, net 0 (136,987) (538,566) (149,376)
- --------- --------- ---------
$1,083,302 $673,873 $ 977,829 $745,216
---------- --------- ---------- ---------
</TABLE>
Loans having carrying values of $5,158,662, $5,999,134, $5,073,887, and
$6,290,620 at September 30, 1997 and 1996 and March 31, 1997 and 1996,
respectively, are considered to be impaired. A loan is impaired when, based on
current information and events, it is probable that the Association will be
unable to collect all amounts due according to the contractual terms of the loan
agreement. Included in impaired loans are loans aggregating $4,341,129,
$4,344,764, $3,739,472, and $4,529,916 at September 30, 1997 and 1996 and March
31, 1997 and 1996, respectively, for which there is a specific allowance for
credit losses of $709,681, $665,337, $515,130, and $727,975 at September 30,
1997 and 1996 and March 31, 1997 and 1996, respectively. The average recorded
investment in impaired loans was $4,760,827, $6,056,567, $5,498,004, and
$5,869,763 at September 30, 1997 and 1996 and March 31, 1997 and 1996,
respectively. No interest income is recognized on impaired loans which are on
nonaccrual. Had interest income on nonaccrual loans been recorded at the
contractual rates and due dates, the Association would have recorded additional
interest income of $21,034, $253,147, $323,615, and $228,989, for the periods
ended September 30, 1997 and 1996 and March 31, 1997 and 1996, respectively.
(4) LOAN SERVICING
Mortgage loans serviced for others arc not included in the accompanying balance
sheets. The unpaid principal balances of these loans are summarized as follow:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 MARCH 31, 1997 MARCH 31, 1996
------------------ -------------- --------------
<S> <C> <C> <C>
Mortgage loan serviced for:
Agency of the City of New York $25,693 $31,473 $42,947
Private lender 0 0 65,080
- - ------
$25,693 $31,473 $108,027
------- ------- --------
</TABLE>
The Association does not maintain custodial escrow accounts for these loans.
(5) ACCRUED INTEREST RECEIVABLE
Accrued interest receivable is summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 MARCH 31, 1997 MARCH 31, 1996
------------------ -------------- --------------
<S> <C> <C> <C>
U.S. Government and agency securities $45,126 $95,877 $63,943
Mortgage-backed securities 102,894 106,804 125,944
Loans receivable, net of valuation allowances totaling
$21,034, $458,256, and $448,745 as of September 30,
1997, and March 31, 1997 and 1996, respectively 46,775 20,129 26,139
------ ------ ------
$194,795 $222,810 $216,026
-------- -------- --------
</TABLE>
F-10
<PAGE> 103
ATLANTIC LIBERTY SAVINGS, F.A.
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
AND YEARS ENDED MARCH 31, 1997 AND 1996
(6) REAL ESTATE
Income from real estate operations is summarized as folows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEARS ENDED MARCH 31,
SEPTEMBER 30, 1997 1997 1996
------------------ ---- ----
<S> <C> <C> <C>
Real estate held for investment $2,187 $ 5,327 ($287)
Property used in the Association's business 80,557 192,064 186,870
Foreclosed real estate (2,579) (43,179) (13,426)
$80,165 $154,212 $173,157
------- -------- --------
</TABLE>
Gain (Loss) on disposal of real estate owned is summarized as follws:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEARS ENDED MARCH 31,
SEPTEMBER 30, 1997 1997 1996
------------------ ---- ----
<S> <C> <C> <C>
Real estate sales $139,338 $1,240,703 $1,119,050
Cost of sales (110,500) (1,389,097) (983,803)
--------- ---------- ---------
$28,838 ($148,394) $135,247
------- ---------- --------
</TABLE>
Activity in the allowance for losses on real estate owned is summarized as
follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEARS ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996 MARCH 31, 1997 MARCH 31 1996
------------------ ------------------ -------------- -------------
<S> <C> <C> <C> <C>
Balance at beginning of year $21,979 $143,222 $143,222 $93,811
Provision charged to income 0 (541) (7,220) 152,709
Charge-offs and recoveries, net (15,000) (113,423) (114,023) (103,298)
-------- --------- --------- ---------
$6,979 $29,258 $21,979 $143,222
------ ------- ------- --------
</TABLE>
(7) PREMISES AND EQUIPMENT
A summary of premises and equipment follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 MARCH 31, 1997 MARCH 31, 1996
------------------ -------------- --------------
<S> <C> <C> <C>
Land $400,000 $400,000 $400,000
Buildings 1,819,848 1,792,590 1,772,294
Furniture, fixtures, and equipment 458,634 446,183 480,375
------- ------- -------
2,678,482 2,638,773 2,652,669
Less: Accumulated depreciation 1,151,924 1,094,690 1,020,753
--------- --------- ---------
$1,526,558 $1,544,083 $1,631,916
---------- ---------- ----------
</TABLE>
F-11
<PAGE> 104
ATLANTIC LIBERTY SAVINGS, F.A.
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
AND YEARS ENDED MARCH 31, 1997 AND 1996
(8) DEPOSITS
Deposit account balances are summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 MARCH 31, 1997 MARCH 31, 1996
WEIGHTED WEIGHTED WEIGHTED
TYPE OF ACCOUNT AVERAGE RATE AMOUNT AVERAGE RATE AMOUNT AVERAGE RATE AMOUNT
- --------------- ------------ ------ ------------ ------ ------------ ------
<S> <C> <C> <C> <C> <C> <C>
Savings accounts 2.50% $21,359,393 2.50% $21,492,808 2.50% $23,485,774
Certificates of deposit 5.68% 60,589,308 5.56% 60,697,580 5.77% 58,098,921
NOWaccounts 2.50% 4,285,253 2.50% 4,722,508 2.50% 3,974,160
Money market accounts 3.00% 6,749,003 3.00% 6,998,669 3.00% 8,239,909
Money market statement savings 5.00% 7,360,086 5.00% 6,784,612 5.00% 3,497,955
Holiday clubs 2.50% 196,443 2.50% 101,697 2.50% 98,875
------- ------- ------
$100,539,486 $100,797,875 $97,395,595
------------ ------------ -----------
</TABLE>
Scheduled maturities of certificates of deposit are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
WEIGHTED
AVERAGE RATE AMOUNT PERCENT
------------ ------ -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
1 year or less 5.50% $41,148 67.91%
Greater than 1 year through 2 years 5.79% 8,107 13.38%
Greater than 2 years through 3 years 6.52% 4,892 8.07%
Greater than 3 years through 4 years 5.90% 2,533 4.18%
Greater than 4 years through 5 years 6.10% 3,897 6.43%
Over 5 years 6.63% 12 0.02%
-- -----
$60,589 100.00%
------- -------
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1997
WEIGHTED
AVERAGE RATE AMOUNT PERCENT
------------ ------ -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
1 year or less 5.36% $40,763 67.16%
Greater than 1 year through 2 years 5.66% 9,406 15.50%
Greater than 2 years through 3 years 6.38% 4,241 6.99%
Greater than 3 years through 4 years 6.45% 2,639 4.35%
Greater than 4 years through 5 years 5.97% 3,558 5.86%
Over 5 years 6.01% 91 0.15%
-- -----
$60,698 100.00%
------- -------
</TABLE>
F-12
<PAGE> 105
ATLANTIC LIBERTY SAVINGS, F.A.
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
AND YEARS ENDED MARCH 31, 1997 AND 1996
<TABLE>
<CAPTION>
MARCH 31, 1996
WEIGHTED
AVERAGE RATE AMOUNT PERCENT
------------ ------ -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
1 year or less 5.66% $40,282 69.33%
Greater than I year through 2 years 6.01% 8,103 13.95%
Greater than 2 years through 3 years 5.60% 4,810 8.28%
Greater than 3 years through 4 years 6.57% 2,420 4.17%
Greater than 4 years through 5 years 6.42% 2,482 4.27%
Over 5 years 6.50% 2 0.00%
- -----
$58,099 100.00%
------- -------
</TABLE>
Certificates of deposit in excess of $100,000 were approximately $10.7 million,
$13.3 million and $11.3 million at September 30, 1997 and at March 31, 1997 and
1996, respectively.
Interest expense on deposit balances is summarized as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEARS ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996 MARCH 31, 1997 MARCH 31 1996
------------------ ------------------ -------------- -------------
<S> <C> <C> <C> <C>
NOW, money market, passbook
savings, and holiday clubs $596,905 $557,488 $1,129,447 $1,008,836
Certificates of deposit 1,706,440 1,628,453 3,227,262 3,134,350
--------- --------- --------- ---------
$2,303,345 $2,185,940 $4,356,710 $4,143,186
---------- ---------- ---------- ----------
</TABLE>
(9) INCOME TAXES
The Association files federal income tax returns on a calendar year basis. In
calculating tax liability, the Association is allowed a special bad debt
deduction based on specified experience formulas.
Income tax expense is summarized as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEARS ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996 MARCH 31, 1997 MARCH 31 1996
------------------ ------------------ -------------- -------------
<S> <C> <C> <C> <C>
Federal:
Current $150,635 ($97,926) ($61,669) $ 147,357
Deferred 7,745 (24,944) (20,040) (62,443)
----- -------- -------- --------
158,380 (122,870) (81,709) 84,914
State and local:
Current $57,404 ($72,301) ($45,397) $92,830
Deferred 34,138 (44,413) (20,219) (37,193)
------ -------- -------- --------
$249,922 ($239,584) ($147,325) $140,551
-------- ---------- ---------- --------
</TABLE>
F-13
<PAGE> 106
ATLANTIC LIBERTY SAVINGS, F.A.
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
AND YEARS ENDED MARCH 31, 1997 AND 1996
The total tax expense differed from the amounts computed by applying the U.S.
federal income tax rate of 34% to income before income tax expense as a result
of the following:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEARS ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996 MARCH 31, 1997 MARCH 31 1996
------------------ ------------------ -------------- --------------
<S> <C> <C> <C> <C>
Expected income tax expense at federal
tax rate $199,007 $138,722 ($8,092) $114,457
State and local tax (benefit) expense,
net of federal income tax benefit 81,016 (116,564) (88,525) 61,267
Deferred directors' compensation (8,500) (1,050) 98,743 (135,835)
Other nondeductible expenses (21,602) (51,559) 53,076 100,662
Life insurance death benefit 0 (209,133) (202,527) 0
- --------- --------- -
$249,921 ($239,584) ($147,325) $140,551
-------- ---------- ---------- --------
</TABLE>
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at September 30, 1997,
March 31, 1997 and 1996 are presented below:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 MARCH 31, 1997 MARCH 31, 1996
------------------ -------------- --------------
<S> <C> <C> <C>
Deferred tax assets:
Deferred directors' compensation $232,228 $218,176 $255,204
Deferred loan fees 13,704 17,971 33,480
Net operating loss carryforward 0 93,212 0
Allowance for loan losses 51,428 22,304 0
------ ------ -
Total gross deferred tax assets 297,360 351,663 288,684
Deferred tax liabilities:
Depreciation (18,742) (31,163) (8,443)
-------- -------- -------
(18,742) (31,163) (8,443)
-------- -------- -------
Net deferred tax asset $278,618 $320,500 $280,241
-------- -------- --------
</TABLE>
Management has determined that it is not required to establish a valuation
reserve for its gross deferred tax assets since it is more likely than not that
the deferred tax assets will be realized through future reversals of existing
temporary differences.
(10) EMPLOYEE BENEFITS
The Association has a qualified noncontributory, defined benefit pension plan.
Eligibility is based on a minimum age of twenty-one with twelve months of
service. Normal retirement age is at sixty-five with early retirement at age
fifty-five.
The components of net pension expense are summarized as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEARS ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996 MARCH 31, 1997 MARCH 31 1996
------------------ ------------------ -------------- -------------
<S> <C> <C> <C> <C>
Service cost $50,391 $44,188 $88,376 $105,645
Interest cost 88,810 100,148 100,148 98,490
Expected return on assets (102,659) (100,231) (101,881) (80,433)
Amortization of unrecognized transition asset (8,677) 10,171 10,171 10,171
Amortization of unrecognized loss 0 0 0 0
Amortization of unrecognized past service liability 0 0 0 0
- - - -
$27,865 $54,276 $96,814 $133,873
------- ------- ------- --------
</TABLE>
F-14
<PAGE> 107
ATLANTIC LIBERTY SAVINGS, F.A.
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
AND YEARS ENDED MARCH 31, 1997 AND 1996
The following sets forth the plan's funded status at September 30, 1997, 1996,
and at March 31, 1997 and 1996, as determined by the plan's actuary:
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30, MARCH 31, MARCH 31
1997 1996 1997 1996
------------- ------------- --------- ---------
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation for services rendered, including
vested benefits of $845,056, $1,070,724, $1,070,724,
and $964,905 at September 30, l997, 1996 and March 31,
1997 and 1996, respectively $1,005,521 $827,756 $861,656 $1,169,085
---------- -------- -------- ----------
Projected benefit obligation $1,407,915 $1,165,686 $1,209,874 $1,611,142
Market value of plan assets 1,757,432 1,229,268 1,466,562 1,472,934
--------- --------- --------- ---------
Plan assets greater (less) than projected benefit obligation 349,517 63,582 256,688 (138,208)
Unrecognized net transition asset being amortized over 22.8 years,
25.36 years, 25.36 years, and 25.36 years at September 30, 1997,
1996 and March 31,1997 and 1996, respectively (189,169) 237,615 237,615 247,787
Unrecognized net loss (188,213) (338,786) (485,683) (92,891)
Unrecognized past service liability 0 0 0 0
- - - -
Prepaid (Accrued) pension expense ($27,865) ($37,589) $8,620 $16,688
--------- --------- ------ -------
Assumed long-term rate 7.00% 7.00% 7.00% 7.00%
Assumed rate of compensation increase 4.00% 4.00% 4.00% 4.00%
Assumed discount rate 7.00% 7.00% 7.00% 7.00%
</TABLE>
The Association also has a defined contribution plan under Section 401(k) of the
U.S. Internal Revenue Code. All employees of at least 20-1/2 years of age and
with at least six months of service are eligible for voluntary participation.
Under this plan, the participant may contribute up to 10% of his/her base pay.
The Association will then contribute up to 60% of the amount of the
participant's contribution, the benefits from which vest over a five year
vesting program at 20% per year. The Association has contributed $15,375,
$14,634, $30,152, and $33,146 for the periods ended September 30, 1997 and 1996
and March 31, 1997 and 1996, respectively.
(11) DISCLOSURES ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS
A financial instrument is defined in SFAS 107 as cash, evidence of an ownership
interest in an entity or a contract that creates a contractual obligation or
right to deliver or receive cash or another financial instrument from a second
entity on potentially favorable or unfavorable terms. SFAS 107 defines the fair
value of a financial instrument as the amount at which the instrument could be
exchanged in a current transaction between willing parties, other than in a
forced or liquidation sale.
The following table represents the carrying amounts and fair values of the
Association's financial instruments:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 MARCH 31, 1997 MARCH 31, 1996
CARRYING FAIR CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE AMOUNT VALUE
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $9,441 $9,441 $10,285 $10,285 $11,225 $11,225
Investment securities 32,167 32,190 36,288 35,600 35,381 34,956
Loans 65,486 66,044 60,059 59,933 54,505 55,038
Accrued interest receivable 195 195 223 223 216 216
Financial liabiities:
Deposits 100,539 100,611 100,798 100,514 97,396 98,190
Advance payments by borrowers for taxes
and insurance 763 763 994 994 802 802
</TABLE>
F-15
<PAGE> 108
ATLANTIC LIBERTY SAVINGS, F.A.
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
AND YEARS ENDED MARCH 31, 1997 AND 1996
COMMITMENTS TO ORIGINATE LOANS: The fair value of commitments to originate loans
is estimated using the fees currently charged to enter into similar agreements,
taking into account the remaining terms of the agreements and present
creditworthiness of the parties.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
CONTRACT CARRYING ESTIMATED CONTRACT CARRYING ESTIMATED
AMOUNT AMOUNT FAIR VALUE AMOUNT AMOUNT FAIR VALUE
------ ------ ---------- ------ ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Commitments to originate loans $4,422 $19 $19 $4,925 $18 $18
------ --- --- ------ --- ---
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1997 MARCH 31, 1996
CONTRACT CARRYING ESTIMATED CONTRACT CARRYING ESTIMATED
AMOUNT AMOUNT FAIR VALUE AMOUNT AMOUNT FAIR VALUE
------ ------ ---------- ------ ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Commitments to originate loans $6,635 $34 $34 $2,203 $4 $4
------ --- --- ------ -- --
</TABLE>
The amounts shown under "carrrying amount" represent deferred income arising
from these unrecognized financial instruments.
(12) RELATED PARTIES
The Association has entered into transactions with its directors and officers as
follows:
As of and for the six months ended September 30, 1997: The aggregate amount of
loans to such related parties amounted to $817,611. During the six months, new
loans were made amounting to $200,000. Repayments during the period amounted to
$13,703. The aggregate amount of deposit accounts to such related parties
amounted to $718,171.
As of and for the year ended March 31, 1997: The aggregate amount of loans to
such related parties amounted to $631,303. During the fiscal year, new loans
were made amounting to $130,000. Repayments during the fiscal year amounted to
$31,871. The aggregate amount of deposit accounts to such related parties
amounted to $736,565.
As of and for the year ended March 31, 1996: The aggregate amount of loans to
such related parties amounted to $617,892. During the fiscal year, no new loans
were made. Repayments during the fiscal year amounted to $232,666. The aggregate
amount of deposit accounts to such related parties amounted to $570,378.
(13) DIRECTORS' DEFERRED COMPENSATION
The Association provides directors with a deferred compensation plan under which
directors may elect to defer, for the calendar year on a pre-tax basis, all or a
portion of their monthly directors' fees and/or annual retainer, until death,
retirement, or other termination of service. The plan is a restatement of a
deferred compensation plan that was effective until December 31, 1996. Under the
plan, a director's deferred fees and/or annual retainer will be credited to a
deferred compensation account. Each deferred compensation account will earn
simple interest at the rate of 8% per annum. Upon retirement, a director's
benefit will be paid over 10 years.
Under the prior plan, benefits will be paid over 15 years, (10 years with
respect to two directors, based on their life expectancies). The deferred
compensation benefits payable under the prior plan range from between $675 and
$1,622 per month. The Association has accrued $470,000 toward this benefit and
has purchased life insurance policies on the lives of the individual directors
with an aggregate face value of $410,000, to assist it in meeting its benefit
obligations under the prior plan. For calendar year 1996, under the
F-16
<PAGE> 109
ATLANTIC LIBERTY SAVINGS, F.A.
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
AND YEARS ENDED MARCH 31, 1997 AND 1996
prior plan, 4 directors elected to defer $16,800 of the directors' fees and
annual retainers paid, for the period January 1, 1997 through August 31, 1997.
Under the restated plan, 4 directors elected to defer $44,000 of the directors'
fees and annual retainers paid. The Association's president did not elect to
defer any portion of the annual retainer.
(13) COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, the Association has various outstanding
commitments and contingent liabilities that are not reflected in the
accompanying financial statements. In addition, the Association is defendant in
certain claims and legal actions arising in the ordinary course of business. In
the opinion of management, after consultation with counsel, the ultimate
disposition of these matters is not expected to have a material adverse effect
on the financial position of the Association.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses. Commitments
to originate loans amounted to $4,422,000, $6,635,000, and $2,202,750 at
September 30, 1997, and March 31, 1997 and 1996, respectively.
(14) SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK
Most of the Association's business activity is with customers located within New
York State. Generally, the loans are secured by one-to-four family residences.
The loans are expected to be repaid from the borrowers' cash flows.
(15) SAIF PREMIUM
The Association pays deposit insurance premiums to the Savings Association
Insurance Fund, (SAIF), of the Federal Deposit Insurance Corporation, (FDIC).
The Association's deposit insurance premium rate through September 30, 1997 was
.23% of its assess deposit base, resulting in total premiums assessed amounting
to $31,318, $703,515, $762,696, and $208,903, for the periods ended September
30, 1997, 1996, and March 31, 1997 and 1996, respectively. In addition, on
September 30, 1996, the President signed into law the Deposit Insurance Funds
Act of 1996 to recapitalize the SAIF administered by the FDIC and to provide for
repayment of the Financial Institution Collateral Obligation bonds issued by the
United States Treasury Department. The FDIC levied a one-time special assessment
on SAIF deposit equal to 65.7 cents per $100 of the SAIF-assessable deposit base
as of March 31, 1995. The one-time special assessment amounted to an expense to
the Association of $594,447, which amount is included in the September 30, 1996
and March 31, 1997 amounts referred to above.
F-17
<PAGE> 110
ATLANTIC LIBERTY SAVINGS, F.A.
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
AND YEARS ENDED MARCH 31, 1997 AND 1996
(16) REGULATORY STRUCTURE
The Association is subject to various regulatory capital requirements
administered by the federal Office of Thrift Supervision. Failure to meet
minimum capital requirements can initiate certain mandatory -- and possibly
additional discretionary -- actions by regulators that, if undertaken, could
have a direct material effect on the Association's financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt corrective
action, the Association must meet specific capital guidelines that involve
quantitative measures of the Association's assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices. The
Association's capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weightings, and other
factors.
Quantitative measures established by regulation require the Association to
maintain minimum amounts and ratios (set forth in the table below) of total and
Tier I capital (as defined in the regulations). Management believes, as of
September 30, 1997, the Association meets all capital adequacy requirements to
which it is subject.
As of September 30, 1997, the most recent notification from the Office of Thrift
Supervision categorized the Association as satisfactorily capitalized under the
regulatory framework for prompt corrective action. There are no conditions or
events since that notification that management believes have changed the
institution's category.
The Association's actual capital amounts and ratios are also presented in the
table.
<TABLE>
<CAPTION>
ASSOCIATION'S ACTUAL MINIMUM CAPITAL ADEQUACY
AMOUNT RATIO AMOUNT RATIO
------ ----- ------ -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
AS OF SEPTEMBER 30, 1997:
Tangible capital $7,209 6.56% $1,648 1.50%
Tier I (Core) capital 7,209 6.56% 3,297 3.00%
Total risk-based capital 7,830 15.75% 3,977 8.00%
AS OF SEPTEMBER 30, 1996:
Tangible capital 7,397 7.03% 1,579 1.50%
Tier I (Core) capital 7,397 7.03% 3,159 3.00%
Total risk-based capital 8,001 16.56% 3,865 8.00%
AS OF MARCH 31, 1997:
Tangible capital 6,873 6.26% 1,647 1.50%
Tier I (Core) capital 6,873 6.26% 3,294 3.00%
Total risk-based capital 7,482 15.36% 3,897 8.00%
AS OF MARCH 31, 1996:
Tangible capital 6,750 6.38% 1,586 1.50%
Tier I (Core) capital 6,750 6.38% 3,172 3.00%
Total risk-based capital 7,352 15.25% 3,857 8.00%
</TABLE>
The following provides a reconciliation of the Association's capital to
regulatory capital:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996 MARCH 31, 1997 MARCH 31 1996
------------------ ------------------ -------------- -------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Association's capital $7,209 $7,397 $6,873 $6,750
Add: Allowance for loan losses 621 604 609 603
--- --- --- ---
Total risk-based capital $7,830 $8,001 $7,482 $7,352
------ ------ ------ ------
</TABLE>
F-18
<PAGE> 111
ATLANTIC LIBERTY SAVINGS, F.A.
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
AND YEARS ENDED MARCH 31, 1997 AND 1996
(17) SUBSEQUENT ITEMS
Subsequent to the issuance of the Association's 1997 financial statements,
management became aware that certain transactions applicable to the period's
and prior periods' allowance for loan losses and its deferred tax accounts had
not been recorded. The inclusion of these items in the revised financial
statements has the effect of decreasing retained earnings as of April 1, 1995
by $296,758, decreasing assets by $230,372 at March 31, 1996, by $350,422 at
March 31, 1997, and increasing net income for 1996 by $66,386 and decreasing
net income for 1997 by $120,070.
F-19
<PAGE> 112
<PAGE> 113
================================================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN AS CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ATLANTIC LIBERTY SAVINGS, F.A. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY
SECURITY OTHER THAN THE SHARES OF COMMON STOCK OFFERED HEREBY TO ANY PERSON IN
ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN
WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO,
OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT INFORMATION HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF.
BROOKLYN HEIGHTS BANCORP
(Proposed Holding Company for
Atlantic Liberty Savings, F.A.)
UP TO 608,350 SHARES
Common Stock
($1.00 par value per share)
PROSPECTUS
RYAN, BECK & CO.
________________ __, 1998
THESE SECURITIES ARE NOT DEPOSITS OR ACCOUNTS
AND ARE NOT FEDERALLY INSURED OR GUARANTEED
Until _____________, or 25 days after the commencement of the offering of
Common Stock, all dealers effecting transactions in the registered securities,
whether or not participating in this distribution, may be required to deliver a
prospectus. This is in addition to the obligation of dealers to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
================================================================================
<PAGE> 114
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS OF ATLANTIC LIBERTY
SAVINGS, F.A., AND BROOKLYN HEIGHTS BANCORP
Generally, federal regulations define areas for indemnity coverage for federal
savings associations, and proposed federal regulations define areas for
indemnity coverage for federal MHC subsidiary holding companies, as follows:
(a) Any person against whom any action is brought by
reason of the fact that such person is or was a director or officer of the
savings association shall be indemnified by the savings association for:
(i) Reasonable costs and expenses, including
reasonable attorneys' fees, actually paid or incurred by such
person in connection with proceedings related to the defense
or settlement of such action;
(ii) Any amount for which such person becomes
liable by reason of any judgment in such action;
(iii) Reasonable costs and expenses, including
reasonable attorneys' fees, actually paid or incurred in any
action to enforce his rights under this section, if the person
attains a final judgment in favor of such person in such
enforcement action.
(b) Indemnification provided for in subparagraph (a)
shall be made to such officer or director only if the
requirements of this subsection are met:
(i) The savings association shall make the
indemnification provided by subparagraph (a) in connection
with any such action which results in a final judgment on the
merits in favor of such officer or director.
(ii) The savings association shall make the
indemnification provided by subparagraph (a) in case of
settlement of such action, final judgment against such
director or officer or final judgment in favor of such
director or officer other than on the merits except in
relation to matters as to which he shall be adjudged to be
liable for negligence or misconduct in the performance of
duty, only if a majority of the directors of the savings
association determines that such a director or officer was
acting in good faith within what he was reasonably entitled to
believe under the circumstances was the scope of his
employment or authority and for a purpose which he was
reasonably entitled to believe under the circumstances was in
the best interest of the savings association or its members.
(c) As used in this paragraph:
(i) "Action" means any action, suit or other
judicial or administrative proceeding, or threatened
proceeding, whether civil, criminal, or otherwise, including
any appeal or other proceeding for review;
(ii) "Court" includes, without limitation, any
court to which or in which any appeal or any proceeding for
review is brought;
(iii) "Final Judgment" means a judgment, decree, or
order which is appealable and as to which the period for
appeal has expired and no appeal has been taken;
(iv) "Settlement" includes the entry of a judgment
by consent or by confession or upon a plea of guilty or of
nolo contendere.
<PAGE> 115
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<CAPTION>
Amount
------
<S> <C> <C>
* Legal Fees and Expenses . . . . . . . . . . . . . . . . . . . $ 120,000
* Printing, Postage and Mailing . . . . . . . . . . . . . . . . 80,000
* Appraisal and Business Plan Fees and Expenses . . . . . . . . 14,000
* Accounting Fees and Expenses . . . . . . . . . . . . . . . . . 25,000
** Underwriter's Fees and Expenses . . . . . . . . . . . . . . . 160,000
* Filing Fees (NASD, OTS and SEC) . . . . . . . . . . . . . . . 18,000
* Other Expenses . . . . . . . . . . . . . . . . . . . . . . . . 15,000
----------
* Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 432,000
==========
</TABLE>
- ------------------
* Estimated
** Brooklyn Heights Bancorp has retained Ryan, Beck & Co. ("Ryan Beck")
to assist in the sale of common stock on best efforts basis in the
Offerings. Ryan Beck will receive fees of $120,000, exclusive of
estimated expenses of $40,000.
<PAGE> 116
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
Not Applicable.
ITEM 27. EXHIBITS:
The exhibits filed as part of this registration statement are
as follows:
(a) LIST OF EXHIBITS
1.1 Engagement Letter between Atlantic Liberty Savings, F.A. and Ryan,
Beck & Co.
1.2 Agency Agreement among Brooklyn Heights Bancorp, Atlantic Liberty
Savings, F.A. and Ryan, Beck & Co.*
2 Plan of Reorganization from Mutual Savings Association to Mutual
Holding Company and Stock Issuance Plan
3.1 Proposed Federal Holding Company Charter of Brooklyn Heights Bancorp
3.2 Proposed Bylaws of Brooklyn Heights Bancorp
4 Form of Common Stock Certificate of Brooklyn Heights Bancorp
5 Opinion of Luse Lehman Gorman Pomerenk & Schick, P.C. regarding
legality of securities being registered
8.1 Form of Federal Tax Opinion of Luse Lehman Gorman Pomerenk & Schick,
P.C.
8.2 Form of State Tax Opinion*
8.3 Opinion of Feldman Financial Advisors, Inc. with respect to
Subscription Rights
10.1 Form of Employment Agreement
10.2 Form of Employee Stock Ownership Plan
21 Subsidiaries of the Registrant
23.1 Consent of Luse Lehman Gorman Pomerenk & Schick, P.C. (contained in
Opinions included on Exhibits 5 and 8.1)
23.2 Consent of Sol Masch & Co.
23.3 Consent of Feldman Financial Advisors, Inc.
24 Power of Attorney (set forth on signature page)
27.1 EDGAR Financial Data Schedule
99.1 Appraisal Agreement between Atlantic Liberty Savings, F.A. and Feldman
Financial Advisors, Inc.
99.2 Appraisal Report of Feldman Financial Advisors, Inc.*
99.3 Proxy Statement
99.4 Marketing Materials
<PAGE> 117
99.5 Order and Acknowledgment Form and Certification Form
- ----------------------------------------------
* To be filed supplementally or by amendment
ITEM 28. UNDERTAKINGS
The undersigned Registrant hereby undertakes to:
(1) File, during any period in which it offers or sells
securities, a post-effective amendment to this registration
statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) Reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which
was registered) and any duration from the low or high and of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more
than 20 percent change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in the
effective registration statement;
(iii) Include any additional or changed material information on
the plan of distribution.
(2) For determining liability under the Securities Act, treat
each post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration
any of the securities that remain unsold at the end of the offering.
The small business issuer will provide to the underwriter at the
closing specified in the Underwriting Agreement certificates in such
documentation and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act, and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the small business issuer of expenses incurred or paid by a
director, officer or controlling person of the small business issuer in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the small business issuer will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the questions whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
<PAGE> 118
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Brooklyn, New York on
December 30, 1997.
BROOKLYN HEIGHTS BANCORP (IN FORMATION)
By: /s/ Stephen Irving
--------------------------
Stephen Irving
President, Chief Executive Officer and Director
(Duly Authorized Representative)
POWER OF ATTORNEY
We, the undersigned directors and officers of Brooklyn Heights
Bancorp (the "Company") hereby severally constitute and appoint Stephen Irving
as our true and lawful attorney and agent, to do any and all things in our
names in the capacities indicated below which said Stephen Irving may deem
necessary or advisable to enable the Company to comply with the Securities Act
of 1933, and any rules, regulations and requirements of the Securities and
Exchange Commission, in connection with the registration statement on Form SB-2
relating to the offering of the Company's Common Stock, including specifically,
but not limited to, power and authority to sign for us in our names in the
capacities indicated below the registration statement and any and all
amendments (including post-effective amendments) thereto; and we hereby
approve, ratify and confirm all that said Stephen Irving shall do or cause to
be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and as of the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/s/ Stephen Irving President, Chief Executive December 30, 1997
- ------------------------- Officer and Director
Stephen Irving (Principal Executive Officer)
/s/ Stephen Parisi Vice President and Treasurer December 30, 1997
- ------------------------- (Principal Financial and
Stephen Parisi Accounting Officer)
/s/ John A. Maher Chairman of the Board December 30, 1997
- -------------------------
John A. Maher
/s/ Nunzio D'Addona Director December 30, 1997
- -------------------------
Nunzio D'Addona
/s/ Martin D. Dehler Director December 30, 1997
- -------------------------
Martin D. Dehler
/s/ Edward W. Kelle Director December 30, 1997
- -------------------------
Edward W. Kelle
/s/ Fred W. McPhilliamy Director December 30, 1997
- -------------------------
Fred W. McPhilliamy
/s/ Eugene F. O'Connor Director December 30, 1997
- -------------------------
Eugene F. O'Connor
</TABLE>
<PAGE> 119
EXHIBIT INDEX
1.1 Engagement Letter between Atlantic Liberty Savings, F.A. and Ryan,
Beck & Co.
1.2 Agency Agreement among Brooklyn Heights Bancorp, Atlantic Liberty
Savings, F.A. and Ryan, Beck & Co.*
2 Plan of Reorganization from Mutual Savings Association to Mutual
Holding Company and Stock Issuance Plan
3.1 Proposed Federal Holding Company Charter of Brooklyn Heights Bancorp
3.2 Proposed Bylaws of Brooklyn Heights Bancorp
4 Form of Common Stock Certificate of Brooklyn Heights Bancorp
5 Opinion of Luse Lehman Gorman Pomerenk & Schick, P.C. regarding
legality of securities being registered
8.1 Form of Federal Tax Opinion of Luse Lehman Gorman Pomerenk & Schick,
P.C.
8.2 Form of State Tax Opinion*
8.3 Opinion of Feldman Financial Advisors, Inc. with respect to
Subscription Rights
10.1 Form of Employment Agreement
10.2 Form of Employee Stock Ownership Plan
21 Subsidiaries of the Registrant
23.1 Consent of Luse Lehman Gorman Pomerenk & Schick, P.C. (contained in
Opinions included on Exhibits 5 and 8.1)
23.2 Consent of Sol Masch & Co.
23.3 Consent of Feldman Financial Advisors, Inc.
24 Power of Attorney (set forth on signature page)
27.1 EDGAR Financial Data Schedule
99.1 Appraisal Agreement between Atlantic Liberty Savings, F.A. and Feldman
Financial Advisors, Inc.
99.2 Appraisal Report of Feldman Financial Advisors, Inc.*
99.3 Proxy Statement
99.4 Marketing Materials
99.5 Order and Acknowledgment Form and Certification Form
- --------------------------
* To be filed supplementally or by amendment.
<PAGE> 1
EXHIBIT 1.1
[RYAN, BECK & CO. LETTERHEAD]
CONFIDENTIAL
July 28, 1997
Mr. Stephen Irving
President and Chief Executive Officer
Atlantic Liberty Savings
186 Montague Street
Brooklyn, NY 11201-3601
Re: Proposed Mutual Holding Company Formation - Subscription Enhancement &
Administrative Services
Dear Mr. Irving:
Ryan, Beck & Co. ("Ryan, Beck") is pleased to submit this engagement letter
setting forth the terms of the proposed engagement between Ryan, Beck and
Atlantic Liberty Savings, (the "Institution") in connection with the proposed
formation of a mutual holding company and sale of common stock by the
Institution.
1. BACKGROUND ON RYAN, BECK
Ryan, Beck, Inc., was organized in 1946 and is one of the nation's leading
investment bankers for financial institutions. The firm has been publicly held
since 1986 and is a registered broker-dealer with the Securities and Exchange
Commission, a member of the National Association of Securities Dealers, Inc.,
Securities Industry Association and a member of the Securities Investor
Protection Corporation. Ryan, Beck's corporate finance department is one of the
largest such groups devoted solely to financial institution matters in the
country. Moreover, Ryan, Beck is one of the largest market makers in bank and
thrift stocks.
2. MUTUAL HOLDING COMPANY FORMATION AND STOCK OFFERING
The Institution proposes to form a mutual holding company ("Holding Company")
pursuant to applicable regulations. In connection therewith, the Institution's
Board of Directors will adopt a stock issuance plan (the "Plan") whereby shares
of stock will be offered. In connection with the Institution's mutual holding
company formation and Community Offering, Ryan, Beck proposes to act as
financial advisor to the Institution with respect to the Plan and selling
agent/manager with
<PAGE> 2
Atlantic Liberty Savings
July 28, 1997
Page 2
respect to the offering of the shares of common stock (the "Common Stock") in
the Community Offering. Specific terms of services shall be set forth in a
definitive agency agreement (the "Definitive Agreement") between Ryan, Beck and
the Institution to be executed on the date the offering document is declared
effective by the appropriate regulatory authorities.
3. SERVICES TO BE PROVIDED BY RYAN, BECK
a. Advisory Services - Thorough planning is essential to a successful
conversion. Ryan, Beck serves as lead coordinator of the marketing and
logistic efforts necessary to prepare for an offering. Our actions are
intended to clearly define responsibilities and timetables, while avoiding
costly surprises. We assume responsibility for the initial preparation of
marketing materials--saving you time and legal expense. Moreover, as your
investment banker, Ryan, Beck will evaluate the financial, marketing and
regulatory issues involved in the Offerings. Our specific responsibilities
include:
- Participate in drafting the Prospectus and assist in obtaining all
requisite regulatory approvals;
- Review and opine to the Board of Directors on the adequacy of the
appraisal process;
- Develop a marketing plan for the Offerings including direct mail,
advertising, community meetings and telephone solicitation;
- Provide specifications and assistance in selecting a conversion agent,
printer and other professionals;
- Calculate the number of new phone lines required;
- Provide a list of equipment and supplies needed for the Conversion
Center;
- Draft marketing materials including letters, brochures, slide show
script advertisements; and
- Assist in arranging market-makers for post-conversion trading.
b. Administrative Services and Conversion Center Management - Ryan, Beck
manages your "best efforts" community offering. A successful conversion
requires an enormous amount of attention to detail. Working knowledge and
familiarity with the law and "lore" of bank regulators, Securities and
Exchange Commission and NASD is essential. Ryan, Beck's experience in
managing many thrift conversions will minimize the burden on your
management and disruption to normal banking business. At the same time, our
legal, accounting and regulatory background ensures that details are
attended to in a professional fashion. A conversion requires accurate and
timely record keeping and reporting.
<PAGE> 3
Atlantic Liberty Savings
July 28, 1997
Page 3
Furthermore, customer inquiries must be handled professionally and
accurately. The Conversion Center centralizes all data and work effort
relating to the conversion.
Ryan, Beck will supervise and administer the Conversion Center. We will
train Conversion Center staff to help record stock orders, answer customer
inquiries and handle special situations as they arise. Conversion Center
activities include the following:
- Provide experienced on-site registered representatives to minimize
disruption of day-to-day business;
- Identify and organize space for the on-site Conversion Center, the
focal point of conversion activity;
- Administer the Conversion Center;
- Prepare procedures for processing proxies, stock orders and cash, and
for handling requests for information;
- Provide scripts, training and guidance for the telephone team in
soliciting proxies and in the stock sales telemarketing effort;
- Educate the Institution's directors, officers and employees about the
conversion, their roles and relevant securities laws;
- Train branch managers and customer-contact employees on the proper
response to stock purchase inquiries;
- Train and supervise Conversion Center staff assisting with proxy and
order processing;
- Prepare daily sales reports for management and ensure funds received
balance to such reports;
- Coordinate functions with the data processing agent, printer, transfer
agent, stock certificate printer and other professionals;
- Organize and implement a proxy solicitation campaign;
- Design and implement procedures for handling IRA and Keogh orders; and
- Provide post-offering subscriber assistance and management of the
pro-ration process.
c. Securities Marketing Services - Ryan, Beck uses various sales techniques
including direct mail, advertising, community investor meetings, telephone
solicitation, and if necessary, selling group formation. The sales approach
is tailored to fit your specific situation. Our techniques are designed to
attract a stockholder base comprised largely of community oriented
individuals loyal to the Institution.
<PAGE> 4
Atlantic Liberty Savings
July 28, 1997
Page 4
Our specific actions include:
- Assign licensed registered representatives from our staff to work at
the Conversion Center to solicit orders on behalf of the Institution
from eligible prospects who have been targeted as likely and desirable
stockholders;
- Assist management in developing a list of potential investors who are
viewed as priority prospects;
- Respond to inquiries concerning the conversion and investment
opportunity;
- Organize, coordinate and participate in community informational
meetings. These meetings are intended to both relieve customer anxiety
and attract potential investors. The meetings generate widespread
publicity for the conversion while providing local exposure of the
Institution and promoting favorable stockholder relations;
- Supervise and conduct a telemarketing campaign to identify prospects
from among the Institution's customer base;
- Continually advise management on market conditions and the community's
responsiveness to the offering; and
- If appropriate, assemble a selling group of selected local
broker-dealers to assist in selling stock during the offering. In so
doing, prepare broker "fact sheets" and arrange "road shows" for the
purpose of stimulating local interest in the stock and informing the
brokerage community of the particulars of the offering.
4. COMPENSATION
a. For its services hereunder, the Institution will pay to Ryan, Beck a total
inclusive Advisory and Marketing fee of $120,000.
In the event of an undersubscription, Ryan, Beck will form a selling group
of NASD member firms (including Ryan, Beck) under a selected dealers'
agreement (the "Selling Group"). The Institution will pay a fee equal to
five and one-half percent (5.5%) of the aggregate amount of stock sold
pursuant to such selected dealer agreements . Ryan, Beck will not commence
sales of the stock through members of the Selling Group without prior
approval of the Institution.
Such fees (less the amount of any advance payments) are to be paid to
Ryan, Beck at the closing of the Conversion. The Institution will pay
Ryan, Beck $25,000 upon execution of this letter which will be applied to
any fees due hereunder, including fees payable pursuant to subparagraph
(b) below. If, pursuant to a resolicitation undertaken by the Institution,
Ryan,
<PAGE> 5
Atlantic Liberty Savings
July 28, 1997
Page 5
Beck is required to provide significant additional services, the parties
shall mutually agree to the dollar amount of the additional compensation
due (if any).
b. If (i) the Plan is abandoned or terminated by the Institution; (ii) the
Offerings are not consummated by September 30, 1998; (iii) Ryan, Beck
terminates this relationship because there has been a material adverse
change in the financial condition or operations of the Institution since
June 30, 1997; (iv) immediately prior to commencement of the Offerings,
Ryan, Beck terminates this relationship for failure to satisfactorily
disclose all relevant information in the disclosure documents or the
existence of market conditions which might render the sale of the shares by
the Institution hereby contemplated inadvisable; or (v) if the Institution
terminates this relationship because, in its reasonable judgement, it
determines that a an event has occurred, which materially and adversely
impacts the ability of Ryan, Beck to perform its obligations hereunder,
Ryan, Beck shall not be entitled to the fees set forth above under
subparagraph (a), but in addition to reimbursement of its reasonable
out-of-pocket expenses as set forth in paragraph 7 below, shall be entitled
to receive for its advisory and administrative services a fee of $25,000;
provided however if (i) the Institution abandons or terminates the offering
of the Common Stock prior to filing the regulatory application for
conversion, Ryan, Beck shall not be entitled to receive for its advisory
and administrative services a fee of $25,000.
5. MARKET MAKING
Ryan, Beck agrees to use its best efforts to maintain a market and to solicit
other broker-dealers to make a market in the Common Stock after the Conversion.
6. DOCUMENTS
The Institution and its counsel will complete, file with the appropriate
regulatory authorities and, as appropriate, amend from time to time, the
information to be contained in the Institution's Application for Conversion and
any related exhibits thereto. In this regard, the Institution and its counsel
will prepare an Offering Circular and any other necessary disclosure documents
relating to the offering of the Common Stock in conformance with applicable
rules and regulations. As the Institution's financial advisor, Ryan, Beck will
in conjunction with counsel, conduct an examination of the relevant documents
and records of the Institution and will make such other reasonable investigation
as deemed necessary and appropriate under the circumstances. The Institution
agrees to make all such documents, records and other information deemed
necessary by Ryan, Beck, or its
<PAGE> 6
Atlantic Liberty Savings
July 28, 1997
Page 6
counsel, available to them upon reasonable request. Ryan, Beck's counsel will
prepare, subject to the approval of the Institution's counsel, the Definitive
Agreement. Ryan, Beck's counsel shall be selected by Ryan, Beck, subject to the
approval of the Institution which will not unreasonably be withheld.
7. EXPENSES AND REIMBURSEMENT
The Institution will bear all of its expenses in connection with the Conversion
and the offering of its Common Stock including, but not limited to, the
Institution's attorney fees, NASD filing fees, "blue sky" legal fees, expenses
for appraisal, auditing and accounting services, advertising expenses, printing
expenses, temporary personnel expenses and the preparation of stock
certificates. In the event Ryan, Beck incurs such expenses on behalf of the
Institution, the Institution shall pay or reimburse Ryan, Beck for such
reasonable fees and expenses regardless of whether the Conversion is
successfully completed. Ryan, Beck will not incur any single expense of more
than $1,000, pursuant to this paragraph without the prior approval of the
Institution.
The Institution also agrees to reimburse Ryan, Beck for reasonable out-of-pocket
expenses, including legal fees and expenses, incurred by Ryan, Beck in
connection with the services contemplated hereunder. In no event shall the
Institution be required to reimburse Ryan, Beck for more than $30,000 in legal
fees, and $10,000 in other out-of-pocket expenses. The parties acknowledge,
however, that such caps may be exceeded in the event of any material delay in
the Offerings which would require an update of the financial information in
tabular form contained in the Prospectus for a period later than that set forth
in the original Prospectus filing. Not later than three days before closing, we
will provide you with a detailed accounting of all reimbursable expenses to be
paid at closing.
8. BLUE SKY
To the extent required by applicable state law, Ryan, Beck and the Institution
will need to obtain or confirm exemptions, qualifications or registration of the
Common Stock under applicable state securities laws and NASD policies. The cost
of such legal work and related filing fees will be paid by the Institution to
the law firm furnishing such legal work. The Institution will cause the counsel
performing such services to prepare a Blue Sky memorandum related to the
Offerings including Ryan, Beck's participation therein and shall furnish Ryan,
Beck a copy thereof addressed to Ryan, Beck or upon which such counsel shall
state Ryan, Beck may rely.
<PAGE> 7
Atlantic Liberty Savings
July 28, 1997
Page 7
9. AVAILABILITY OF "STARS" PROGRAM
As an additional service to the Institution, Ryan, Beck will make available for
a period of eighteen months following the completion of the Conversion, advisory
services through the Ryan, Beck Strategic Advisory Services ("STARS") program.
If the Institution elects to avail itself of the STARS program, Ryan, Beck will
meet with the Institution at its request. Ryan, Beck also will provide opinions
and recommendations, upon request, for the areas covered below:
Valuation Analysis
Merger and Acquisition Analysis
Merger and Acquisition Trends
Planning, Forecasting & Competitive Strategy
Capital, Asset & Liability Structure & Management
Stock Repurchase Programs
Dividend Policy
Dividend Reinvestment Programs
Market Development and Sponsorship of Bank Securities
Financial Disclosure
Financial Relations
Financial Reports
Branch Sales and Purchases
Stock Benefit Plan Analysis and Advisory
Stockholder & Investor Relations Presentations & Programs
Fairness Opinions
Scanning of Potential Acquisition Candidates
Based on Published Statement Information
(This screening does not extend to any in-depth merger and acquisition
analyses or studies which are available under Ryan, Beck's normal fee
schedule, and does not include retention of Ryan, Beck by the
Institution for any specific merger/acquisition situation.)
If the Institution elects to utilize the STARS program Ryan, Beck will waive the
regular retainer fee and hourly charges for this program for the first eighteen
months. The Institution also will reimburse Ryan, Beck's reasonable
out-of-pocket expenses incurred in conjunction with the performance of these
services. Such out-of-pocket expenses shall include travel (coach class only),
<PAGE> 8
Atlantic Liberty Savings
July 28, 1997
Page 8
legal and other miscellaneous expenses. Ryan, Beck will not incur any single
expense in excess of $1000 pursuant to this paragraph without the prior approval
of the Institution.
If negotiations for a transaction conducted during the term of the STARS
Advisory Agreement described above result in the execution of a definitive
agreement and/or consummation of a transaction for which Ryan, Beck customarily
would be entitled to a fee for its advisory or other investment banking
services, Ryan, Beck shall receive a contingent advisory fee ("Advisory Fee") in
accordance with the terms of a separate engagement letter with respect to such
transaction.
10. INDEMNIFICATION
The Definitive Agreement will provide for indemnification of the type usually
found in underwriting agreements as to certain liabilities, including
liabilities under the Securities Act of 1933. The Institution also agrees to
defend, indemnify and hold harmless Ryan, Beck and its officers, directors,
employees and agents against all claims, losses, actions, judgments, damages or
expenses, including but not limited to reasonable attorneys' fees, arising
solely out of the engagement described herein, except that such indemnification
shall not apply to Ryan, Beck's own bad faith, willful misconduct or gross
negligence.
11. ARBITRATION
Any claims, controversies, demands, disputes or differences between or among the
parties hereto or any persons bound hereby arising out of, or by virtue of, or
in connection with, or otherwise relating to this Agreement shall be submitted
to and settled by arbitration conducted in New York, NY before one or three
arbitrators, each of whom shall be knowledgeable in the field of securities law
and investment banking. Such arbitration shall otherwise be conducted in
accordance with the rules then obtaining of the American Arbitration
Association. The parties hereto agree to share equally the responsibility for
all fees of the arbitrators, abide by any decision rendered as final and
binding, and waive the right to appeal the decision or otherwise submit the
dispute to a court of law for a jury or non-jury trial. The parties hereto
specifically agree that neither party may appeal or subject the award or
decision of any such arbitrator to appeal or review in any court of law or in
equity or by any other tribunal, arbitration system or otherwise. Judgment upon
any award granted by such an arbitrator may be enforced in any court having
jurisdiction thereof.
<PAGE> 9
Atlantic Liberty Savings
July 28, 1997
Page 9
12. NASD MATTERS
Ryan, Beck has an obligation to file certain documents and to make certain
representations to the National Association of Security Dealers ("NASD") in
connection with the Conversion. The Institution agrees to cooperate with Ryan,
Beck and provide such information as may be necessary for Ryan, Beck to comply
with all NASD requirements applicable to it in connection with its participation
as contemplated herein in the Conversion. Ryan, Beck is and will remain through
completion of the Conversion a member in a good standing of the NASD and will
comply with all applicable NASD requirements.
13. OBLIGATIONS
(a) Except as set forth below, this engagement letter is merely a statement of
intent. While Ryan, Beck and the Institution agree in principle to the
contents hereof and propose to proceed promptly and in good faith to work
out the arrangements with respect to the Conversion, any legal obligations
between Ryan, Beck and the Institution shall be only: (i) those set forth
herein in paragraphs 2, 3 and 4 regarding services and payments; (ii) those
set forth in paragraph 7 regarding reimbursement for certain expenses;
(iii) those set forth in paragraph 10 regarding indemnification; and (iv)
as set forth in a duly negotiated and executed Definitive Agreement.
(b) The obligation of Ryan, Beck to enter into the Definitive Agreement shall
be subject to there being, in Ryan, Beck's opinion, which shall have been
formed in good faith after reasonable determination and consideration of
all relevant factors: (i) no material adverse change in the condition or
operation of the Institution; (ii) satisfactory disclosure of all relevant
information in the disclosure documents and a determination that the sale
of stock is reasonable given such disclosures; (iii) no market conditions
which might render the sale of the shares by the Institution hereby
contemplated inadvisable; and (iv) agreement that the price established by
the independent appraiser is reasonable in the then prevailing market
conditions.
<PAGE> 10
Atlantic Liberty Savings
July 28, 1997
Page 10
Please acknowledge your agreement to the foregoing by signing in the place
provided below and returning one copy of this letter to our office together with
the retainer payment in the amount of $25,000. We look forward to working with
you.
RYAN, BECK & CO., INC.
BY: /s/ BEN A. PLOTKIN
--------------------------------------
Ben A. Plotkin
President and Chief Executive Officer
Accepted and Agreed to This 11th Day of Sep, 1997
----
ATLANTIC LIBERTY SAVINGS
BY: /s/ STEPHEN IRVING
--------------------------------------
Stephen Irving
President and Chief Executive Officer
<PAGE> 1
EXHIBIT 2
ATLANTIC LIBERTY SAVINGS, F.A.
PLAN OF REORGANIZATION
FROM MUTUAL SAVINGS ASSOCIATION
TO MUTUAL HOLDING COMPANY
AND STOCK ISSUANCE PLAN
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
3. The Reorganization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4. Conditions to Implementation of the Reorganization . . . . . . . . . . . . . . . . . 8
5. Special Meeting of Members . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6. Rights of Members of the MHC . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
7. Conversion of MHC to Stock Form . . . . . . . . . . . . . . . . . . . . . . . . . . 9
8. Timing of the Reorganization and Sale of Capital Stock . . . . . . . . . . . . . . 10
9. Number of Shares to be Offered . . . . . . . . . . . . . . . . . . . . . . . . . . 10
10. Independent Valuation and Purchase Price of Shares . . . . . . . . . . . . . . . . 10
11. Method of Offering Shares and Rights to Purchase Stock . . . . . . . . . . . . . . 11
12. Additional Limitations on Purchases of Common Stock . . . . . . . . . . . . . . . 14
13. Payment for Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
14. Completion of the Stock Offering . . . . . . . . . . . . . . . . . . . . . . . . . 16
15. Market for Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
16. Stock Purchases by Management Persons After the Offering . . . . . . . . . . . . . 16
17. Resales of Stock by Management Persons . . . . . . . . . . . . . . . . . . . . . . 16
18. Stock Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
19. Restriction on Financing Stock Purchases . . . . . . . . . . . . . . . . . . . . . 17
20. Stock Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
21. Post-Reorganization Filing and Market Making . . . . . . . . . . . . . . . . . . . 17
22. Employment and Other Severance Agreement . . . . . . . . . . . . . . . . . . . . . 18
23. Payment of Dividends and Repurchase of Stock . . . . . . . . . . . . . . . . . . . 18
24. Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
25. Reorganization and Stock Offering Expenses . . . . . . . . . . . . . . . . . . . . 18
26. Amendment or Termination of the Plan . . . . . . . . . . . . . . . . . . . . . . . 18
</TABLE>
Exhibits
Exhibit A Charter and Bylaws of the Bank
Exhibit B Charter and Bylaws of the Holding Company
Exhibit C Charter and Bylaws of the Mutual Holding Company
<PAGE> 3
1. INTRODUCTION
The Board of Directors of Atlantic Liberty Savings, F.A. (the "Bank")
has adopted this Plan of Reorganization from Mutual Savings Association to
Mutual Holding Company and Stock Issuance Plan (the "Plan") pursuant to which
the Bank proposes to reorganize from a federally-chartered mutual savings
association into the mutual holding company structure (the "Reorganization")
under the laws of the United States of America and the regulations of the
Office of Thrift Supervision ("OTS"). The mutual holding company (the "MHC")
will be a mutually-owned federal corporation, and all of the current ownership
and voting rights of the Members of the Bank will be transferred to the MHC.
As part of the Reorganization and the Plan, the Bank will convert to a federal
stock savings bank and will establish a stock holding company (the "Holding
Company") which will be a majority-owned subsidiary of the MHC at all times so
long as the MHC remains in existence. Concurrently with the Reorganization,
the Holding Company intends to offer for sale up to 49.9% of its Common Stock
in the Stock Offering. The Common Stock will be offered on a priority basis to
depositors and Tax-Qualified Employee Plans of the Bank, with any remaining
shares offered to the public in a Direct Community Offering.
The Reorganization will permit the Holding Company to issue Capital
Stock, which is a source of capital not available to mutual savings
associations. It will also provide the Bank with greater flexibility to
structure and finance the expansion of its operations. At the same time, the
Bank's mutual form of ownership and its ability to provide community-oriented
financial services will be preserved through the MHC, which will at all times
control at least a majority of the Voting Stock of the Holding Company as long
as the MHC remains in existence. The Reorganization is subject to the approval
of the OTS, and must be adopted by the affirmative vote of a majority of the
total votes eligible to be cast by Members.
2. DEFINITIONS
As used in this Plan, the terms set forth below have the following
meanings:
ACTING IN CONCERT: The term "acting in concert" shall have
the definition given in 12 C.F.R. Section 574.2(c). The determination of
whether a group is acting in concert shall be made solely by the Board of
Directors of the Bank or officers delegated by such Board and may be based on
any evidence upon which the Board or such delegatee chooses to rely.
ACTUAL SUBSCRIPTION PRICE: The price per share, determined as
provided in this Plan, at which the Common Stock will be sold in the
Subscription Offering.
AFFILIATE: Any Person that controls, is controlled by, or is
under common control with another person.
ASSOCIATE: The term "Associate," when used to indicate a
relationship with any Person, means: (i) any corporation or organization
(other than the Bank, the Holding Company, the MHC or a majority-owned
subsidiary of any thereof) of which such Person is a director, officer or
partner or is, directly or indirectly, the beneficial owner of 10% or more of
any class of equity securities; (ii) any trust or other estate in which such
Person has a substantial beneficial interest or as to which such Person serves
as trustee or in a similar fiduciary capacity; (iii) any relative or spouse of
such Person or any relative of such spouse, who has the same home as such
Person or who is a director or officer of the Bank, the MHC, the Stock Holding
Company or any subsidiary of the MHC or the Holding Company or any affiliate
thereof; and (iv) any person acting in concert with any of the persons or
entities specified in clauses (i) through (iii) above; provided, however, that
any Tax-Qualified or Non-Tax-Qualified Employee Plan shall not be deemed to be
an associate of any director or officer of the MHC, the Holding Company or the
Bank,
<PAGE> 4
to the extent provided in Sections 11-13 hereof. When used to refer to a
Person other than an officer or director of the Bank, the Bank in its sole
discretion may determine the Persons that are Associates of other Persons.
BANK: Atlantic Liberty Savings, F.A. in its
pre-Reorganization form and post-Reorganization stock form, as indicated by the
context.
CAPITAL STOCK: Any and all authorized stock of the Bank or
the Holding Company.
COMMON STOCK: Common stock issuable by the Holding Company in
connection with the Reorganization, including securities convertible into
Common Stock, pursuant to its stock charter.
DEPOSIT ACCOUNT(S): Any withdrawable deposit(s) in the Bank,
including certificates of deposit, in excess of $50.
DIRECT COMMUNITY OFFERING: The offering to certain members of
the general public of any unsubscribed shares in the Subscription Offering
which may be effected pursuant to Section 11 of this Plan. The Direct
Community Offering may include a syndicated community offering or public
offering.
EFFECTIVE DATE: The date upon which all necessary approvals
have been obtained to consummate the Reorganization, and the transfer of assets
and liabilities of the Bank to the Bank in its stock form is completed.
ELIGIBLE ACCOUNT HOLDER: Any person holding a Qualifying
Deposit on the Eligibility Record Date.
ELIGIBILITY RECORD DATE: June 30, 1996, the date for
determining who qualifies as an Eligible Account Holder.
ESOP: The Bank's employee stock ownership plan.
EXCHANGE ACT: The Securities Exchange Act of 1934, as
amended.
FDIC: The Federal Deposit Insurance Corporation.
HOLA: The Home Owners' Loan Act, as amended.
HOLDING COMPANY: Brooklyn Heights Bancorp, the federal
corporation which will be majority-owned by the MHC and which will own 100% of
the common stock of the Bank.
HOLDING COMPANY APPLICATION: The Holding Company Application
on Form H(e)-1 to be submitted by the Bank and Company to the OTS to have the
Holding Company acquire the common stock of the Bank.
INDEPENDENT APPRAISER: The appraiser retained by the Bank to
prepare an appraisal of the pro forma market value of the Bank and the Holding
Company.
2
<PAGE> 5
MANAGEMENT PERSON: Any Officer or director of the Bank or any
Affiliate of the Bank, and any person acting in concert with any such Officer
or director.
MARKETING AGENT: The broker-dealer responsible for organizing
and managing the Stock Offering and sale of the Common Stock.
MARKET MAKER: A dealer (i.e., any person who engages directly
or indirectly as agent, broker, or principal in the business of offering,
buying, selling or otherwise dealing or trading in securities issued by another
person) who, with respect to a particular security, (1) regularly publishes
bona fide competitive bid and offer quotations on request, and (2) is ready,
willing and able to effect transactions in reasonable quantities at the
dealer's quoted prices with other brokers or dealers.
MEMBERS: Any person or entity who qualifies as a member of
the Bank pursuant to its charter and bylaws.
MHC: Atlantic Liberty, MHC, the mutual holding company
resulting from the Reorganization.
MINORITY STOCK OFFERING: One or more offerings of less than
50% in the aggregate of the outstanding Common Stock of the Holding Company to
persons other than the MHC.
MINORITY STOCKHOLDER: Any owner of the Holding Company's
Common Stock, other than the MHC.
NON-VOTING STOCK: Any Capital Stock other than Voting Stock.
NOTICE: The Notice of Mutual Holding Company Reorganization
to be submitted by the Bank to the OTS to notify the OTS of the Reorganization
and the Stock Offering.
OFFICER: An executive officer of the Holding Company or the
Bank, including the Chief Executive Officer, President, Senior Vice Presidents
in charge of principal business functions, Secretary, Treasurer and any other
person performing similar functions.
OTHER MEMBER: Any person who is a Member of the Bank at the
close of business on the Voting Record Date who is not an Eligible Account
Holder or Supplemental Eligible Account Holder, or Tax-Qualified Employee Plan.
OTS: The Office of Thrift Supervision, and any successor
thereto.
PARENT: A company that controls another company, either
directly or indirectly through one or more subsidiaries.
PERSON: An individual, corporation, partnership, association,
joint-stock company, trust (including Individual Retirement Accounts and KEOGH
Accounts), unincorporated organization, government entity or political
subdivision thereof or any other entity.
PLAN: This Plan of Reorganization from Mutual Savings
Association to Mutual Holding Company and Stock Issuance Plan.
3
<PAGE> 6
QUALIFYING DEPOSIT: The aggregate balance of each Deposit
Account of an Eligible Account Holder as of the close of business on the
Eligibility Record Date or of a Supplemental Eligible Account Holder as of the
close of business on the Supplemental Eligibility Record Date, as the case may
be.
REGULATIONS: The regulations of the OTS regarding mutual
holding companies.
REORGANIZATION: The reorganization of the Bank into the
mutual holding company structure including the organization of the MHC, the
Holding Company and the Bank in stock form pursuant to this Plan.
SAIF: The Savings Association Insurance Fund, which is a
division of the FDIC.
SEC: The Securities and Exchange Commission.
SPECIAL MEETING: The Special Meeting of Members called for
the purpose of voting on the Plan.
STOCK BANK: The federally chartered stock savings bank
resulting from the Reorganization in accordance with the Plan.
STOCK OFFERING: The offering of Common Stock of the Holding
Company to persons other than the MHC, in a Subscription Offering and, to the
extent shares remain available, in a Direct Community Offering.
SUBSCRIPTION OFFERING: The offering of Common Stock of the
Holding Company for subscription and purchase pursuant to Section 11 of this
Plan.
SUBSIDIARY: A company that is controlled by another company,
either directly or indirectly through one or more subsidiaries.
SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDER: Any Person holding a
Qualifying Deposit on the Supplemental Eligibility Record Date, who is not an
Eligible Account Holder, a Tax-Qualified Employee Plan or an Officer or
director of the Bank.
SUPPLEMENTAL ELIGIBILITY RECORD DATE: The last day of the
calendar quarter preceding approval of the Plan by the OTS.
SYNDICATED COMMUNITY OFFERING: The offering of Common Stock
following or contemporaneously with the Direct Community Offering through a
syndicate of broker-dealers.
TAX-QUALIFIED EMPLOYEE PLAN: Any defined benefit plan or
defined contribution plan (including any employee stock ownership plan, stock
bonus plan, profit-sharing plan, or other plan) of the Bank, the Holding
Company, the MHC or any of their affiliates, which, with its related trusts,
meets the requirements to be qualified under Section 401 of the Internal
Revenue Code. The term Non-Tax-Qualified Employee Stock Benefit Plan means any
defined benefit plan or defined contribution plan which is not so qualified.
4
<PAGE> 7
VOTING MEMBERS: Those Members of the Bank as of the Voting
Record Date.
VOTING RECORD DATE: The date established by the Bank for
determining which Members are entitled to vote on the Plan.
VOTING STOCK:
(1) Voting Stock means common stock or preferred stock,
or similar interests if the shares by statute, charter or in any manner,
entitle the holder:
(i) To vote for or to select directors of the
Bank or the Holding Company; and
(ii) To vote on or to direct the conduct of the
operations or other significant policies of
the Bank or the Holding Company.
(2) Notwithstanding anything in paragraph (1) above,
preferred stock is not "Voting Stock" if:
(i) Voting rights associated with the preferred
stock are limited solely to the type
customarily provided by statute with regard
to matters that would significantly and
adversely affect the rights or preferences of
the preferred stock, such as the issuance of
additional amounts or classes of senior
securities, the modification of the terms of
the preferred stock, the dissolution of the
Bank, or the payment of dividends by the Bank
when preferred dividends are in arrears;
(ii) The preferred stock represents an essentially
passive investment or financing device and
does not otherwise provide the holder with
control over the issuer; and
(iii) The preferred stock does not at the time
entitle the holder, by statute, charter, or
otherwise, to select or to vote for the
selection of directors of the Bank or the
Holding Company.
(3) Notwithstanding anything in paragraphs (1) and (2)
above, "Voting Stock" shall be deemed to include preferred stock and other
securities that, upon transfer or otherwise, are convertible into Voting Stock
or exercisable to acquire Voting Stock where the holder of the stock,
convertible security or right to acquire Voting Stock has the preponderant
economic risk in the underlying Voting Stock. Securities immediately
convertible into Voting Stock at the option of the holder without payment of
additional consideration shall be deemed to constitute the Voting Stock into
which they are convertible; other convertible securities and rights to acquire
Voting Stock shall not be deemed to vest the holder with the preponderant
economic risk in the underlying Voting Stock if the holder has paid less than
50% of the consideration required to directly acquire the Voting Stock and has
no other economic interest in the underlying Voting Stock.
5
<PAGE> 8
3. THE REORGANIZATION
A. ORGANIZATION OF THE HOLDING COMPANIES AND THE BANK
As part of the Reorganization the Bank will convert to a federal stock
savings bank, and will establish the Holding Company and the MHC as federal
corporations. The Reorganization will be effected as follows, or in any manner
approved by the OTS that is consistent with the purposes of this Plan and
applicable laws and regulations.
As part of the Reorganization: (i) the Bank will organize an interim
stock savings bank as a wholly-owned subsidiary ("Interim One"); (ii) Interim
One will organize an interim stock savings bank as a wholly-owned subsidiary
("Interim Two"); (iii) Interim One will organize the Holding Company as a
wholly-owned subsidiary; (iv) the Bank will exchange its charter for a federal
stock savings bank charter to become the Stock Bank and Interim One will
exchange its charter for a federal mutual holding company charter to become the
MHC; (v) simultaneously with step (iv), Interim Two will merge with and into
the Stock Bank with the Stock Bank as the resulting institution; (vi) all of
the initially issued stock of the Stock Bank will be transferred to the MHC in
exchange for membership interests in the MHC; and (vii) the MHC will contribute
the capital stock of the Stock Bank to the Holding Company, and the Stock Bank
will become a wholly-owned subsidiary of the Holding Company. Contemporaneously
with the Reorganization, the Holding Company will offer for sale in the Stock
Offering shares of Common Stock representing the pro forma market value of the
Holding Company and the Bank. Upon consummation of the Reorganization, the
legal existence of the Bank will not terminate, but the Stock Bank will be a
continuation of the Bank, and all property of the Bank, including its right,
title, and interest in and to all property of whatsoever kind and nature,
interest and asset of every conceivable value or benefit then existing or
pertaining to the Bank, or which would inure to the Bank immediately by
operation of law and without the necessity of any conveyance or transfer and
without any further act or deed, will vest in the Stock Bank. The Stock Bank
will have, hold, and enjoy the same in its right and fully and to the same
extent as the same was possessed, held, and enjoyed by the Bank. The Stock
Bank will continue to have, succeed to, and be responsible for all the rights,
liabilities and obligations of the Bank and will maintain its headquarters and
operations at the Bank's present locations.
Upon consummation of the Reorganization, substantially all of the
assets and liabilities (including the savings accounts, demand accounts, tax
and loan accounts, United States Treasury general accounts, or United States
Treasury Time Deposit Accounts, as defined in the OTS regulations) of the Bank
shall be become the assets and liabilities of the Stock Bank, which will
thereupon become an operating savings bank subsidiary of the Holding Company
and of the MHC. The Bank will apply to the OTS to have the Holding Company
receive or retain (as the case may be) up to 50% of the net proceeds of the
Stock Offering, or such other amount as may be determined by the Board of
Directors. The Stock Bank may distribute additional capital to the Holding
Company following the Reorganization, subject to the OTS regulations governing
capital distributions.
B. EFFECT ON DEPOSIT ACCOUNTS AND BORROWINGS
Each deposit account in the Bank on the Effective Date will remain a
deposit account in the Stock Bank in the same amount and upon the same terms
and conditions, and will continue to be federally insured up to the legal
maximum by the FDIC in the same manner as the deposit account existed in the
Bank immediately prior to the Reorganization. Upon consummation of the
Reorganization, all loans and other
6
<PAGE> 9
borrowings from the Bank shall retain the same status with the Stock Bank after
the Reorganization as they had with the Bank immediately prior to the
Reorganization.
C. THE BANK
Upon completion of the Reorganization the Stock Bank will be
authorized to exercise any and all powers, rights and privileges of, and will
be subject to all limitations applicable to, capital stock savings banks under
federal law. A copy of the proposed Charter and Bylaws of the Stock Bank is
attached hereto as Exhibit A and made a part of this Plan. The Reorganization
will not result in any reduction of the amount of retained earnings (other than
the assets of the Bank retained by or distributed to the Holding Company or the
MHC), undivided profits, and general loss reserves that the Bank had prior to
the Reorganization. Such retained earnings and general loss reserves will be
accounted for by the MHC, the Holding Company and the Stock Bank on a
consolidated basis in accordance with generally accepted accounting
principles.
The initial members of the Board of Directors of the Stock Bank will
be the members of the existing Board of Directors of the Bank. The Stock Bank
will be wholly-owned by the Holding Company. The Holding Company will be
wholly-owned by its stockholders who will consist of the MHC and the persons
who purchase Common Stock in the Stock Offering and any subsequent Minority
Stock Offering. Upon the Effective Date of the Reorganization, the voting and
membership rights of Members will be transferred to the MHC, subject to the
conditions specified below.
D. THE HOLDING COMPANY
The Holding Company will be authorized to exercise any and all powers,
rights and privileges, and will be subject to all limitations applicable to
savings and loan holding companies and mutual holding companies under federal
law and regulations. The initial members of the Board of Directors of the
Holding Company will be the existing Board of Directors of the Bank.
Thereafter, the voting stockholders of the Holding Company will elect
approximately one-third of the Holding Company's directors annually. A copy of
the proposed Charter and Bylaws of the Holding Company is attached as Exhibit B
and are made part of this Plan.
The Holding Company will have the power to issue shares of Capital
Stock to persons other than the MHC. However, so long as the MHC is in
existence, the MHC will be required to own at least a majority of the Voting
Stock of the Holding Company. The Holding Company may issue any amount of
Non-Voting Stock to persons other than the MHC. The Holding Company will be
authorized to undertake one or more Minority Stock Offerings of less than 50%
in the aggregate of the total outstanding Common Stock of the Holding Company,
and the Holding Company intends to offer for sale up to 49.9% of its Common
Stock in the Stock Offering.
E. THE MUTUAL HOLDING COMPANY
As a mutual corporation, the MHC will have no stockholders. The
members of the MHC will have exclusive voting authority as to all matters
requiring a vote of members under the Charter of the MHC. Persons who have
membership rights with respect to the Bank under its existing Charter
immediately prior to the Reorganization shall continue to have such rights
solely with respect to the MHC after the Reorganization so long as such persons
remain depositors or borrowers, as the case may be, of the Bank after the
Reorganization. In addition, all persons who become depositors of the Stock
Bank following the
7
<PAGE> 10
Reorganization will have membership rights with respect to the MHC. The rights
and powers of the MHC will be defined by the MHC's Charter and Bylaws (a copy
of which is attached to this Plan as Exhibit C and made a part hereof) and by
the statutory and regulatory provisions applicable to savings and loan holding
companies and mutual holding companies. In particular, the MHC shall be
subject to the limitations and restrictions imposed on savings and loan holding
companies by Section 10(o)(5) of the HOLA.
The initial members of the Board of Directors of the MHC will be the
existing Board of Directors of the Bank. Thereafter, approximately one-third
of the directors of the MHC will be elected annually by the members of the MHC
who will consist of the former Members of the Bank and all persons who become
depositors of the Bank after the Reorganization.
4. CONDITIONS TO IMPLEMENTATION OF THE REORGANIZATION
Consummation of the Reorganization is expressly conditioned upon the
following:
A. Approval of the Plan by a majority of the Board of Directors
of the Bank.
B. The filing of a Reorganization Notice, including the Plan,
with the OTS and either:
(i) The OTS has given written notice of its intent not to
disapprove the Reorganization; or
(ii) Sixty days have passed since the OTS received the
Reorganization Notice and deemed it sufficient under
Section 516.2(c) of the OTS regulations, and the OTS
has not given written notice that the Reorganization
is disapproved or extended for an additional 30 days
the period during which disapproval may be issued.
C. The filing of a holding company application with and approval
by the OTS pursuant to the HOLA for the Holding Company and
MHC to become savings and loan holding companies by owning or
acquiring 100% of the common stock of the Stock Bank and the
Holding Company, respectively, to be issued in connection with
the Reorganization.
D. Submission of the Plan to the Members for approval pursuant to
a Proxy Statement and form of proxy cleared in advance by the
OTS, and such Plan is approved by a majority of the total
votes of the Members eligible to be cast at a meeting held at
the call of the directors in accordance with the procedures
prescribed by the Bank's Charter and Bylaws.
E. All necessary approvals have been obtained from the OTS in
connection with the adoption of the charter and bylaws of the
MHC, the Holding Company and the Bank, the conversion of the
Bank to a stock charter, and any transfer of assets and
liabilities of the Bank to the Stock Bank pursuant to the
Plan; and all conditions specified or otherwise imposed by the
OTS in connection with the issuance of a notice of intent not
to disapprove the Notice have been satisfied.
5. SPECIAL MEETING OF MEMBERS
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Subsequent to the approval of the Plan by the OTS, the Special Meeting
shall be scheduled in accordance with the Bank's Bylaws. Promptly after
receipt of approval and at least 20 days but not more than 45 days prior to the
Special Meeting, the Bank shall distribute proxy solicitation materials to all
Voting Members. The proxy solicitation materials shall include a proxy
statement, and other documents authorized for use by the regulatory
authorities. A copy of the Plan will be made available to Voting Members upon
request. Pursuant to the Regulations, an affirmative vote of not less than a
majority of the total outstanding votes of the Members is required for approval
of the Plan. Voting may be in person or by proxy. The OTS shall be notified
promptly of the actions of the Members.
6. RIGHTS OF MEMBERS OF THE MHC
Following the Reorganization, all persons who had membership rights
with respect to the Bank as of the date of the Reorganization will continue to
have such rights solely with respect to the MHC. All existing proxies granted
by members of the Bank to the Board of Directors of the Bank shall
automatically become proxies granted to the Board of Directors of the MHC. In
addition, all persons who become depositors of the Stock Bank subsequent to the
Reorganization also will have membership rights with respect to the MHC. In
each case, no person who ceases to be the holder of a deposit account with the
Stock Bank after the Reorganization shall have any membership or rights with
respect to the MHC. Borrowers of the Stock Bank who were borrower members of
the Bank at the time of Reorganization will have the same membership rights in
the MHC as they had in the Bank immediately prior to the Reorganization for so
long as their pre-Reorganization borrowings remain outstanding. Borrowers will
not receive membership rights in connection with any new borrowings made after
the Reorganization.
7. CONVERSION OF MHC TO STOCK FORM
Following the completion of the Reorganization, the MHC may elect to
convert to stock form in accordance with applicable law (a "Conversion
Transaction"). There can be no assurance when, if ever, a Conversion
Transaction will occur. If the Conversion Transaction does not occur, the MHC
will always own a majority of the Common Stock of the Holding Company.
In a Conversion Transaction, the MHC would merge with and into the
Bank or the Holding Company, with the Bank or the Holding Company as the
resulting entity, and the depositors of the Bank would receive the right to
subscribe for a number of shares of common stock of the Holding Company, as
determined by the formula set forth in the following paragraphs. The additional
shares of Common stock of the Holding Company issued in the Conversion
Transaction would be sold at their aggregate pro forma market value.
In any Conversion Transaction, Minority Stockholders, if any, will be
entitled to maintain the same percentage ownership interest in the Holding
Company after the Conversion Transaction as their percentage ownership interest
in the Holding Company immediately prior to the Conversion Transaction (i.e.,
the "Minority Ownership Interest"), subject only to the following adjustments
(if required by federal or state law, regulation, or regulatory policy) to
reflect (i) the cumulative effect of the aggregate amount of dividends waived
by the MHC, and (ii) the market value of assets of the MHC (other than common
stock of the Holding Company).
The adjustment referred to in clause (i) of the preceding paragraph
above would require that the Minority Ownership Interest be adjusted by
multiplying the Minority Ownership Interest by the following fraction:
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<PAGE> 12
(Holding Company stockholders' equity immediately prior to Conversion
Transaction) - (aggregate amount of dividends waived by MHC)
---------------------------------------------------------------------
Holding Company stockholders' equity immediately prior to Conversion
Transaction
The adjustment referred to in clause (ii) above would further adjust
the Minority Ownership Interest by multiplying it by the following fraction:
(pro forma market value of Holding Company) - (market value of assets of MHC
other than Holding Company common stock)
----------------------------------------------------------------------------
pro forma market value of Holding Company
At the sole discretion of the Board of Directors of the MHC and the
Holding Company, a Conversion Transaction may be effected in any other manner
necessary to qualify the Conversion Transaction as a tax-free reorganization
under applicable federal and state tax laws, provided such Conversion
Transaction does not diminish the rights and ownership interest of Minority
Stockholders as set forth in the preceding paragraphs. If a Conversion
Transaction does not occur, the MHC will always own a majority of the voting
stock of the Holding Company. Management of the Bank has no current intention
to conduct a Conversion Transaction.
A Conversion Transaction would require the approval of applicable
federal regulators, and would be presented to a vote of the members of the MHC.
Federal regulatory policy requires that in any Conversion Transaction the
members of the MHC will be accorded the same stock purchase priorities as if
the MHC were a mutual savings bank converting to stock form.
8. TIMING OF THE REORGANIZATION AND SALE OF CAPITAL STOCK
The Bank intends to consummate the Reorganization as soon as feasible
following the receipt of all approvals referred to in Section 4 of the Plan.
Subject to the approval of the OTS, the Holding Company intends to commence the
Stock Offering concurrently with the proxy solicitation of Members. The
Holding Company may close the Stock Offering before the Special Meeting,
provided that the offer and sale of the Common Stock shall be conditioned upon
approval of the Plan by the Members at the Special Meeting. The Bank's proxy
solicitation materials may permit certain Members to return to the Bank by a
reasonable date certain a postage paid card or other written communication
requesting receipt of the prospectus if the prospectus is not mailed
concurrently with the proxy solicitation materials. The Stock Offering shall
be conducted in compliance with the securities offering regulations of the SEC.
The Bank will not finance or loan funds to any person to purchase Common Stock.
9. NUMBER OF SHARES TO BE OFFERED
The total number of shares (or range thereof) of Common Stock to be
issued and offered for sale pursuant to the Plan shall be determined initially
by the Board of Directors of the Bank and the Holding Company in conjunction
with the determination of the Independent Appraiser. The number of shares to
be offered may be adjusted prior to completion of the Stock Offering. The
total number of shares of Common Stock that may be issued to persons other than
the MHC at the close of the Stock Offering must be less than 50% of the issued
and outstanding shares of Common Stock of the Holding Company.
10. INDEPENDENT VALUATION AND PURCHASE PRICE OF SHARES
All shares of Common Stock sold in the Stock Offering shall be sold at
a uniform price per share. The purchase price and number of shares to be
outstanding shall be determined by the Board of Directors of the Holding
Company on the basis of the estimated pro forma market value of the Holding
Company
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<PAGE> 13
and the Bank. The aggregate purchase price for the Common Stock will not be
inconsistent with such market value of the Holding Company and the Bank. The
pro forma market value of the Holding Company and the Bank will be determined
for such purposes by the Independent Appraiser.
Prior to the commencement of the Stock Offering, an estimated offering
range will be established, which range may vary within 15% above to 15% below
the midpoint of such range, or within a greater range above or below the
midpoint, as determined by the Board of Directors at the time of the Stock
Offering. The number of shares of Common Stock to be issued and the ownership
interest of the MHC may be increased or decreased by the Holding Company.
Based upon the independent valuation as updated prior to the
commencement of the Stock Offering, the Board of Directors will establish the
minimum and maximum ownership percentage applicable to the Stock Offering.
The final minority ownership percentage (the "Minority Ownership Percentage")
will be determined as follows: (a) the product of (x) the total number of
shares of Common Stock and (y) the purchase price per share divided by (b) the
estimated aggregate pro forma market value of the Bank and the Holding Company
immediately after the Stock Offering as determined by the Independent
Appraiser, expressed in terms of a specific aggregate dollar amount rather than
as a range, upon the closing of the Stock Offering or sale of all the Common
Stock.
Notwithstanding the foregoing, no sale of Common Stock may be
consummated unless, prior to such consummation, the Independent Appraiser
confirms to the Holding Company, the Bank and to the OTS that, to the best
knowledge of the Independent Appraiser, nothing of a material nature has
occurred which, taking into account all relevant factors, would cause the
Independent Appraiser to conclude that the aggregate value of the Common Stock
at the Purchase Price is incompatible with its estimate of the aggregate
consolidated pro forma market value of the Holding Company and the Bank. If
such confirmation is not received, the Holding Company may cancel the Stock
Offering, extend the Stock Offering and establish a new price range and/or
estimated price range, extend, reopen or hold a new Stock Offering or take such
other action as the OTS may permit.
The estimated market value of the Holding Company and the Bank shall
be determined for such purpose by an Independent Appraiser on the basis of such
appropriate factors as are not inconsistent with OTS regulations. The Common
Stock to be issued in the Stock Offering shall be fully paid and nonassessable.
The aggregate amount of outstanding Common Stock that may be owned or
controlled by persons other than the MHC parent at the close of the Stock
Offering shall be less than 50% of the Holding Company's total outstanding
Common Stock.
If there is a Direct Community Offering of shares of Common Stock not
subscribed for in the Subscription Offering, the price per share at which the
Common Stock is sold in such Direct Community Offering shall be equal to the
purchase price per share at which the Common Stock is sold to persons in the
Subscription Offering. Shares sold in the Direct Community Offering will be
subject to the same limitations as shares sold in the Subscription Offering.
11. METHOD OF OFFERING SHARES AND RIGHTS TO PURCHASE STOCK
In descending order of priority, the opportunity to purchase Common
Stock shall be given in the Subscription Offering to: (1) Eligible Account
Holders; (2) Tax-Qualified Employee Plans;
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<PAGE> 14
(3) Supplemental Eligible Account Holders; (4) Other Members; and (5)
directors, officers and employees of the Bank pursuant to priorities
established by the Board of Directors. Any shares of Common Stock that are not
subscribed for in the Subscription Offering may be offered for sale in a Direct
Community Offering. The minimum purchase by any Person shall be 25 shares.
The Holding Company may use its discretion in determining whether prospective
purchasers are "residents," "associates," or "acting in concert" as defined in
the Plan, and in interpreting any and all other provisions of the Plan. All
such determinations are in the sole discretion of the Holding Company, and may
be based on whatever evidence the Holding Company chooses to use in making any
such determination.
In addition to the priorities set forth below, the Board of Directors
may establish other priorities for the purchase of Common Stock, subject to the
approval of the OTS. The priorities for the purchase of shares in the Stock
Offering are as follows:
A. SUBSCRIPTION OFFERING
PRIORITY 1: ELIGIBLE ACCOUNT HOLDERS. Each Eligible Account Holder
shall be given the opportunity to purchase up to $50,000 of Common Stock
offered in the Stock Offering; provided that the Holding Company may, in its
sole discretion and without further notice to or solicitation of subscribers or
other prospective purchasers, increase such maximum purchase limitation to 5%
of the maximum number of shares offered in the Stock Offering or decrease such
maximum purchase limitation to .5% of the maximum number of shares offered in
the Stock Offering, subject to the overall purchase limitation set forth in
Section 12. If there are insufficient shares available to satisfy all
subscriptions of Eligible Account Holders, shares will be allocated to Eligible
Account Holders so as to permit each such subscribing Eligible Account Holder
to purchase a number of shares sufficient to make his total allocation equal to
the lesser of 100 shares or the number of shares subscribed for. Thereafter,
unallocated shares will be allocated pro rata to remaining subscribing Eligible
Account Holders whose subscriptions remain unfilled in the same proportion that
each such subscriber's Qualifying Deposit bears to the total amount of
Qualifying Deposits of all subscribing Eligible Account Holders whose
subscriptions remain unfilled. To ensure proper allocation of stock, each
Eligible Account Holder must list on his subscription order form all accounts
in which he had an ownership interest as of the Eligibility Record Date.
PRIORITY 2: TAX-QUALIFIED EMPLOYEE PLANS. The Tax-Qualified Employee
Plans shall be given the opportunity to purchase in the aggregate up to 10% of
the Common Stock issued in the Stock Offering. In the event of an
oversubscription in the Stock Offering, subscriptions for shares by the
Tax-Qualified Employee Plans may be satisfied, in whole or in part, out of
authorized but unissued shares of the Holding Company subject to the maximum
purchase limitations applicable to such plans and set forth in Section 12, or
may be satisfied, in whole or in part, through open market purchases by the
Tax-Qualified Employee Plans subsequent to the closing of the Stock Offering.
PRIORITY 3: SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS. To the extent
there are sufficient shares remaining after satisfaction of subscriptions by
Eligible Account Holders, and the Tax-Qualified Employee Plans, each
Supplemental Eligible Account Holder shall have the opportunity to purchase up
to $50,000 of Common Stock offered in the Stock Offering, provided that the
Bank may, in its sole discretion and without further notice to or solicitation
of subscribers or other prospective purchasers, increase such maximum purchase
limitation to 5% of the maximum number of shares offered in the Stock Offering
or decrease such maximum purchase limitation to 0.5% of the maximum number of
shares offered in the Stock Offering subject to the overall purchase
limitations set forth in Section 12. In the event Supplemental Eligible
Account Holders subscribe for a number of shares which, when added to the
shares subscribed
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<PAGE> 15
for by Eligible Account Holders, and the Tax-Qualified Employee Plans, the
shares of Common Stock will be allocated among subscribing Supplemental
Eligible Account Holders so as to permit each subscribing Supplemental Eligible
Account Holder to purchase a number of shares sufficient to make his total
allocation equal to the lesser of 100 shares or the number of shares subscribed
for. Thereafter, unallocated shares will be allocated to each subscribing
Supplemental Eligible Account Holder whose subscription remains unfilled in the
same proportion that such subscriber's Qualifying Deposits on the Supplemental
Eligibility Record Date bear to the total amount of Qualifying Deposits of all
subscribing Supplemental Eligible Account Holders whose subscriptions remain
unfilled.
PRIORITY 4: OTHER MEMBERS. To the extent that there are sufficient
shares remaining after satisfaction of subscriptions by Eligible Account
Holders, the Tax-Qualified Employee Plans and Supplemental Eligible Account
Holders, each Other Member shall have the opportunity to purchase up to $50,000
of Common Stock offered in the Stock Offering, provided that the Bank may, in
its sole discretion and without further notice to or solicitation of
subscribers or other prospective purchasers, increase such maximum purchase
limitation to 5% of the maximum number of shares offered in the Stock Offering
or decrease such maximum purchase limitation to .5% of the maximum number of
shares offered in the Stock Offering, subject to the overall purchase
limitations set forth in Section 12. In the event Other Members subscribe for
a number of shares which, when added to the shares subscribed for by the
Eligible Account Holders, Tax-Qualified Employee Plans and Supplemental
Eligible Account Holders is in excess of the total number of shares offered in
the Stock Offering, the subscriptions of such Other Members will be allocated
among subscribing Other Members on a pro rata basis based on the size of such
Other Members' orders.
PRIORITY 5: DIRECTORS, OFFICERS AND EMPLOYEES. To the extent that
shares remain available for purchase after satisfaction of all subscriptions of
the Eligible Account Holders, Tax-Qualified Employee Plans, Supplemental
Eligible Account Holders, and Other Members, employees, officers and directors
of the Bank shall have the opportunity to purchase up to $50,000 of the Common
Stock offered in the Stock Offering; provided that the Bank may, in its sole
discretion, and without further notice to or solicitation of subscribers or
other prospective purchasers, increase such maximum purchase limitation to 5%
of the maximum number of shares offered in the Stock Offering or decrease such
maximum purchase limitation to .5% of the maximum number of shares offered in
the Stock Offering, subject to the overall purchase limitations set forth in
Section 12. In the event that directors, officers and employees subscribe for
a number of shares, which, when added to the shares subscribed for by Eligible
Account Holders, Tax-Qualified Employee Plans, Supplemental Eligible Account
Holders, and Other Members is in excess of the total shares offered in the
Stock Offering, the subscriptions of such Persons will be allocated among
directors, officers and employees on a pro rata basis based on the size of each
Person's orders.
B. DIRECT COMMUNITY OFFERING/PUBLIC OFFERING
Any shares of Common Stock not subscribed for in the Subscription
Offering may be offered for sale in a Direct Community Offering. This will
involve an offering of all unsubscribed shares directly to the general public
with a preference to those natural persons residing in the counties in which
the Bank maintains its offices. The Direct Community Offering, if any, shall
be for a period of not more than 45 days unless extended by the Holding Company
and the Bank, and shall commence concurrently with, during or promptly after
the Subscription Offering. The Holding Company and the Bank may use an
investment banking firm or firms on a best efforts basis to sell the
unsubscribed shares in the Subscription and Direct Community Offering. The
Holding Company and the Bank may pay a commission or other fee to such
investment banking firm or firms as to the shares sold by such firm or firms in
the Subscription and Direct Community Offering and may also reimburse such firm
or firms for expenses incurred in connection
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<PAGE> 16
with the sale. The Direct Community Offering may include a syndicated
community offering managed by such investment banking firm or firms. The
Common Stock will be offered and sold in the Direct Community Offering, in
accordance with OTS regulations, so as to achieve the widest distribution of
the Common Stock. No person, by himself or herself, or with an Associate or
group of Persons acting in concert, may subscribe for or purchase more than
$50,000 of Common Stock offered in the Direct Community Offering. Further, the
Bank may limit total subscriptions under this Section 11(B) so as to assure
that the number of shares available for the public offering may be up to a
specified percentage of the number of shares of Common Stock. Finally, the
Bank may reserve shares offered in the Direct Community Offering for sales to
institutional investors.
In the event of an oversubscription for shares in the Direct Community
Offering, shares may be allocated (to the extent shares remain available) first
to cover any reservation of shares for a public offering or institutional
orders, next to cover orders of natural persons residing in the counties in
which the Bank maintains its offices, then to cover the orders of any other
person subscribing for shares in the Direct Community Offering so that each
such person may receive 1,000 shares, and thereafter, on a pro rata basis to
such persons based on the amount of their respective subscriptions.
The Bank and the Holding Company, in their sole discretion, may reject
subscriptions, in whole or in part, received from any Person under this Section
11(B).
Any shares of Common Stock not sold in the Subscription Offering or in
the Direct Community Offering, if any, shall then be sold to the underwriters
for resale to the general public in a public offering. It is expected that the
public offering will commence as soon as practicable after termination of the
Subscription Offering and the Direct Community Offering, if any. The public
offering shall be completed within 45 days after the termination of the
Subscription Offering, unless such period is extended as provided herein. The
public offering price and the underwriting discount shall be determined by an
underwriting agreement between the Holding Company, the Bank and the
underwriters. Such underwriting agreement shall be filed with the OTS and the
SEC.
If for any reason a public offering of unsubscribed shares of Common
Stock cannot be effected and any shares remain unsold after the Subscription
Offering and the Direct Community Offering, if any, the Boards of Directors of
the Holding Company and the Bank will seek to make other arrangements for the
sale of the remaining shares. Such other arrangements will be subject to the
approval of the OTS and to compliance with applicable securities laws.
12. ADDITIONAL LIMITATIONS ON PURCHASES OF COMMON STOCK
Purchases of Common Stock in the Stock Offering will be subject to the
following purchase limitations:
A. The aggregate amount of outstanding Common Stock of the
Holding Company owned or controlled by persons other than MHC
at the close of the Stock Offering shall be less than 50% of
the Holding Company's total outstanding Common Stock.
B. No Person, Associate thereof, or group of persons acting in
concert, may purchase more than $50,000 of Common Stock
offered in the Stock Offering to persons other than the MHC,
except that: (i) the Holding Company may, in its sole
discretion and without further notice to or solicitation of
subscribers or other prospective purchasers, increase
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<PAGE> 17
such maximum purchase limitation to 5% of the number of shares
offered in the Stock Offering; (ii) Tax-Qualified Employee
Plans may purchase up to 10% of the shares offered in the
Stock Offering; and (iii) for purposes of this subsection
12(B) shares to be held by any Tax-Qualified Employee Plan and
attributable to a person shall not be aggregated with other
shares purchased directly by or otherwise attributable to such
person.
C. The aggregate amount of Common Stock acquired in the Stock
Offering by all Management Persons and their Associates,
exclusive of any stock acquired by such persons in the
secondary market, shall not exceed 34% of the outstanding
shares of Common Stock of the Holding Company held by persons
other than the MHC at the close of the Stock Offering. In
calculating the number of shares held by Management Persons
and their Associates under this paragraph or under the
provisions of paragraph D of this section, shares held by any
Tax-Qualified Employee Benefit Plans of the Bank that are
attributable to such persons shall not be counted.
D. The aggregate amount of Common Stock acquired in the Stock
Offering by all Management Persons and their Associates,
exclusive of any Common Stock acquired by such plans or
persons in the secondary market, shall not exceed 34% of the
stockholders' equity of the Holding Company other than the MHC
at the close of the Stock Offering.
E. The Boards of Directors of the Bank and the Holding Company
may, in their sole discretion, increase the maximum purchase
limitation set forth in paragraph 12(B) hereof to up to 9.9%,
provided that orders for Common Stock in excess of 5% of the
number of shares of Common Stock offered in the Stock Offering
shall not in the aggregate exceed 10% of the total shares of
Common Stock offered in the Stock Offering (except that this
limitation shall not apply to purchases by Tax-Qualified
Employee Plans). If such 5% limitation is increased,
subscribers for the maximum amount will be, and certain other
large subscribers in the sole discretion of the Holding
Company and the Bank may be, given the opportunity to increase
their subscriptions up to the then applicable limit. Requests
to purchase additional shares of Common Stock under this
provision will be determined by the Board of Directors of the
Holding Company, in its sole discretion.
F. Notwithstanding any other provision of this Plan, no person
shall be entitled to purchase any Common Stock to the extent
such purchase would be illegal under any federal law or state
law or regulation or would violate regulations or policies of
the National Association of Securities Dealers, Inc.,
particularly those regarding free riding and withholding. The
Holding Company and/or its agents may ask for an acceptable
legal opinion from any purchaser as to the legality of such
purchase and may refuse to honor any purchase order if such
opinion is not timely furnished.
G. The Board of Directors of the Holding Company has the right in
its sole discretion to reject any order submitted by a person
whose representations the Board of Directors believes to be
false or who it otherwise believes, either alone or acting in
concert with others, is violating, circumventing, or intends
to violate, evade or circumvent the terms and conditions of
this Plan.
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<PAGE> 18
13. PAYMENT FOR STOCK
Payment for Common Stock shall be made either by check or money order,
or if a purchaser has a Deposit Account in the Bank, such purchaser may pay for
the shares subscribed for by authorizing the Bank to make a withdrawal from the
purchaser's passbook, money market or certificate account (other than a
certificate account held in an IRA) at the Bank in an amount equal to the
purchase price of such shares. Such authorized withdrawal, whether from a
savings, passbook or certificate account, shall be without penalty as to
premature withdrawal. If the authorized withdrawal is from a certificate
account, and the remaining balance does not meet the applicable minimum balance
requirements, the certificate shall be canceled at the time of withdrawal,
without penalty, and the remaining balance will earn interest at the passbook
rate. Funds for which a withdrawal is authorized will remain in the
purchaser's Deposit Account but may not be used by the purchaser until the
Common Stock has been sold or the 45-day period (or such longer period as may
be approved by the OTS) following the Stock Offering has expired, whichever
occurs first. Thereafter, the withdrawal will be given effect only to the
extent necessary to satisfy the subscription (to the extent it can be filled)
at the purchase price per share. Interest will continue to be earned on any
amounts authorized for withdrawal until such withdrawal is given effect. If
for any reason the Stock Offering is not consummated, all payments made by
subscribers in the Stock Offering will be refunded to them. In case of amounts
authorized for withdrawal from Deposit Accounts, refunds will be made by
canceling the authorization for withdrawal.
14. COMPLETION OF THE STOCK OFFERING
The Stock Offering will be terminated if not completed within 90 days
from the date of approval by the OTS, unless an extension is approved by the
OTS.
15. MARKET FOR COMMON STOCK
If at the close of the Stock Offering the Holding Company has more
than 100 shareholders of any class of stock, the Holding Company shall use its
best efforts to:
(i) encourage and assist a market maker to establish and maintain
a market for that class of stock; and
(ii) list that class of stock on a national or regional securities
exchange, or on the Nasdaq system.
16. STOCK PURCHASES BY MANAGEMENT PERSONS AFTER THE OFFERING
For a period of three years after the proposed Stock Offering, no
Management Person or his or her Associates may purchase, without the prior
written approval of the OTS, any Common Stock of the Holding Company, except
from a broker-dealer registered with the SEC, except that the foregoing shall
not apply to:
A. Negotiated transactions involving more than 1% of the
outstanding stock in the class of stock; or
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<PAGE> 19
B. Purchases of stock made by and held by any Tax-Qualified or
Non-Tax Qualified Employee Plan of the Stock Bank or the
Holding Company even if such stock is attributable to
Management Persons or their Associates.
17. RESALES OF STOCK BY MANAGEMENT PERSONS
Common Stock purchased by Management Persons and their Associates in
the Stock Offering may not be resold for a period of at least one year
following the date of purchase, except in the case of death of the Management
Person or Associate.
18. STOCK CERTIFICATES
Each stock certificate shall bear a legend giving appropriate notice
of the restrictions set forth in Section 17 above. Appropriate instructions
shall be issued to the Holding Company's transfer agent with respect to
applicable restrictions on transfers of such stock. Any shares of stock issued
as a stock dividend, stock split or otherwise with respect to such restricted
stock, shall be subject to the same restrictions as apply to the restricted
stock.
19. RESTRICTION ON FINANCING STOCK PURCHASES
The Holding Company will not offer or sell any of the Common Stock
proposed to be issued to any person whose purchase would be financed by funds
loaned to the person by the Holding Company, the Bank or any of their
Affiliates.
20. STOCK BENEFIT PLANS
The Board of Directors of the Bank and/or the Holding Company intend
to adopt one or more stock benefit plans for its employees, officers and
directors, including an ESOP, stock award plans and stock option plans, which
will be authorized to purchase Common Stock and grant options for Common Stock.
However, only the Tax-Qualified Employee Plans will be permitted to purchase
Common Stock in the Stock Offering subject to the purchase priorities set forth
in this Plan. Subject to the approval of the OTS, the Board of Directors of
the Bank intends to establish the ESOP and authorize the ESOP and any other
Tax-Qualified Employee Plans to purchase in the aggregate up to 10% of the
Common Stock issued in the Stock Offering. The Stock Bank or the Holding
Company may make scheduled discretionary contributions to one or more
Tax-Qualified Employee Plans to purchase Common Stock issued in the Stock
Offering or to purchase issued and outstanding shares of Common Stock or
authorized but unissued shares of Common Stock subsequent to the completion of
the Stock Offering, provided such contributions do not cause the Stock Bank to
fail to meet any of its regulatory capital requirements. Any awards of Common
Stock or options under the Recognition Plan or stock option plans will be
subject to prior stockholder approval. This Plan shall specifically authorize
the grant and issuance by the Holding Company of (i) awards of Common Stock
after the Stock Offering pursuant to one or more stock recognition and award
plans (the "Recognition Plans") in an amount equal to up to 4% of the number of
shares of Common Stock issued in the Stock Offering, (ii) options to purchase a
number of shares of the Holding Company's Common Stock in an amount equal to up
to 10% of the number of shares of Common Stock issued in the Stock Offering and
shares of Common Stock issuable upon exercise of such options, and (iii) Common
Stock to one or more Tax Qualified Employee Plans, including the ESOP, at the
closing of the Stock Offering or at any time thereafter, in an amount equal to
up to 10% of the number of shares of Common Stock issued in the Stock Offering.
Shares awarded to the Tax Qualified Employee Plans or pursuant to the
Recognition
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<PAGE> 20
Plans, and shares issued upon exercise of options may be authorized but
unissued shares of the Holding Company's Common Stock, or shares of Common
Stock purchased by the Holding Company or such plans on the open market. Any
awards of Common Stock under the Recognition Plans and the stock option plans
will be subject to prior stockholder approval.
21. POST-REORGANIZATION FILING AND MARKET MAKING
It is likely that there will be a limited market for the Common Stock
sold in the Stock Offering, and purchasers must be prepared to hold the Common
Stock for an indefinite period of time. If the Holding Company has more than
35 stockholders of any class of stock, the Holding Company shall register its
Common Stock with the SEC pursuant to the Exchange Act, and shall undertake not
to deregister such Common Stock for a period of three years thereafter.
22. EMPLOYMENT AND OTHER SEVERANCE AGREEMENT
Following or contemporaneously with the Reorganization, the Bank
and/or the Holding Company may enter into employment and/or severance
arrangements with one or more executive officers of the Bank and/or the Holding
Company. It is anticipated that any employment contracts entered into by the
Bank and/or the Holding Company will be for terms not exceeding three years and
that such contracts will provide for annual renewals of the term of the
contracts, subject to approval by the Board of Directors. The Bank and/or the
Holding Company also may enter into severance arrangements with one or more
executive officers which provide for the payment of severance compensation in
the event of a change in control of the Bank and/or the Holding Company. The
terms of such employment and severance arrangements have not been determined as
of this time, but will be described in any prospectus circulated in connection
with the Stock Offering and will be subject to and comply with all regulations
of the OTS.
23. PAYMENT OF DIVIDENDS AND REPURCHASE OF STOCK
The Holding Company may not declare or pay a cash dividend on, or
repurchase any of, its Common Stock if the effect thereof would cause the
regulatory capital of the Bank to be reduced below the amount required under
Section 567.2 of the OTS rules and regulations. Otherwise, the Holding Company
may declare dividends or make other capital distributions in accordance with
applicable laws and regulations. Subject to the approval of the OTS, the MHC
may waive its right to receive dividends declared by the Holding Company.
24. INTERPRETATION
All interpretations of this Plan and application of its provisions to
particular circumstances by a majority of the Board of Directors of the Bank
shall be final, subject to the authority of the OTS.
25. REORGANIZATION AND STOCK OFFERING EXPENSES
The Regulations require that the expenses of any Stock Offering must
be reasonable. The Bank will use its best efforts to assure that the expenses
incurred by the Bank and the Holding Company in effecting the Reorganization
and the Stock Offering will be reasonable.
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<PAGE> 21
26. AMENDMENT OR TERMINATION OF THE PLAN
If necessary or desirable, the terms of the Plan may be substantially
amended by a majority vote of the Bank's Board of Directors as a result of
comments from regulatory authorities or otherwise, at any time prior to
submission of the Plan and proxy materials to the Members. At any time AFTER
submission of the Plan and proxy materials to the Members, the terms of the
Plan that relate to the Reorganization may be amended by a majority vote of the
Board of Directors only with the concurrence of the OTS. Terms of the Plan
relating to the Stock Offering including, without limitation, Sections 8
through 20, may be amended by a majority vote of the Bank's Board of Directors
as a result of comments from regulatory authorities or otherwise at any time
prior to the approval of the Plan by the OTS and at any time thereafter with
the concurrence of the OTS. The Plan may be terminated by a majority vote of
the Board of Directors at any time prior to the earlier of approval of the Plan
by the OTS and the date of the Special Meeting, and may be terminated by a
majority vote of the Board of Directors at any time thereafter with the
concurrence of the OTS. In its discretion, the Board of Directors may modify
or terminate the Plan upon the order of the regulatory authorities without a
resolicitation of proxies or another meeting of the Members; however, any
material amendment of the terms of the Plan that relate to the Reorganization
which occur after the Special Meeting shall require a resolicitation of
Members.
The Plan shall be terminated if the Reorganization is not completed
within 24 months from the date upon which the Members of the Bank approve the
Plan, and may not be extended by the Bank or the OTS.
Dated: August 19, 1997.
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<PAGE> 1
EXHIBIT 3.1
BROOKLYN HEIGHTS BANCORP
STOCK HOLDING COMPANY CHARTER
SECTION 1. CORPORATE TITLE. The full corporate title of the MHC
subsidiary holding company is Brooklyn Heights Bancorp (the "Company").
SECTION 2. DOMICILE. The domicile of the Company shall be located in
the City of New York, in the State of New York.
SECTION 3. DURATION. The duration of the Company is perpetual.
SECTION 4. PURPOSE AND POWERS. The purpose of the Company is to
pursue any or all of the lawful objectives of a federal mutual holding company
chartered under Section 10(o) of the Home Owners' Loan Act, 12 U.S.C. 1467a(o),
and to exercise all of the express, implied, and incidental powers conferred
thereby and by all acts amendatory thereof and supplemental thereto, subject to
the Constitution and laws of the United States as they are now in effect, or as
they may hereafter be amended, and subject to all lawful and applicable rules,
regulations, and orders of the Office of Thrift Supervision (the "Office").
SECTION 5. CAPITAL STOCK. The total number of shares of all classes
of the capital stock which the Company has authority to issue is 30,000,000 of
which 20,000,000 shares shall be common stock, par value $1.00 per share, and
of which 10,000,000 shares shall be serial preferred stock. The shares may be
issued from time to time as authorized by the board of directors without the
approval of its shareholders, except as otherwise provided in this Section 5 or
to the extent that such approval is required by governing law, rule, or
regulation. The consideration for the issuance of the shares shall be paid in
full before their issuance and shall not be less than the par value. Neither
promissory notes nor future services shall constitute payment or part payment
for the issuance of shares of the Company. The consideration for the shares
shall be cash, tangible or intangible property (to the extent direct investment
in such property would be permitted to the Company), labor, or services
actually performed for the Company, or any combination of the foregoing. In
the absence of actual fraud in the transaction, the value of such property,
labor, or services, as determined by the board of directors of the Company,
shall be conclusive. Upon payment of such consideration, such shares shall be
deemed to be fully paid and nonassessable. In the case of a stock dividend,
that part of the retained earnings of the Company that is transferred to common
stock or paid in capital accounts upon the issuance of shares as a stock
dividend shall be deemed to be the consideration for their issuance.
Except for shares issued in the initial organization of the Company,
no shares of capital stock (including shares issuable upon conversion,
exchange, or exercise of other securities) shall be issued, directly or
indirectly, to officers, directors, or controlling persons (except for shares
issued to the parent mutual holding company) of the Company other than as part
of a general public offering or as qualifying shares to a director, unless
their issuance or the plan under which they would be issued has been approved
by a majority of the total votes eligible to be cast at a legal meeting.
Nothing contained in this Section 5 (or in any supplementary sections
hereto) shall entitle the holders of any class or series of capital stock to
vote as a separate class or series or to more than one vote
<PAGE> 2
per share, and there shall be no cumulation of votes for the election of
directors. Provided, that this restriction on voting separately by class or
series shall not apply:
(i) To any provision which would authorize the holders of
preferred stock, voting as a class or series, to
elect some members of the board of directors, less
than a majority thereof, in the event of default in
the payment of dividends on any class or series of
preferred stock;
(ii) To any provision which would require the holders of
preferred stock, voting as a class or series, to
approve the merger or consolidation of the Company
with another corporation or the sale, lease, or
conveyance (other than by mortgage or pledge) of
properties or business in exchange for securities of
a corporation other than the Company if the preferred
stock is exchanged for securities of such other
corporation: Provided, that no provision may require
such approval for transactions undertaken with the
assistance or pursuant to the direction of the
Office, the Federal Deposit Insurance Corporation, or
the Resolution Trust Corporation;
(iii) To any amendment which would adversely change the
specific terms of any class or series of capital
stock as set forth in this Section 5 (or in any
supplementary sections hereto), including any
amendment which would create or enlarge any class or
series ranking prior thereto in rights and
preferences. An amendment which increases the number
of authorized shares of any class or series of
capital stock, or substitutes the surviving Company
in a merger or consolidation for the Company, shall
not be considered to be such an adverse change.
A description of the different classes and series of the Company's
capital stock and a statement of the designations, and the relative rights,
preferences and limitations of the shares of each class of and series of
capital stock are as follows:
A. COMMON STOCK. Except as provided in this Section 5 (or in any
supplementary sections thereto) the holders of common stock shall exclusively
possess all voting power. Each holder of shares of common stock shall be
entitled to one vote for each share held by such holder.
Whenever there shall have been paid, or declared and set aside for
payment, to the holders of the outstanding shares of any class of stock having
preference over the common stock as to payment of dividends, the full amount of
dividends and of sinking fund, retirement fund or other retirement payments, if
any, to which such holders are respectively entitled in preference to the
common stock, then dividends may be paid on the common stock and on any class
or series of stock entitled to participate therewith as to dividends out of any
assets legally available for the payment of dividends.
In the event of any liquidation, dissolution, or winding up of the
Company, the holders of the common stock (and the holders of any class or
series of stock entitled to participate with the common stock in the
distribution of assets) shall be entitled to receive, in cash or in kind, the
assets of the Company available for distribution remaining after: (i) payment
or provision for payment of the Company's debts and liabilities; (ii)
distributions or provision for distributions in settlement of its liquidation
account; and (iii) distributions or provisions for distributions to holders of
any class or series of stock having preference
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over the common stock in the liquidation, dissolution, or winding up of the
Company. Each share of common stock shall have the same rights as and be
identical in all respects with all the other shares of common stock.
B. PREFERRED STOCK. The Company may provide in supplementary
sections to its charter for one or more classes of preferred stock, which shall
be separately identified. The shares of any class may be divided into and
issued in series, with each series separately designated so as to distinguish
the shares thereof from the shares of all other series and classes. The terms
of each series shall be set forth in a supplementary section to the charter.
All shares of the same class shall be identical, except as to the following
relative rights and preferences, as to which there may be variations between
different series:
(a) The distinctive serial designation and the number of shares
constituting such series;
(b) The dividend rate or the amount of dividends to be paid on the
shares of such series, whether dividends shall be cumulative
and, if so, from which date(s), the payment date(s) for
dividends, and the participating or other special rights, if
any, with respect to dividends;
(c) The voting powers, full or limited, if any, of shares of such
series;
(d) Whether the shares of such series shall be redeemable and, if
so, the price(s) at which, and the terms and conditions of
which, such shares may be redeemed;
(e) The amount(s) payable upon the shares of such series in the
event of voluntary or involuntary liquidation, dissolution, or
winding up of the Company;
(f) Whether the shares of such series shall be entitled to the
benefit of a sinking or retirement fund to be applied to the
purchase or redemption of such shares, and if so entitled, the
amount of such fund and the manner of its application,
including the price(s) at which such shares may be redeemed or
purchased through the application of such fund;
(g) Whether the shares of such series shall be convertible into,
or exchangeable for, shares of any other class or classes of
stock of the Company and, if so, the conversion price(s) or
the rate(s) of exchange, and the adjustments thereof, if any,
at which such conversion or exchange may be made, and any
other terms and conditions of such conversion or exchange;
(h) The price or other consideration for which the shares of such
series shall be issued; and
(i) Whether the shares of such series which are redeemed or
converted shall have the status of authorized but unissued
shares of serial preferred stock and whether such shares may
be reissued as shares of the same or any other series of
serial preferred stock.
Each share of each series of serial preferred stock shall have the
same relative rights as and be identical in all respects with all the other
shares of the same series.
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The board of directors shall have authority to divide, by the adoption
of supplementary charter sections, any authorized class of preferred stock into
series and, within the limitations set forth in this section and the remainder
of this charter, fix and determine the relative rights and preferences of the
shares of any series so established.
Prior to the issuance of any preferred shares of a series established
by a supplementary charter section adopted by the board of directors, the
Company shall file with the Secretary to the Office a dated copy of that
supplementary section of this charter establishing and designating the series
and fixing and determining the relative rights and preferences thereof.
SECTION 6. PREEMPTIVE RIGHTS. Holders of the capital stock of the
Company shall not be entitled to preemptive rights with respect to any shares
of the Company which may be issued.
SECTION 7. DIRECTORS. The Company shall be under the direction of a
board of directors. The authorized number of directors, as stated in the
Company's bylaws, shall not be fewer than five nor more than fifteen except
when a greater or lesser number is approved by the Director of the Office, or
his or her delegate.
SECTION 8. AMENDMENT OF CHARTER. Except as provided in Section 5, no
amendment, addition, alteration, change or repeal of this charter shall be
made, unless such is proposed by the board of directors of the Company,
approved by the shareholders by a majority of the votes eligible to be cast at
a legal meeting, unless a higher vote is otherwise required, and approved or
preapproved by the Office.
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<PAGE> 5
BROOKLYN HEIGHTS BANCORP
Attest:
-----------------------------------
-----------------------------------
Secretary
By:
---------------------------------------
Stephen Irving
President and Chief Executive Officer
Attest:
------------------------------------
Secretary of the Office of Thrift Supervision
By:
----------------------------------------
Director of the Office of Thrift Supervision
Effective Date:
-------------------
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<PAGE> 1
EXHIBIT 3.2
BROOKLYN HEIGHTS BANCORP
BYLAWS
ARTICLE I - HOME OFFICE
The home office of Brooklyn Heights Bancorp (the "Company") shall be
186 Montague Street, Brooklyn, New York.
ARTICLE II - SHAREHOLDERS
SECTION 1. PLACE OF MEETINGS. All annual and special meetings of
shareholders shall be held at the home office of the Company or at such other
convenient place as the board of directors may determine.
SECTION 2. ANNUAL MEETING. A meeting of the shareholders of the
Company for the election of directors and for the transaction of any other
business of the Company shall be held annually within 150 days after the end of
the Company's fiscal year on the _____ ________ in ___ if not a legal holiday,
and if a legal holiday, then on the next day following which is not a legal
holiday, at __________, or at such other date and time within such 150-day
period as the board of directors may determine.
SECTION 3. SPECIAL MEETINGS. Special meetings of the shareholders
for any purpose or purposes, unless otherwise prescribed by the regulations of
the Office of Thrift Supervision (the "Office"), may be called at any time by
the chairman of the board, the president, or a majority of the board of
directors, and shall be called by the chairman of the board, the president, or
the secretary upon the written request of the holders of not less than
one-tenth of all of the outstanding capital stock of the Company entitled to
vote at the meeting. Such written request shall state the purpose or purposes
of the meeting and shall be delivered to the home office of the Company
addressed to the chairman of the board, the president, or the secretary.
SECTION 4. CONDUCT OF MEETINGS. Annual and special meetings shall be
conducted in accordance with the most current edition of Robert's Rules of
Order unless otherwise prescribed by regulations of the Office or these bylaws
or the Board of Directors adopts another written procedure for the conduct of
meetings. The Board of Directors shall designate, when present, either the
chairman of the board or president to preside at such meetings.
SECTION 5. NOTICE OF MEETINGS. Written notice stating the place,
day, and hour of the meeting and the purpose(s) for which the meeting is called
shall be delivered not fewer than 20 nor more than 50 days before the date of
the meeting, either personally or by mail, by or at the direction of the
chairman of the board, the president, or the secretary, or the directors
calling the meeting, to each shareholder of record entitled to vote at such
meeting. If mailed, such notice shall be deemed to be delivered when deposited
in the mail, addressed to the shareholder at the address as it appears on the
stock transfer books or records of the Company as of the record date prescribed
in Section 6 of this Article II with postage prepaid. When any shareholders
meeting, either annual or special, is adjourned for 30 days or more, notice of
the adjourned meeting shall be given as in the case of an original meeting. It
shall not be necessary to give any notice of the time and place of any meeting
adjourned for less than 30 days or of the business to be transacted at the
meeting, other than an announcement at the meeting at which such adjournment is
taken.
<PAGE> 2
SECTION 6. FIXING OF RECORD DATE. For the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment, or shareholders entitled to receive payment of any dividend,
or in order to make a determination of shareholders for any other proper
purpose, the board of directors shall fix in advance a date as the record date
for any such determination of shareholders. Such date in any case shall be not
more than 60 days and, in case of a meeting of shareholders, not fewer than 10
days prior to the date on which the particular action, requiring such
determination of shareholders, is to be taken. When a determination of
shareholders entitled to vote at any meeting of shareholders has been made as
provided in this section, such determination shall apply to any adjournment.
SECTION 7. VOTING LIST. At least 20 days before each meeting of the
shareholders, the officer or agent having charge of the stock transfer books
for shares of the Company shall make a complete list of the shareholders of
record entitled to vote at such meeting, or any adjournment, arranged in
alphabetical order, with the address and the number of shares held by each.
This list of shareholders shall be kept on file at the home office of the
Company and shall be subject to inspection by any shareholder of record or the
shareholder's agent at any time during usual business hours for a period of 20
days prior to such meeting. Such list also shall be produced and kept open at
the time and place of the meeting and shall be subject to inspection by any
shareholder of record or the shareholder's agent during the entire time of the
meeting. The original stock transfer book shall constitute prima facie
evidence of the shareholders entitled to examine such list or transfer books or
to vote at any meeting of shareholders.
In lieu of making the shareholder list available for inspection by
shareholders as provided in the preceding paragraph, the board of directors may
elect to follow the procedures described in Section 552.6(d) of the Office's
regulations as now or hereafter in effect.
SECTION 8. QUORUM. A majority of the outstanding shares of the
Company entitled to vote, represented in person or by proxy, shall constitute a
quorum at a meeting of shareholders. If less than a majority of the
outstanding shares is represented at a meeting, a majority of the shares so
represented may adjourn the meeting from time to time without further notice.
At such adjourned meeting at which a quorum shall be present or represented,
any business may be transacted which might have been transacted at the meeting
as originally notified. The shareholders present at a duly organized meeting
may continue to transact business until adjournment, notwithstanding the
withdrawal of enough shareholders to constitute less than a quorum. If a
quorum is present the affirmative vote of the majority of the shares
represented at the meeting and entitled to vote on the subject matter shall be
the act of the shareholders, unless the vote of a greater number of
shareholders voting together or voting by classes is required by law or the
charter. Directors, however, are elected by a plurality of the votes cast at an
election of directors.
SECTION 9. PROXIES. At all meetings of shareholders, a shareholder
may vote by proxy executed in writing by the shareholder or by his or her duly
authorized attorney in fact. Proxies may be given telephonically or
electronically as long as the holder uses a procedure for verifying the
identity of the shareholder. Proxies solicited on behalf of the management
shall be voted as directed by the shareholder or, in the absence of such
direction, as determined by a majority of the board of directors. No proxy
shall be valid more than eleven months from the date of its execution except
for a proxy coupled with an interest.
SECTION 10. VOTING OF SHARES IN THE NAME OF TWO OR MORE PERSONS.
When ownership stands in the name of two or more persons, in the absence of
written directions to the Company to the contrary,
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at any meeting of the shareholders of the Company any one ore more of such
shareholders may cast, in person or by proxy, all votes to which such ownership
is entitled. In the event an attempt is made to cast conflicting votes, in
person or by proxy, by the several persons in whose names shares of stock
stand, the vote or votes to which those persons are entitled shall be cast as
directed by a majority of those holding such and present in person or by proxy
at such meeting, but no votes shall be cast for such stock if a majority cannot
agree.
SECTION 11. VOTING OF SHARES OF CERTAIN HOLDERS. Shares standing in
the name of another corporation may be voted by any officer, agent, or proxy as
the bylaws of such corporation may prescribe, or, in the absence of such
provision, as the board of directors of such corporation may determine. Shares
held by an administrator, executor, guardian, or conservator may be voted by
him or her, either in person or by proxy, without a transfer of such shares
into his or her name. Shares standing in the name of a trustee may be voted by
him or her, either in person or by proxy, but no trustee shall be entitled to
vote shares held by him or her without a transfer of such shares into his name.
Shares held in trust in an IRA or Keogh Account, however, may be voted by the
Company if no other instructions are received. Shares standing in the name of
a receiver may be voted by such receiver, and shares held by or under the
control of a receiver may be voted by such receiver without the transfer into
his or her name if authority to do so is contained in an appropriate order of
the court or other public authority by which such receiver was appointed.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Neither treasury shares of its own stock held by the Company nor
shares held by another corporation, if a majority of the shares entitled to
vote for the election of directors of such other corporation are held by the
Company, shall be voted at any meeting or counted in determining the total
number of outstanding shares at any given time for purposes of any meeting.
SECTION 12. CUMULATIVE VOTING. Stockholders may not cumulate their
votes for election of directors.
SECTION 13. INSPECTORS OF ELECTION. In advance of any meeting of
shareholders, the board of directors may appoint any person other than nominees
for office as inspectors of election to act at such meeting or any adjournment.
The number of inspectors shall be either one or three. Any such appointment
shall not be altered at the meeting. If inspectors of election are not so
appointed, the chairman of the board or the president may, or on the request of
not fewer than 10 percent of the votes represented at the meeting shall, make
such appointment at the meeting. If appointed at the meeting, the majority of
the votes present shall determine whether one or three inspectors are to be
appointed. In case any person appointed as inspector fails to appear or fails
or refuses to act, the vacancy may be filled by appointment by the board of
directors in advance of the meeting or at the meeting by the chairman of the
board or the president.
Unless otherwise prescribed by regulations of the Office, the duties
of such inspectors shall include: determining the number of shares and the
voting power of each share, the shares represented at the meeting, the
existence of a quorum, and the authenticity, validity and effect of proxies;
receiving votes, ballots, or consents; hearing and determining all challenges
and questions in any way arising in connection
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with the rights to vote; counting and tabulating all votes or consents;
determining the result; and such acts as may be proper to conduct the election
or vote with fairness to all shareholders.
SECTION 14. NOMINATING COMMITTEE. The board of directors shall act
as a nominating committee for selecting the management nominees for election as
directors. Except in the case of a nominee substituted as a result of the
death or other incapacity of a management nominee, the nominating committee
shall deliver written nominations to the secretary at least 20 days prior to
the date of the annual meeting. Upon delivery, such nominations shall be posted
in a conspicuous place in each office of the Company. No nominations for
directors except those made by the nominating committee shall be voted upon at
the annual meeting unless other nominations by shareholders are made in writing
and delivered to the secretary of the Company at least five days prior to the
date of the annual meeting. Upon delivery, such nominations shall be posted in
a conspicuous place in each office of the Company. Ballots bearing the names
of all persons nominated by the nominating committee and by shareholders shall
be provided for use at the annual meeting. However, if the nominating
committee shall fail or refuse to act at least 20 days prior to the annual
meeting, nominations for directors may be made at the annual meeting by any
shareholder entitled to vote and shall be voted upon.
SECTION 15. NEW BUSINESS. Any new business to be taken up at the
annual meeting shall be stated in writing and filed with the secretary of the
Company at least five days prior to the date of the annual meeting, and all
business so stated, proposed, and filed shall be considered at the annual
meeting; but no other proposal shall be acted upon at the annual meeting. Any
shareholder may make any other proposal at the annual meeting and the same may
be discussed and considered, but unless stated in writing and filed with the
secretary at least five days before the meeting, such proposal shall be laid
over for action at an adjourned, special or annual meeting of the shareholders
taking place 30 days or more thereafter. This provision shall not prevent the
consideration and approval or disapproval at the annual meeting of reports of
officers, directors, and committees; but in connection with such reports, no
new business shall be acted upon at such annual meeting unless stated and filed
as herein provided.
SECTION 16. INFORMAL ACTION BY SHAREHOLDERS. Any action required to
be taken at a meeting of the shareholders, or any other action which may be
taken at a meeting of shareholders, may be taken without a meeting if consent
in writing, setting forth the action to be taken, shall be given by all of the
shareholders entitled to vote with respect to the subject matter.
ARTICLE III - BOARD OF DIRECTORS
SECTION 1. GENERAL POWERS. The business and affairs of the Company
shall be under the direction of its board of directors. The board of directors
shall annually elect a chairman of the board and a president from among its
members and shall designate, when present, either the chairman of the board or
the president to preside at its meetings.
SECTION 2. NUMBER AND TERM. The board of directors shall consist of
seven members and shall be divided into three classes as nearly equal in number
as possible. The members of each class shall be elected for a term of three
years and until their successors are elected and qualified. One class shall be
elected by ballot annually.
SECTION 3. REGULAR MEETINGS. A regular meeting of the board of
directors shall be held without other notice than this bylaw following the
annual meeting of shareholders. The board of directors may
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provide, by resolution, the time and place for the holding of additional
regular meetings without notice other than such resolution. Directors may
participate in a meeting by means of a conference telephone or similar
communications device through which all persons participating can hear each
other at the same time. Participation by such means shall constitute presence
in person for all purposes.
SECTION 4. QUALIFICATION. Each director shall at all times be the
beneficial owner of not less than 100 shares of capital stock of the Company
unless the company is a wholly-owned subsidiary of a holding company.
SECTION 5. SPECIAL MEETINGS. Special meetings of the board of
directors may be called by or at the request of the chairman of the board, the
president, or one-third of the directors. The persons authorized to call
special meetings of the board of directors may fix any place, within the
Company's normal lending territory, as the place for holding any special
meeting of the board of directors called by such persons.
Members of the board of directors may participate in special meetings
by means of conference telephone or similar communications equipment by which
all persons participating in the meeting can hear each other. Such
participation shall constitute presence in person for all purposes.
SECTION 6. NOTICE. Written notice of any special meeting shall be
given to each director at least 24 hours prior thereto when delivered
personally or by telegram or at least five days prior thereto when delivered by
mail at the address at which the director is most likely to be reached. Such
notice shall be deemed to be delivered when deposited in the mail so addressed,
with postage prepaid if sent by mail, when delivered to the telegraph company
if sent by telegram or when the Company receives notice of delivery if
electronically transmitted. Any director may waive notice of any meeting by a
writing filed with the secretary. The attendance of a director at a meeting
shall constitute a waiver of notice of such meeting, except where a director
attends a meeting for the express purpose of objecting to the transaction of
any business because the meeting is not lawfully called or convened. Neither
the business to be transacted at, nor the purpose of, any meeting of the board
of directors need be specified in the notice of waiver of notice of such
meeting.
SECTION 7. QUORUM. A majority of the number of directors fixed by
Section 2 of this Article III shall constitute a quorum for the transaction of
business at any meeting of the board of directors; but if less than such
majority is present at a meeting, a majority of the directors present may
adjourn the meeting from time to time. Notice of any adjourned meeting shall
be given in the same manner as prescribed by Section 5 of this Article III.
SECTION 8. MANNER OF ACTING. The act of the majority of the
directors present at a meeting at which a quorum is present shall be the act of
the board of directors, unless a greater number is prescribed by regulation of
the Office or by these bylaws.
SECTION 9. ACTION WITHOUT A MEETING. Any action required or
permitted to be taken by the board of directors at a meeting may be taken
without a meeting if a consent in writing, setting forth the action so taken,
shall be signed by all of the directors.
SECTION 10. RESIGNATION. Any director may resign at any time by
sending a written notice of such resignation to the home office of the Company
addressed to the chairman of the board or the president.
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Unless otherwise specified, such resignation shall take effect upon receipt by
the chairman of the board or the president. More than three consecutive
absences from regular meetings of the board of directors, unless excused by
resolution of the board of directors, shall automatically constitute a
resignation, effective when such resignation is accepted by the board of
directors.
SECTION 11. VACANCIES. Any vacancy occurring on the board of
directors may be filled by the affirmative vote of a majority of the remaining
directors although less than a quorum of the board of directors. A director
elected to fill a vacancy shall be elected to serve until the next election of
directors by the shareholders. Any directorship to be filled by reason of an
increase in the number of directors may be filled by election by the board of
directors for a term of office continuing only until the next election of
directors by the shareholders.
SECTION 12. COMPENSATION. Directors, as such, may receive a stated
salary for their services. By resolution of the board of directors, a
reasonable fixed sum, and reasonable expenses of attendance, if any, may be
allowed for actual attendance at each regular or special meeting of the board
of directors. Members of either standing or special committees may be allowed
such compensation for actual attendance at committee meetings as the board of
directors may determine.
SECTION 13. PRESUMPTION OF ASSENT. A director of the Company who is
present at a meeting of the board of directors at which action on any Company
matter is taken shall be presumed to have assented to the action taken unless
his or her dissent or abstention shall be entered in the minutes of the meeting
or unless he or she shall file a written dissent to such action with the person
acting as the secretary of the meeting before the adjournment thereof or shall
forward such dissent by registered mail to the secretary of the Company within
five days after the date a copy of the minutes of the meeting is received.
Such right to dissent shall not apply to a director who voted in favor of such
action.
SECTION 14. REMOVAL OF DIRECTORS. At a meeting of shareholders
called expressly for that purpose, any director may be removed for cause by a
vote of the holders of a majority of the shares then entitled to vote at an
election of directors. Whenever the holders of the shares of any class are
entitled to elect one or more directors by the provisions of the charter or
supplemental sections thereto, the provisions of this section shall apply, in
respect to the removal of a director or directors so elected, to the vote of
the holders of the outstanding shares of that class and not to the vote of the
outstanding shares as a whole.
ARTICLE IV - EXECUTIVE AND OTHER COMMITTEES
SECTION 1. APPOINTMENT. The board of directors, by resolution
adopted by a majority of the full board, may designate the chief executive
officer and two or more of the other directors to constitute an executive
committee. The designation of any committee pursuant to this Article IV and
the delegation of authority shall not operate to relieve the board of
directors, or any director, of any responsibility imposed by law or regulation.
SECTION 2. AUTHORITY. The executive committee, when the board of
directors is not in session, shall have and may exercise all of the authority
of the board of directors except to the extent, if any, that such authority
shall be limited by the resolution appointing the executive committee; and
except also that the executive committee shall not have the authority of the
board of directors with reference to: the declaration of dividends; the
amendment of the charter or bylaws of the Company or recommending to the
shareholders a plan of merger, consolidation, or conversion; the sale, lease,
or other disposition of all or
Page 6
<PAGE> 7
substantially all of the property and assets of the Company otherwise than in
the usual and regular course of its business; a voluntary dissolution of the
Company; a revocation of any of the foregoing; or the approval of a transaction
in which any member of the executive committee, directly or indirectly, has any
material beneficial interest.
SECTION 3. TENURE. Subject to the provisions of Section 8 of this
Article IV, each member of the executive committee shall hold office until the
next regular annual meeting of the board of directors following his or her
designation and until a successor is designated as a member of the executive
committee.
SECTION 4. MEETINGS. Regular meetings of the executive committee may
be held without notice at such times and places as the executive committee may
fix from time to time by resolution. Special meetings of the executive
committee may be called by any member thereof upon not less than one days
notice stating the place, date, and hour of the meeting, which notice may be
written or oral. Any member of the executive committee may waive notice of any
meeting and no notice of any meeting need be given to any member thereof who
attends in person. The notice of a meeting of the executive committee need not
state the business proposed to be transacted at the meeting.
SECTION 5. QUORUM. A majority of the members of the executive
committee shall constitute a quorum for the transaction of business at any
meeting thereof, and action of the executive committee must be authorized by
the affirmative vote of a majority of the members present at a meeting at which
a quorum is present.
SECTION 6. ACTION WITHOUT A MEETING. Any action required or
permitted to be taken by the executive committee at a meeting may be taken
without a meeting if a consent in writing, setting forth the action so taken,
shall be signed by all of the members of the executive committee.
SECTION 7. VACANCIES. Any vacancy in the executive committee may be
filled by a resolution adopted by a majority of the full board of directors.
SECTION 8. RESIGNATIONS AND REMOVAL. Any member of the executive
committee may be removed at any time with or without cause by resolution
adopted by a majority of the full board of directors. Any member of the
executive committee may resign from the executive committee at any time by
giving written notice to the president or secretary of the Company. Unless
otherwise specified, such resignation shall take effect upon its receipt; the
acceptance of such resignation shall not be necessary to make it effective.
SECTION 9. PROCEDURE. The executive committee shall elect a
presiding officer from its members and may fix its own rules of procedure which
shall not be inconsistent with these bylaws. It shall keep regular minutes of
its proceedings and report the same to the board of directors for its
information at the meeting held next after the proceedings shall have occurred.
SECTION 10. OTHER COMMITTEES. The board of directors may by
resolution establish an audit, loan, or other committee composed of directors
as they may determine to be necessary or appropriate for the conduct of the
business of the Company and may prescribe the duties, constitution, and
procedures thereof.
Page 7
<PAGE> 8
ARTICLE V - OFFICERS
SECTION 1. POSITIONS. The officers of the Company shall be a
president, one or more vice presidents, a secretary, and a treasurer, each of
whom shall be elected by the board of directors. The board of directors also
may designate the chairman of the board as an officer. [The president shall be
the chief executive officer, unless the board of directors designates the
chairman of the board as chief executive officer. The president shall be a
director of the Company. The offices of the secretary and treasurer may be
held by the same person and a vice president also may be either the secretary
or the treasurer. The board of directors may designate one or more vice
presidents as executive vice president or senior vice president.] The board of
directors also may elect or authorize the appointment of such other officers as
the business of the Company may require. The officers shall have such
authority and perform such duties as the board of directors may from time to
time authorize or determine. In the absence of action by the board of
directors, the officers shall have such powers and duties as generally pertain
to their respective offices.
SECTION 2. ELECTION AND TERM OF OFFICE. The officers of the Company
shall be elected annually at the first meeting of the board of directors held
after each annual meeting of the shareholders. If the election of officers is
not held at such meeting, such election shall be held as soon thereafter as
possible. Each officer shall hold office until a successor has been duly
elected and qualified or until the officers death, resignation, or removal in
the manner hereinafter provided. Election or appointment of an officer,
employee, or agent shall not of itself create contractual rights. The board of
directors may authorize the Company to enter into an employment contract with
any officer in accordance with regulations of the Office; but no such contract
shall impair the right of the board of directors to remove any officer at any
time in accordance with Section 3 of this Article V.
SECTION 3. REMOVAL. Any officer may be removed by the board of
directors whenever in its judgment the best interests of the Company will be
served thereby, but such removal, other than for cause, shall be without
prejudice to any contractual rights of the person so removed.
SECTION 4. VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification, or otherwise may be filled by the board
of directors for the unexpired portion of the term.
SECTION 5. REMUNERATION. The remuneration of the officers shall be
fixed from time to time by the board of directors.
ARTICLE VI - CONTRACTS, LOANS, CHECKS, AND DEPOSITS
SECTION 1. CONTRACTS. To the extent permitted by regulations of the
Office, and except as otherwise prescribed by these bylaws with respect to
certificates for shares, the board of directors may authorize any officer,
employee or agent of the Company to enter into any contract or execute and
deliver any instrument in the name of and on behalf of the Company. Such
authority may be general or confined to specific instances.
SECTION 2. LOANS. No loans shall be contracted on behalf of the
Company and no evidence of indebtedness shall be issued in its name unless
authorized by the board of directors. Such authority may be general or
confined to specific instances.
Page 8
<PAGE> 9
SECTION 3. CHECKS, DRAFTS, ETC. All checks, drafts, or other orders
for the payment of money, notes, or other evidences of indebtedness issued in
the name of the Company shall be signed by one or more officers, employees, or
agents of the Company in such manner as shall from time to time be determined
by the board of directors.
SECTION 4. DEPOSITS. All funds of the Company not otherwise employed
shall be deposited from time to time to the credit of the association in any
duly authorized depositors as the board of directors may select.
ARTICLE VII - CERTIFICATES FOR SHARES AND THEIR TRANSFER
SECTION 1. CERTIFICATES FOR SHARES. Certificates representing shares
of capital stock of the Company shall be in such form as shall be determined by
the board of directors and approved by the Office. Such certificates shall be
signed by the chief executive officer or by any other officer of the Company
authorized by the board of directors, attested by the secretary or an assistant
secretary, and sealed with the corporate seal or a facsimile thereof. The
signature of such officers upon a certificate may be facsimiles if the
certificate is manually signed on behalf of a transfer agent or a registrar
other than the Company itself or one of its employees. Each certificate for
shares of capital stock shall be consecutively numbered or otherwise
identified. The name and address of the person to whom the shares are issued,
with the number of shares and date of issue, shall be entered on the stock
transfer books of the Company. All certificates surrendered to the Company for
transfer shall be cancelled and no new certificate shall be issued until the
former certificate for a like number of shares has been surrendered and
cancelled, except that in the case of a lost or destroyed certificate, a new
certificate may be issued upon such terms and indemnity to the Company as the
board of directors may prescribe.
SECTION 2. TRANSFER OF SHARES. Transfer of shares of capital stock
of the Company shall be made only on its stock transfer books. Authority for
such transfer shall be given only by the holder of record or by his or her
legal representative, who shall furnish proper evidence of such authority, or
by his or her attorney authorized by a duly executed power of attorney and
filed with the Company. Such transfer shall be made only on surrender for
cancellation of the certificate for such shares. The person in whose name
shares of capital stock stand on the books of the Company shall be deemed by
the Company to be the owner for all purposes.
ARTICLE VIII - FISCAL YEAR; ANNUAL AUDIT
The fiscal year of the Company shall end on the last day of March of
each year. The Company shall be subject to an annual audit as of the end of
its fiscal year by independent public accountants appointed by and responsible
to the board of directors.
ARTICLE IX - DIVIDENDS
Subject only to the terms of the Company's charter and the regulations
and orders of the Office, the board of directors may, from time to time,
declare, and the Company may pay, dividends on its outstanding shares of
capital stock.
Page 9
<PAGE> 10
ARTICLE X - CORPORATE SEAL
The board of directors shall provide a Company seal which shall be two
concentric circles between which shall be the name of the Company. The year of
incorporation or an emblem may appear in the center.
ARTICLE XI - AMENDMENTS
These bylaws may be amended in a manner consistent with regulations of
the Office and shall be effective after: (i) approval of the amendment by a
majority vote of the authorized board of directors, or by a majority vote of
the votes cast by the shareholders of the Company at any legal meeting; and
(ii) receipt of any applicable regulatory approval. When a Company fails to
meet its quorum requirements, solely due to vacancies on the board, then the
affirmative vote of a majority of the sitting board will be required to amend
the bylaws.
Page 10
<PAGE> 1
EXHIBIT 4
INCORPORATED UNDER THE LAWS OF THE UNITED STATES OF AMERICA
BROOKLYN HEIGHTS BANCORP
BROOKLYN, NEW YORK
$1.00 par value common stock--fully paid and non assessable
This certifies that _____________________ is the owner of ______ shares of the
common stock of BROOKLYN HEIGHTS BANCORP (the "Corporation"), a Federal
corporation.
The shares evidenced by this certificate are transferable only on the stock
transfer books of the Corporation by the holder of record hereof, in person or
by his duly authorized attorney or legal representative, upon surrender of this
certificate properly endorsed. This Certificate in not valid until
countersigned and registered by the Corporation's transfer agent and registrar.
THIS SECURITY IS NOT A DEPOSIT OR ACCOUNT AND IS NOT FEDERALLY INSURED OR
GUARANTEED.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be executed
by the facsimile signatures of its duly authorized officers and has caused its
seal to be affixed hereto.
DATED: , 1998
---------- --
- ---------------------------- ----------------------------
Secretary (SEAL) President
<PAGE> 2
BROOKLYN HEIGHTS BANCORP
The Corporation may provide in supplementary sections of its charter for one
or more classes of preferred stock, which shalll be separately identified. The
Board of Directors of the Corporation is authorized by resolution or
resolutions, from time to time adopted, to provide for the issuance of serial
preferred stock in series and to fix and state the voting powers, designations,
preferences, limitations and restrictions thereof. The Corporation will
furnish to any shareholder upon request and without charge a full description
of each class of stock and any series thereof.
The shares represented by this Certificate may not be cumulatively voted on
any matter.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - Custodian
----------- --------------
(Cust) (Minor)
TEN ENT - as tenants by the entireties
Under Uniform Gifts to Minors Act
JT TEN - as joint tenants with right
of survivorship and not as --------------------------------------
tenants in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list
For value received, _____________________________ hereby sell, assign and
transfer unto
- ---------------------------
- ---------------------------
PLEASE INSERT SOCIAL SECURITY NUMBER OR OTHER IDENTIFYING NUMBER
- --------------------------------------------------------------------------------
(please print or typewrite name and address including postal zip code of
assignee)
________________________________________________________________________________
___________________________________________________________________ Shares of
the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint ____________________________________________
Attorney to transfer the said shares on the books of the within named
corporation with full power of substitution in the premises.
Dated,
---------------------------
In the presence of Signature:
- ------------------------------------ ------------------------------
NOTE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME OF THE
STOCKHOLDER(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE, IN EVERY
PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER.
<PAGE> 1
EXHIBIT 5
[Letterhead of Luse Lehman Gorman Pomerenk & Schick]
(202) 274-2008
December 31, 1997
The Board of Directors
Atlantic Liberty Savings, F.A.
186 Montague Street
Brooklyn, New York 11201
RE: BROOKLYN HEIGHTS BANCORP
COMMON STOCK PAR VALUE $1.00 PER SHARE
Gentlemen:
You have requested the opinion of this firm as to certain matters in
connection with the offer and sale (the "Offering") of Brooklyn Heights Bancorp
(the "Company") Common Stock, par value $1.00 per share ("Common Stock"). We
have reviewed the Company's proposed Federal Charter, Registration Statement on
Form SB-2 ("Form SB-2"), as well as applicable statutes and regulations
governing the Company and the offer and sale of the Common Stock.
We are of the opinion that upon the declaration of effectiveness of
the Form SB-2 and the incorporation of Brooklyn Heights Bancorp as a federal
corporation, the Common Stock, when sold, will be legally issued, fully paid
and non-assessable.
This Opinion has been prepared solely for the use of the Company in
connection with the Form SB-2. We hereby consent to our firm being referenced
under the caption "Legal Opinions."
Very truly yours,
LUSE LEHMAN GORMAN POMERENK & SCHICK
A PROFESSIONAL CORPORATION
By: /s/ ALAN SCHICK
--------------------------
Alan Schick, Esq.
<PAGE> 1
EXHIBIT 8.1
FORM OF
FEDERAL TAX OPINION
__________, 1997
Boards of Directors
Atlantic Liberty Savings, F.A.
Brooklyn Heights Bancorp
Atlantic Liberty, MHC
186 Montague Street
New York, NY 11201-3601
RE: MUTUAL HOLDING COMPANY FORMATION AND STOCK ISSUANCE
Ladies and Gentlemen:
We have been requested as special counsel to Atlantic Liberty Savings,
F.A., a federally-chartered mutual savings association (the "Bank" or the
"Stock Bank", as the context requires), Atlantic Liberty, MHC, a
federally-chartered mutual holding company ("Mutual Holding Company") and
Brooklyn Heights Bancorp, a federally-chartered savings and loan holding
company ("Stock Holding Company"), to express our opinion concerning certain
Federal income tax matters relating to the Plan of Reorganization (as defined
herein).
In connection therewith, we have examined the Plan of Reorganization
and certain other documents of or relating to the Reorganization (as defined
below), some of which are described or referred to in the Plan of
Reorganization and which we deemed necessary to examine in order to issue the
opinions set forth below. Unless otherwise defined, all terms used herein have
the meanings given to such terms in the Plan of Reorganization.
In our examination, we have assumed the authenticity of original
documents, the accuracy of copies and the genuineness of signatures. We have
further assumed the absence of adverse facts not apparent from the face of the
instruments and documents we examined.
In issuing our opinions, we have assumed that the Plan of
Reorganization has been duly and validly authorized and has been approved and
adopted by the board of directors of the Bank at a meeting duly called and
held; that the Bank will comply with the terms and conditions of the Plan of
Reorganization, and that the various representations and warranties which are
provided to us are accurate, complete, true and correct. Accordingly, we
express no opinion concerning the effect, if any, of variations from the
foregoing. We specifically express no opinion concerning tax matters
<PAGE> 2
Boards of Directors
Atlantic Liberty Savings, F.A.
Brooklyn Heights Bancorp
Atlantic Liberty, MHC
__________, 1997
Page 2
relating to the Plan of Reorganization under state and local tax laws and under
Federal income tax laws except on the basis of the documents and assumptions
described above.
For purposes of this opinion, we are relying on the representations
provided to us by the Bank, which are incorporated herein by reference.
In issuing the opinions set forth below, we have referred solely to
existing provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), existing and proposed Treasury Regulations thereunder, current
administrative rulings, notices and procedures and court decisions. Such laws,
regulations, administrative rulings, notices and procedures and court decisions
are subject to change at any time. Any such change could affect the continuing
validity of the opinions set forth below. This opinion is as of the date
hereof, and we disclaim any obligation to advise you of any change in any
matter considered herein after the date hereof.
In rendering our opinions, we have assumed that the persons and
entities identified in the Plan of Reorganization will at all times comply with
the requirements of Code sections 368 and 351, the other applicable state and
Federal laws and the representations of the Bank. In addition, we have assumed
that the activities of the persons and entities identified in the Plan of
Reorganization will be conducted strictly in accordance with the Plan of
Reorganization. Any variations may affect the opinions we are rendering.
We emphasize that the outcome of litigation cannot be predicted with
certainty and, although we have attempted in good faith to opine as to the
probable outcome of the merits of each tax issue with respect to which an
opinion was requested, there can be no assurance that our conclusions are
correct or that they would be adopted by the IRS or a court.
SUMMARY OF OPINIONS
Based on the facts, representations and assumptions set forth herein,
we are of the opinion that:
<PAGE> 3
Boards of Directors
Atlantic Liberty Savings, F.A.
Brooklyn Heights Bancorp
Atlantic Liberty, MHC
__________, 1997
Page 3
WITH RESPECT TO THE EXCHANGE OF THE BANK'S CHARTER FOR A STOCK CHARTER
("BANK CONVERSION"):
1. Bank's exchange of its charter for a federal stock savings
association charter is a mere change in identity and form and therefore
qualifies as a reorganization within the meaning of Section 368(a)(1)(F) of the
Internal Revenue Code.
2. No gain or loss will be recognized by Bank upon the transfer
of its assets to Stock Bank solely in exchange for shares of Stock Bank stock
and the assumption by Stock Bank of the liabilities of Bank. (Code Sections
361(a) and 357(a)).
3 No gain or loss will be recognized by Stock Bank upon the
receipt of the assets of Bank in exchange for shares of Stock Bank common
stock. (Code Section 1032(a)).
4. Stock Bank's holding period in the assets received from Bank
will include the period during which such assets were held by the Bank. (Code
Section 1223(2)).
5. Stock Bank's basis in the assets of Bank will be the same as
the basis of such assets in the hands of Bank immediately prior to the proposed
transaction. (Code Section 362(b)).
6. Bank members will recognize no gain or loss upon the
constructive receipt of Stock Bank common stock solely in exchange for their
membership interests in Bank. (Code Section 354(a)(1)).
7. The basis of the Stock Bank common stock to be constructively
received by the Bank's members will be the same as their basis in their
membership interests in the Bank surrendered in exchange therefor. (Code
Section 358(a)(1)).
8. The holding period of the Stock Bank common stock
constructively received by the members of the Bank will include the period
during which the Bank members held their membership interests, provided that
the membership interests were held as capital assets on the date of the
exchange. (Code Section 1223(1)).
9. The Stock bank will suceed to and take into account the Bank's
earnings and profits or deficit in earnings and profits, as of the date of the
proposed transaction. (Code Section 381).
<PAGE> 4
Boards of Directors
Atlantic Liberty Savings, F.A.
Brooklyn Heights Bancorp
Atlantic Liberty, MHC
__________, 1997
Page 4
WITH RESPECT TO THE TRANSFER OF STOCK BANK STOCK TO MUTUAL HOLDING
COMPANY FOR MEMBERSHIP INTERESTS (THE "351 TRANSACTION"):
10. The exchange of stock by the Stock Bank stockholders in
exchange for membership interests in the Mutual Holding Company will constitute
a tax-free exchange of property solely for voting "stock" pursuant to Section
351 of the Internal Revenue Code.
11. Stock Bank's stockholders will recognize no gain or loss upon
the transfer of the Stock Bank stock they constructively received in the Bank
conversion to the Mutual Holding Company solely in exchange for membership
interests in the Mutual Holding Company. (Code Section 351).
12. Stock Bank stockholder's basis in the Mutual Holding Company
membership interests received in the transaction will be the same as the basis
of the property transferred in exchange therefor, reduced by the sum of the
liabilities assumed by Mutual Holding Company or to which assets transferred
are taken subject. (Code Section 358(a)(1)).
13. Stock Bank stockholder's holding period for the membership
interests in Mutual Holding Company received in the transaction will include
the period during which the property exchanged was held by Stock Bank
stockholders, provided that such property was a capital asset on the date of
the exchange. (Code Section 1223(1)).
14. Mutual Holding Company will recognize no gain or loss upon the
receipt of property from Stock Bank stockholders in exchange for membership
interests in the Mutual Holding Company. (Code Section 1032(a)).
15. Mutual Holding Company's basis in the property received from
Stock Bank stockholders will be the same as the basis of such property in the
hands of Stock Bank stockholders immediately prior to the transaction. (Code
Section 362(a)).
16. Mutual Holding Company's holding period for the property
received from Stock Bank's stockholders will include the period during which
such property was held by Stock Bank stockholders. (Code Section 1223(2)).
<PAGE> 5
Boards of Directors
Atlantic Liberty Savings, F.A.
Brooklyn Heights Bancorp
Atlantic Liberty, MHC
__________, 1997
Page 5
17. Stock Bank depositors will recognize no gain or loss solely by
reason of the transaction.
WITH RESPECT TO THE TRANSFERS TO THE STOCK HOLDING COMPANY IN EXCHANGE
FOR COMMON STOCK IN THE STOCK HOLDING COMPANY
18. The Mutual Holding Company and the persons who purchased
Common Stock of the Stock Holding Company in the Subscription and Community
Offering ("Minority Stockholders") will recognize no gain or loss upon the
transfer of Stock Bank stock and cash, respectively, to the Stock Holding
Company in exchange for stock in the Stock Holding Company. Code Sections
351(a) and 357(a).
19. Stock Holding Company will recognize no gain or loss on its
receipt of Stock Bank stock and cash in exchange for Stock Holding Company
Stock. (Code Section 1032(a)).
20. The basis of the Stock Holding Company Common Stock to the
Minority Stockholders will be the actual purchase price thereof, and a
shareholders holding period for Common Stock acquired through the exercise of
subscription rights will begin on the date the rights are exercised.
PROPOSED TRANSACTION
On August 19, 1997, the board of directors of the Bank adopted that
certain Plan of Reorganization From A Mutual Savings Association to A Mutual
Holding Company (the "Plan of Reorganization"). For what are represented to be
valid business purposes, the Bank's board of directors has decided to convert
to a mutual holding company structure pursuant to statutes. The following
steps are proposed:
(i) The Bank will organize an interim federal stock savings
bank (Interim One) as its wholly-owned subsidiary;
(ii) Interim One will organize a federal mid-tier holding
company as its wholly-owned subsidiary (Stock Holding
Company); and
<PAGE> 6
Boards of Directors
Atlantic Liberty Savings, F.A.
Brooklyn Heights Bancorp
Atlantic Liberty, MHC
__________, 1997
Page 6
(iii) Interim One will also organize another interim federal
stock savings bank as its wholly-owned subsidiary
(Interim Two).
The following transactions will occur simultaneously:
(iv) The Bank will exchange its charter for a federal stock
savings bank charter and become a stock savings bank that
will constructively issue its common stock to members of
the Bank;
(v) Interim One will cancel its outstanding stock and
exchange its charter for a federal mutual holding company
charter and thereby become the Mutual Holding Company;
(vi) Interim Two will merge with and into the Bank with the
Bank as the surviving entity, the former members of the
Bank who constructively hold stock in the Bank will
exchange their stock in the Bank for membership interests
in the Mutual Holding Company; and
(vii) The Mutual Holding Company will contribute the Bank's
stock to the Stock Holding Company, a wholly-owned
subsidiary of the Mutual Holding Company for additional
shares of Bank Stock.
(viii) Contemporaneously, with the contribution set forth in
"(vii)" the Stock Holding Company will offer to sell up
to 49.9% of its Common Stock in the Subscription Offering
and, if applicable, the Direct Community Offering.
These transactions are referred to herein collectively as the
"Reorganization."
Those persons who, as of the date of the Bank Conversion (the
"Effective Date"), hold depository rights with respect to the Bank will
thereafter have such rights solely with respect to the Stock Bank. Each
deposit account with the Bank at the time of the exchange will become a deposit
account in the Stock Bank in the same amount and upon the same terms and
conditions. Following the completion of the Reorganization, all depositors and
borrowers who had membership rights with respect to the Bank immediately prior
to the Reorganization will continue to have such rights solely with respect to
the Mutual Holding Company so long as they continue to hold deposit accounts or
borrowings with the Stock Bank. All new depositors of the Stock Bank after the
completion of the
<PAGE> 7
Boards of Directors
Atlantic Liberty Savings, F.A.
Brooklyn Heights Bancorp
Atlantic Liberty, MHC
__________, 1997
Page 7
Reorganization will have ownership rights solely with respect to the Mutual
Holding Company so long as they continue to hold deposit accounts with the
Stock Bank.
The shares of Interim Two common stock owned by the Mutual Holding
Company prior to the Reorganization shall be converted into and become shares
of common stock of the Stock Bank on the Effective Date. The shares of Stock
Bank common stock constructively received by the Stock Bank stockholders
(formerly the members holding liquidation rights of the Bank) will be
transferred to the Mutual Holding Company by such persons in exchange for
liquidation rights in the Mutual Holding Company.
The Stock Holding Company will have the power to issue shares of
capital stock (including common and preferred stock) to persons other than the
Mutual Holding Company. So long as the Mutual Holding Company is in existence,
however, it must own a majority of the voting stock of Stock Holding Company.
Stock Holding Company may issue any amount of non-voting stock to persons
other than Mutual Holding Company. No such non-voting stock will be issued as
of the date of the Reorganization.
* * *
The opinions set forth above represent our conclusions as to the
application of existing Federal income tax law to the facts of the instant
transaction, and we can give no assurance that changes in such law, or in the
interpretation thereof, will not affect the opinions expressed by us.
Moreover, there can be no assurance that contrary positions may not be taken by
the IRS, or that a court considering the issues would not hold contrary to such
opinions.
All of the opinions set forth above are qualified to the extent that
the validity of any provision of any agreement may be subject to or affected by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the rights of creditors generally. We do not express any opinion as
to the availability of any equitable or specific remedy upon any breach of any
of the covenants, warranties or other provisions contained in any agreement.
We have not examined, and we express no opinion with respect to the
applicability of, or liability under, any Federal, state or local law,
ordinance, or regulation governing or pertaining to environmental matters,
hazardous wastes, toxic substances, asbestos, or the like.
<PAGE> 8
Boards of Directors
Atlantic Liberty Savings, F.A.
Brooklyn Heights Bancorp
Atlantic Liberty, MHC
__________, 1997
Page 8
It is expressly understood that the opinions set forth above represent
our conclusions based upon the documents reviewed by us and the facts presented
to us. Any material amendments to such documents or changes in any significant
fact would affect the opinions expressed herein.
We have not been asked to, and we do not, render any opinion with
respect to any matters other than those expressly set forth above. This
opinion is rendered for your use only, and may not be delivered to or relied
upon by any other person or entity without our express written consent.
Very truly yours,
LUSE LEHMAN GORMAN POMERENK & SCHICK
A Professional Corporation
<PAGE> 1
EXHIBIT 8.3
[FELDMAN FINANCIAL ADVISORS, INC. LETTERHEAD]
December 22, 1997
Board of Directors
Atlantic Liberty Savings, F.A.
186 Montague Street
Brooklyn, New York 11201
Gentlemen:
It is the opinion of Feldman Financial Advisors, Inc., that the subscription
rights to be received by the eligible account holders and other eligible
subscribers of Atlantic Liberty Savings, F.A. (the "Association"), pursuant to
the Plan of Reorganization adopted by the Board of Directors of the
Association, do not have any economic value at the time of distribution or at
the time the rights are exercised in the subscription offering.
Such opinion is based on the fact that the subscription rights are acquired by
the recipients without payment therefor, are nontransferable and of short
duration, and afford the recipients the right only to purchase shares of common
stock of Brooklyn Heights Bancorp, the holding company formed to acquire all of
the capital stock of the Association, at a price equal to its estimated
aggregate pro forma market value, which will be the same price at which any
unsubscribed shares will be sold in the community offering.
Sincerely,
/s/ FELDMAN FINANCIAL ADVISORS, INC.
FELDMAN FINANCIAL ADVISORS, INC.
<PAGE> 1
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of this ___
day of __________, 199_, by and between Atlantic Libertly Savings, F.A.
(hereinafter referred to as the "Bank" whether in mutual or stock form), and
______________ (the "Employee").
WHEREAS, the Employee is currently serving as ___________________ of
the Bank; and
WHEREAS, the Bank has adopted a plan of conversion whereby the Bank
will convert to capital stock form as the subsidiary of Brooklyn Heights
Bancorp (the "Mutual Holding Company") and Brooklyn Heights Bancorp, Inc. (the
"Holding Company"), subject to the approval of the Bank's members and the
Office of Thrift Supervision (the "Conversion"); and
WHEREAS, the board of directors of the Bank ("Board of Directors")
recognizes that, as is the case with publicly held corporations generally, the
possibility of a change in control of the Holding Company and/or the Bank may
exist and that such possibility, and the uncertainty and questions which it may
raise among management, may result in the departure or distraction of key
management personnel to the detriment of the Bank, the Holding Company and
their respective stockholders; and
WHEREAS, the Board of Directors believes it is in the best interests
of the Bank to enter into this Agreement with the Employee in order to assure
continuity of management of the Bank and to reinforce and encourage the
continued attention and dedication of the Employee to the Employee's assigned
duties without distraction in the face of potentially disruptive circumstances
arising from the possibility of a change in control of the Holding Company or
the Bank, although no such change is now contemplated; and
WHEREAS, the Board of Directors has approved and authorized the
execution of this Agreement with the Employee to take effect as stated in
Section 2 hereof;
NOW, THEREFORE, in consideration of the foregoing and of the
respective covenants and agreements of the parties herein, it is AGREED as
follows:
1. Definitions.
(a) The term "Change in Control" means (1) an event of a
nature that (i) results in a change in control of the Bank or the Holding
Company within the meaning of the Home Owners' Loan Act of 1933 and 12 C.F.R.
Part 574 as in effect on the date hereof; or (ii) would be required to be
reported in response to Item 1 of the current report on Form 8-K, as in effect
on the date hereof, pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 (the "Exchange Act"); (2) any person (as the term is used in
Sections 13(d) and 14(d) of the Exchange Act) is or becomes the beneficial
owner (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly
of securities of the Bank or the Holding Company representing 25% or more
<PAGE> 2
of the Bank's or the Holding Company's outstanding securities; (3) individuals
who are members of the board of directors of the Bank or the Holding Company on
the date hereof (the "Incumbent Board") cease for any reason to constitute at
least a majority thereof, provided that any person becoming a director
subsequent to the date hereof whose election was approved by a vote of at least
three-quarters of the directors comprising the Incumbent Board, or whose
nomination for election by the Holding Company's stockholders was approved by
the nominating committee serving under an Incumbent Board, shall be considered
a member of the Incumbent Board; or (4) a reorganization, merger,
consolidation, sale of all or substantially all of the assets of the Bank or
the Holding Company or a similar transaction in which the Bank or the Holding
Company is not the resulting entity. The term "Change in Control" shall not
include an acquisition of securities by an employee benefit plan of the Bank or
the Holding Company or the acquisition of securities of the Bank by the Holding
Company in connection with the Conversion. In the application of 12 C.F.R.
Part 574 to a determination of a Change in Control, determinations to be made
by the OTS or its Director under such regulations shall be made by the Board of
Directors.
(b) The term "Commencement Date" means the date of completion
of Conversion.
(c) The term "Date of Termination" means the date upon which
the Employee ceases to serve as an employee of the Bank.
(d) The term "Involuntarily Termination" means termination of
the employment of Employee without the Employee's express written consent, and
shall include a material diminution of or interference with the Employee's
duties, responsibilities and benefits as _________ of the Bank, including
(without limitation) any of the following actions unless consented to in
writing by the Employee: (1) a change in the principal workplace of the
Employee to a location outside of a 30 mile radius from the Bank's headquarters
office as of the date hereof; (2) a material demotion of the Employee; (3) a
material reduction in the number or seniority of other Bank personnel reporting
to the Employee or a material reduction in the frequency with which, or in the
nature of the matters with respect to which, such personnel are to report to
the Employee, other than as part of a Bank- or Holding Company-wide reduction
in staff; (4) a material adverse change in the Employee's salary, perquisites,
benefits, contingent benefits or vacation, other than as part of an overall
program applied uniformly and with equitable effect to all members of the
senior management of the Bank or the Holding Company; and (5) a material
permanent increase in the required hours of work or the workload of the
Employee. The term "Involuntary Termination" does not include Termination for
Cause or termination of employment due to retirement, death, disability or
suspension or temporary or permanent prohibition from participation in the
conduct of the Bank's affairs under Section 8 of the Federal Deposit Insurance
Act ("FDIA").
(e) The terms "Termination for Cause" and "Terminated For
Cause" mean termination of the employment of the Employee because of the
Employee's personal dishonesty, incompetence, willful misconduct, breach of a
fiduciary duty involving personal profit, intentional failure to perform stated
duties, willful violation of any law, rule, or regulation (other than traffic
violations or similar offenses) or final cease-and-desist order, or material
breach of any provision of this Agreement. The Employee shall not be deemed to
have been Terminated for Cause unless
2
<PAGE> 3
and until there shall have been delivered to the Employee a copy of a
resolution, duly adopted by the affirmative vote of not less than a majority of
the entire membership of the Board of Directors of the Bank at a meeting of the
Board called and held for such purpose (after reasonable notice to the Employee
and an opportunity for the Employee, together with the Employee's counsel, to
be heard before the Board), stating that in the good faith opinion of the Board
the Employee has engaged in conduct described in the preceding sentence and
specifying the particulars thereof in detail.
2. Term. The term of this Agreement shall be a period of [UP TO
THREE] years commencing on the Commencement Date, subject to earlier
termination as provided herein. Beginning on the first anniversary of the
Commencement Date, and on each anniversary thereafter, the term of this
Agreement shall be extended for a period of one year in addition to the
then-remaining term, provided that (1) the Bank has not given notice to the
Employee in writing at least 90 days prior to such anniversary that the term of
this Agreement shall not be extended further; and (2) prior to such
anniversary, the Board of Directors of the Bank explicitly reviews and approves
the extension. Reference herein to the term of this Agreement shall refer to
both such initial term and such extended terms.
3. Employment. The Employee is employed as _____________ of the
Bank. As such, the Employee shall render administrative and management
services as are customarily performed by persons situated in similar executive
capacities, and shall have such other powers and duties of an officer of the
Bank as the Board of Directors may prescribe from time to time.
4. Compensation.
(a) Salary. The Bank agrees to pay the Employee during the
term of this Agreement, not less frequently than monthly, the salary
established by the Board of Directors, which shall be at least the Employee's
salary in effect as of the Commencement Date. The amount of the Employee's
salary shall be reviewed by the Board of Directors, beginning not later than
the first anniversary of the Commencement Date. Adjustments in salary or
other compensation shall not limit or reduce any other obligation of the Bank
under this Agreement. The Employee's salary in effect from time to time during
the term of this Agreement shall not thereafter be reduced.
(b) Discretionary Bonuses. The Employee shall be entitled to
participate in an equitable manner with all other executive officers of the
Bank in discretionary bonuses as authorized and declared by the Board of
Directors to its executive employees. No other compensation provided for in
this Agreement shall be deemed a substitute for the Employee's right to
participate in such bonuses when and as declared by the Board of Directors.
(c) Expenses. The Employee shall be entitled to receive
prompt reimbursement for all reasonable expenses incurred by the Employee in
performing services under this Agreement in accordance with the policies and
procedures applicable to the executive officers of the Bank, provided that the
Employee accounts for such expenses as required under such policies and
procedures.
3
<PAGE> 4
5. Benefits.
(a) Participation in Retirement and Employee Benefit Plans.
The Employee shall be entitled to participate in all plans relating to pension,
thrift, profit-sharing, group life and disability insurance, medical and dental
coverage, education, cash bonuses, and other retirement or employee benefits or
combinations thereof, in which the Bank's executive officers participate.
(b) Fringe Benefits. The Employee shall be eligible to
participate in, and receive benefits under, any fringe benefit plans which are
or may become applicable to the Bank's executive officers.
6. Vacations; Leave. The Employee shall be entitled to annual paid
vacation in accordance with the policies established by the Bank's Board of
Directors for executive employees and to voluntary leave of absence, with or
without pay, from time to time at such times and upon such conditions as the
Board of Directors of the Bank may determine in its discretion.
7. Termination of Employment.
(a) Involuntary Termination. The Board of Directors may
terminate the Employee's employment at any time, but, except in the case of
Termination for Cause, termination of employment shall not prejudice the
Employee's right to compensation or other benefits under this Agreement. In
the event of Involuntary Termination other than in connection with or within
twelve (12) months after a Change in Control, (1) the Bank shall pay to the
Employee during the remaining term of this Agreement, the Employee's salary at
the rate in effect immediately prior to the Date of Termination, payable in
such manner and at such times as such salary would have been payable to the
Employee under Section 4 if the Employee had continued to be employed by the
Bank, and (2) the Bank shall provide to the Employee during the remaining term
of this Agreement substantially the same health benefits as the Bank maintained
for its executive officers immediately prior to the Date of Termination.
(b) Termination for Cause. In the event of Termination for
Cause, the Bank shall pay the Employee the Employee's salary through the Date
of Termination, and the Bank shall have no further obligation to the Employee
under this Agreement.
(c) Voluntary Termination. The Employee's employment may be
voluntarily terminated by the Employee at any time upon 90 days written notice
to the Bank or upon such shorter period as may be agreed upon between the
Employee and the Board of Directors of the Bank. In the event of such
voluntary termination, the Bank shall be obligated to continue to pay to the
Employee the Employee's salary and benefits only through the Date of
Termination, at the time such payments are due, and the Bank shall have no
further obligation to the Employee under this Agreement.
(d) Change in Control. In the event of Involuntary
Termination in connection with or within 12 months after a Change in Control
which occurs at any time while the Employee is employed under this Agreement,
the Bank shall, subject to Section 8 of this agreement, (1) pay
4
<PAGE> 5
to the Employee in a lump sum in cash within 25 business days after the Date of
Termination an amount equal to 299% of the Employee's "base amount" as defined
in Section 280G of the Internal Revenue Code of 1986, as amended (the "Code");
and (2) provide to the Employee during the remaining term of this Agreement
substantially the same health benefits as the Bank maintained for its executive
officers immediately prior to the Change in Control.
(e) Death; Disability. In the event of the death of the
Employee while employed under this Agreement and prior to any termination of
employment, the Employee's estate, or such person as the Employee may have
previously designated in writing, shall be entitled to receive from the Bank
the salary of the Employee through the last day of the calendar month in which
the Employee died. If the Employee becomes disabled as defined in the Bank's
then current disability plan, if any, or if the employee is otherwise unable to
serve as ______________, this Agreement shall continue in full force and
effect, except that the salary paid to the Employee shall be reduced by any
disability insurance payments made to Employee on policies of insurance
maintained by the Bank at its expense.
(f) Temporary Suspension or Prohibition. If the Employee is
suspended and/or temporarily prohibited from participating in the conduct of
the Bank's affairs by a notice served under Section 8(e)(3) or (g)(1) of the
FDIA, 12 U.S.C. Section 1818(e)(3) and (g)(1), the Bank's obligations under
this Agreement shall be suspended as of the date of service, unless stayed by
appropriate proceedings. If the charges in the notice are dismissed, the Bank
may in its discretion (1) pay the Employee all or part of the compensation
withheld while its obligations under this Agreement were suspended and (ii)
reinstate in whole or in part any of its obligations which were suspended.
(g) Permanent Suspension or Prohibition. If the Employee is
removed and/or permanently prohibited from participating in the conduct of the
Bank's affairs by an order issued under Section 8(e)(4) or (g)(1) of the FDIA,
12 U.S.C. Section 1818(e)(4) and (g)(1), all obligations of the Bank under this
Agreement shall terminate as of the effective date of the order, but vested
rights of the contracting parties shall not be affected.
(h) Default of the Bank. If the Bank is in default (as
defined in Section 3(x)(1) of the FDIA), all obligations under this Agreement
shall terminate as of the date of default, but this provision shall not affect
any vested rights of the contracting parties.
(i) Termination by Regulators. All obligations under this
Agreement shall be terminated, except to the extent determined that
continuation of this Agreement is necessary for the continued operation of the
Bank: (1) by the Director of the Office of Thrift Supervision (the "Director")
or his or her designee, at the time the Federal Deposit Insurance Corporation
enters into an agreement to provide assistance to or on behalf of the Bank
under the authority contained in Section 13(c) of the FDIA; or (2) by the
Director or his or her designee, at the time the Director or his or her
designee approves a supervisory merger to resolve problems related to operation
of the Bank or when the Bank is determined by the Director to be in an unsafe
or unsound condition.
5
<PAGE> 6
Any rights of the parties that have already vested, however, shall not be
affected by any such action.
8. Certain Reduction of Payments by the Bank.
(a) Notwithstanding any other provision of this Agreement, if
payments under this Agreement, together with any other payments received or to
be received by the Employee in connection with a Change in Control would be
deemed to include an "excess parachute payment" pursuant to Section 280G of the
Code, then benefits under this Agreement shall be reduced (not less than zero)
to the extent necessary to avoid the payment of an excess parachute payment by
the Bank. The Employee shall determine the allocation of such reduction among
payments to the Employee.
(b) Any payments made to the Employee pursuant to this
Agreement, or otherwise, are subject to and conditioned upon their compliance
with 12 U.S.C. Section 1828(k) and any regulations promulgated thereunder.
9. No Mitigation. The Employee shall not be required to mitigate the
amount of any salary or other payment or benefit provided for in this Agreement
by seeking other employment or otherwise, nor shall the amount of any payment
or benefit provided for in this Agreement be reduced by any compensation earned
by the Employee as the result of employment by another employer, by retirement
benefits after the Date of Termination, or otherwise.
10. Attorneys Fees. In the event the Bank exercises its right of
Termination for Cause, but it is determined by a court of competent
jurisdiction or by an arbitrator pursuant to Section 17 that cause did not
exist for such termination, or if in any event it is determined by any such
court or arbitrator that the Bank has failed to make timely payment of any
amounts owed to the Employee under this Agreement, the Employee shall be
entitled to reimbursement for all reasonable costs, including attorneys' fees,
incurred in challenging such termination or collecting such amounts. Such
reimbursement shall be in addition to all rights to which the Employee is
otherwise entitled under this Agreement.
11. No Assignments.
(a) This Agreement is personal to each of the parties hereto,
and neither party may assign or delegate any of its rights or obligations
hereunder without first obtaining the written consent of the other party;
provided, however, that the Bank shall require any successor or assign (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Bank, by an assumption
agreement in form and substance satisfactory to the Employee, to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Bank would be required to perform it if no such succession or
assignment had taken place. Failure of the Bank to obtain such an assumption
agreement prior to the effectiveness of any such succession or assignment shall
be a breach of this Agreement and shall entitle the Employee to compensation
from the Bank in the same amount and on the same terms as the compensation
pursuant to Section 7(d) hereof. For purposes of
6
<PAGE> 7
implementing the provisions of this Section 11(a), the date on which any such
succession becomes effective shall be deemed the Date of Termination.
(b) This Agreement and all rights of the Employee hereunder
shall inure to the benefit of and be enforceable by the Employee's personal and
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If the Employee should die while any
amounts would still be payable to the Employee hereunder if the Employee had
continued to live, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to the Employee's devisee,
legatee or other designee or if there is no such designee, to the Employee's
estate.
12. Notice. For the purposes of this Agreement, notices and all
other communications provided for in the Agreement shall be in writing and
shall be deemed to have been duly given when personally delivered or sent by
certified mail, return receipt requested, postage prepaid, to the Bank at its
home office, to the attention of the Board of Directors with a copy to the
Secretary of the Bank, or, if to the Employee, to such home or other address as
the Employee has most recently provided in writing to the Bank.
13. Amendments. No amendments or additions to this Agreement shall
be binding unless in writing and signed by both parties, except as herein
otherwise provided.
14. Headings. The headings used in this Agreement are included
solely for convenience and shall not affect, or be used in connection with, the
interpretation of this Agreement.
15. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
16. Governing Law. This Agreement shall be governed by the laws of
the United States to the extent applicable and otherwise by the laws of the
State of New York.
17. Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any court having
jurisdiction.
[Remainder of Page Intentionally Left Blank]
7
<PAGE> 8
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE
ENFORCED BY THE PARTIES.
Attest: ATLANTIC LIBERTY SAVINGS, F.A.
By:
- --------------------- ----------------------------------
Secretary Stephen Irving, President
EMPLOYEE
----------------------------------
8
<PAGE> 1
EXHIBIT 10.2
FORM OF
ATLANTIC LIBERTY SAVINGS F.A.
EMPLOYEE STOCK OWNERSHIP PLAN
(adopted effective January 1, 1998)
<PAGE> 2
ATLANTIC LIBERTY SAVINGS F.A.
EMPLOYEE STOCK OWNERSHIP PLAN
This Employee Stock Ownership Plan, executed on the ____ day of
_____________, 1998, by Atlantic Liberty Savings F.A., a federal stock savings
bank (the "Bank"),
W I T N E S S E T H T H A T
WHEREAS, the board of directors of the Bank has resolved to adopt an
employee stock ownership plan for eligible employees in accordance with the
terms and conditions presented to the directors;
NOW, THEREFORE, the Bank hereby adopts the following Plan setting
forth the terms and conditions pertaining to contributions by the Employer and
the payment of benefits to Participants and Beneficiaries.
IN WITNESS WHEREOF, the Bank has adopted this Plan and caused this
instrument to be executed by its duly authorized officers as of the above date.
ATTEST:
By:
- ------------------------------- ---------------------------------
Secretary President
<PAGE> 3
<TABLE>
<CAPTION>
C 0 N T E N T S
PAGE NO.
<S> <C>
Section 1. Plan Identity..................................................................-1-
1.1 Name........................................................................-1-
1.2 Purpose.....................................................................-1-
1.3 Effective Date..............................................................-1-
1.4 Fiscal Period...............................................................-1-
1.5 Single Plan for All Employers...............................................-1-
1.6 Interpretation of Provisions................................................-1-
Section 2. Definitions....................................................................-1-
Section 3. Eligibility for Participation...............................................-8-
3.1 Initial Eligibility.........................................................-8-
3.2 Definition of Eligibility Year..............................................-8-
3.3 Terminated Employees........................................................-8-
3.4 Certain Employees Ineligible................................................-8-
3.5 Participation and Reparticipation...........................................-8-
3.6 Omission of Eligible Employee...............................................-8-
3.7 Inclusion of Ineligible Employee............................................-9-
Section 4. Contributions and Credits...................................................-9-
4.1 Discretionary Contributions.................................................-9-
4.2 Contributions for Stock Obligations.........................................-9-
4.3 Definitions Related to Contributions........................................-9-
4.4 Conditions as to Contributions.............................................-10-
4.5 Transfers..................................................................-10-
Section 5. Limitations on Contributions and Allocations...............................-10-
5.1 Limitation on Annual Additions.............................................-10-
5.2 Coordinated Limitation With Other Plans....................................-12-
5.3 Effect of Limitations......................................................-12-
5.4 Limitations as to Certain Participants.....................................-13-
Section 6. Trust Fund and Its Investment..............................................-13-
6.1 Creation of Trust Fund.....................................................-13-
6.2 Stock Fund and Investment Fund.............................................-13-
6.3 Acquisition of Stock.......................................................-14-
6.4 Participants' Option to Diversify..........................................-14-
Section 7. Voting Rights and Dividends on Stock.......................................-15-
7.1 Voting and Tendering of Stock..............................................-15-
7.2 Dividends on Stock.........................................................-16-
</TABLE>
(i)
<PAGE> 4
<TABLE>
<CAPTION>
Page No.
<S> <C>
Section 8. Adjustments to Accounts....................................................-16-
8.1 Adjustments for Transactions...............................................-16-
8.2 Valuation of Investment Fund...............................................-16-
8.3 Adjustments for Investment Experience......................................-17-
Section 9. Vesting of Participants' Interests.........................................-17-
9.3 Full Vesting Upon Certain Events...........................................-18-
9.4 Full Vesting Upon Plan Termination.........................................-19-
9.5 Forfeiture, Repayment, and Restoral........................................-19-
9.6 Accounting for Forfeitures.................................................-19-
9.7 Vesting and Nonforfeitability..............................................-19-
Section 10. Payment of Benefits........................................................-19-
10.1 Benefits for Participants..................................................-19-
10.2 Time for Distribution......................................................-20-
10.3 Marital Status.............................................................-21-
10.4 Delay in Benefit Determination.............................................-21-
10.5 Accounting for Benefit Payments............................................-21-
10.6 Options to Receive and Sell Stock..........................................-21-
10.7 Restrictions on Disposition of Stock.......................................-22-
10.8 Continuing Loan Provisions; Creations of Protections and Rights............-23-
10.9 Direct Rollover of Eligible Distribution...................................-23-
10.10 In Service Distribution of Roll-over Account...............................-23-
10.11 Waiver of 30 Day Period After Notice of Distribution.......................-24-
Section 11. Rules Governing Benefit Claims and Review of Appeals.......................-24-
11.1 Claim for Benefits.........................................................-24-
11.2 Notification by Committee..................................................-24-
11.3 Claims Review Procedure....................................................-24-
Section 12. The Committee and Its Functions............................................-25-
12.1 Authority of Committee.....................................................-25-
12.2 Identity of Committee......................................................-25-
12.3 Duties of Committee........................................................-25-
12.4 Valuation of Stock.........................................................-25-
12.5 Compliance with ERISA......................................................-26-
12.6 Action by Committee........................................................-26-
12.7 Execution of Documents.....................................................-26-
12.8 Adoption of Rules..........................................................-26-
12.9 Responsibilities to Participants...........................................-26-
12.10 Alternative Payees in Event of Incapacity..................................-26-
12.11 Indemnification by Employers...............................................-26-
12.12 Nonparticipation by Interested Member......................................-27-
</TABLE>
(ii)
<PAGE> 5
<TABLE>
<CAPTION>
Page No.
<S> <C>
Section 13. Adoption, Amendment, or Termination of the Plan............................-27-
13.1 Adoption of Plan by Other Employers........................................-27-
13.2 Adoption of Plan by Successor..............................................-27-
13.3 Plan Adoption Subject to Qualification.....................................-27-
13.4 Right to Amend or Terminate................................................-27-
Section 14. Miscellaneous Provisions...................................................-28-
14.1 Plan Creates No Employment Rights..........................................-28-
14.2 Nonassignability of Benefits...............................................-28-
14.3 Limit of Employer Liability................................................-28-
14.4 Treatment of Expenses......................................................-28-
14.5 Number and Gender..........................................................-28-
14.6 Nondiversion of Assets.....................................................-28-
14.7 Separability of Provisions.................................................-28-
14.8 Service of Process.........................................................-29-
14.9 Governing State Law........................................................-29-
14.10 Employer Contributions Conditioned on Deductibility........................-29-
14.11 Unclaimed Accounts.........................................................-29-
14.12 Qualified Domestic Relations Order.........................................-29-
Section 15. Top-Heavy Provisions.......................................................-30-
15.1 Top-Heavy Plan.............................................................-30-
15.2 Super Top-Heavy Plan.......................................................-30-
15.3 Definitions................................................................-31-
15.4 Top-Heavy Rules of Application.............................................-32-
15.5 Top-Heavy Ratio............................................................-33-
15.6 Minimum Contributions......................................................-33-
15.7 Minimum Vesting............................................................-34-
15.8 Top-Heavy Provisions Control in Top-Heavy Plan.............................-34-
</TABLE>
(iii)
<PAGE> 6
ATLANTIC LIBERTY SAVINGS F.A.
EMPLOYEE STOCK OWNERSHIP PLAN
SECTION 1. PLAN IDENTITY.
1.1 NAME. The name of this Plan is "Atlantic Liberty Savings F.A.
Employee Stock Ownership Plan."
1.2 PURPOSE. The purpose of this Plan is to describe the terms
and conditions under which contributions made pursuant to the Plan will be
credited and paid to the Participants and their Beneficiaries.
1.3 EFFECTIVE DATE. The Effective Date of this Plan is
___________________, 1998.
1.4 FISCAL PERIOD. This Plan shall be operated on the basis of a
January 1 to December 31 fiscal year for the purpose of keeping the Plan's
books and records and distributing or filing any reports or returns required by
law.
1.5 SINGLE PLAN FOR ALL EMPLOYERS. This Plan shall be treated as
a single plan with respect to all participating Employers for the purpose of
crediting contributions and forfeitures and distributing benefits, determining
whether there has been any termination of Service, and applying the limitations
set forth in Section 5.
1.6 INTERPRETATION OF PROVISIONS. The Employers intend this Plan
and the Trust to be a qualified stock bonus plan under Section 401(a) of the
Code and an employee stock ownership plan within the meaning of Section
407(d)(6) of ERISA and Section 4975(e)(7) of the Code. The Plan is intended to
have its assets invested primarily in qualifying employer securities of one or
more Employers within the meaning of Section 407(d)(3) of ERISA, and to satisfy
any requirement under ERISA or the Code applicable to such a plan.
Accordingly, the Plan and Trust Agreement shall be interpreted and
applied in a manner consistent with this intent and shall be administered at
all times and in all respects in a nondiscriminatory manner.
SECTION 2. DEFINITIONS.
The following capitalized words and phrases shall have the meanings
specified when used in this Plan and in the Trust Agreement, unless the context
clearly indicates otherwise:
"ACCOUNT" means a Participant's interest in the assets accumulated
under this Plan as expressed in terms of a separate account balance which is
periodically adjusted to reflect his Employer's contributions, the Plan's
investment experience, and distributions and forfeitures.
"ACTIVE PARTICIPANT" means any Employee who has satisfied the
eligibility requirements of Section 3 and who qualifies as an Active
Participant for a particular Plan Year under Section 4.3.
"BANK" means Atlantic Liberty Savings F.A. and any entity which
succeeds to the business of Atlantic Liberty Savings F.A. and adopts this Plan
as its own pursuant to Section 14.2.
<PAGE> 7
"BENEFICIARY" means the person or persons who are designated by a
Participant to receive benefits payable under the Plan on the Participant's
death. In the absence of any designation or if all the designated
Beneficiaries shall die before the Participant dies or shall die before all
benefits have been paid, the Participant's Beneficiary shall be his surviving
spouse, if any, or his estate if he is not survived by a spouse. The Committee
may rely upon the advice of the Participant's executor or administrator as to
the identity of the Participant's spouse.
"BREAK IN SERVICE" means any Plan Year in which an Employee has 500 or
fewer Hours of Service. Solely for this purpose, an Employee shall be
considered employed for his normal hours of paid employment during a Recognized
Absence (said employee shall not be credited with more than 501 Hours of
Service to avoid a Break in Service), unless he does not resume his Service at
the end of the Recognized Absence. Further, if an Employee is absent for any
period beginning on or after January 1, 1985, (i) by reason of the Employee's
pregnancy, (ii) by reason of the birth of the Employee's child, (iii) by reason
of the placement of a child with the Employee in connection with the Employee's
adoption of the child, or (iv) for purposes of caring for such child for a
period beginning immediately after such birth or placement, the Employee shall
be credited with the Hours of Service which would normally have been credited
but for such absence, up to a maximum of 501 Hours of Service.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMITTEE" means the committee responsible for the administration of
this Plan in accordance with Section 12.
"COMPANY" means __________________., the stock holding company of
Bank.
"DISABILITY" means only a disability which renders the Participant
totally unable, as a result of bodily or mental disease or injury, to perform
any duties for an Employer for which he is reasonably fitted, which disability
is expected to be permanent or of long and indefinite duration. However, this
term shall not include any disability directly or indirectly resulting from or
related to habitual drunkenness or addiction to narcotics, a criminal act or
attempt, service in the armed forces of any country, an act of war, declared or
undeclared, any injury or disease occurring while compensation to the
Participant is suspended, or any injury which is intentionally self-inflicted.
Further, this term shall apply only if (i) the Participant is sufficiently
disabled to qualify for the payment of disability benefits under the federal
Social Security Act or Veterans Disability Act, or (ii) the Participant's
disability is certified by a physician selected by the Committee. Unless the
Participant is sufficiently disabled to qualify for disability benefits under
the federal Social Security Act or Veterans Disability Act, the Committee may
require the Participant to be appropriately examined from time to time by one
or more physicians chosen by the Committee, and no Participant who refuses to
be examined shall be treated as having a Disability. In any event, the
Committee's good faith decision as to whether a Participant's Service has been
terminated by Disability shall be final and conclusive.
"EARLY RETIREMENT" means retirement on or after a Participant's
attainment of age 55 and the completion of twenty years of Service for an
Employer. If the participant separates from Service before satisfying the age
requirement, but has satisfied the Service requirement, the Participant will be
entitled to elect early retirement upon satisfaction of the age requirement.
"EFFECTIVE DATE" means January 1, 1998.
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<PAGE> 8
"EMPLOYEE" means any individual who is or has been employed or
self-employed by an Employer. "Employee" also means an individual employed by a
leasing organization who, pursuant to an agreement between an Employer and the
leasing organization, has performed services for the Employer and any related
persons (within the meaning of Section 414(n)(6) of the Code) on a substantially
full-time basis for more than one year, if such services are performed under the
primary direction or control of the Employer. However, such a "leased employee"
shall not be considered an Employee if (i) he participates in a money purchase
pension plan sponsored by the leasing organization which provides for immediate
participation, immediate full vesting, and an annual contribution of at least 10
percent of the Employee's Total Compensation, and (ii) leased employees do not
constitute more than 20 percent of the Employer's total work force (including
leased employees, but excluding Highly Paid Employees and any other employees
who have not performed services for the Employer on a substantially full-time
basis for at least one year).
"EMPLOYER" means the Bank or any affiliate within the purview of
section 414(b), (c) or (m) and 415(h) of the Code, any other corporation,
partnership, or proprietorship which adopts this Plan with the Bank's consent
pursuant to Section 13.1, and any entity which succeeds to the business of any
Employer and adopts the Plan pursuant to Section 13.2.
"ENTRY DATE" means the Effective Date of the Plan and each January 1
and July 1 of each Plan Year after the Effective Date.
"ERISA" means the Employee Retirement Income Security Act of 1974 (P.L.
93-406, as amended).
"HIGHLY PAID EMPLOYEE" for any Plan Year means an Employee who, during
either of that or the immediately preceding Plan Year was at any time a five
percent owner of the Employer (as defined in Code Section 416(i)(1)) or had
Total Compensation exceeding $80,000 and was among the most highly compensated
one-fifth of all Employees. For this purpose:
(a) "Total Compensation" shall include any amount which is
excludable from the Employee's gross income for tax purposes pursuant
to Sections 125, 402(a)(8), 402(h)(1)(B), or 403(b) of the Code.
(b) The number of Employees in "the most highly
compensated one-fifth of all Employees" shall be determined by taking
into account all individuals working for all related Employer entities
described in the definition of "Service", but excluding any individual
who has not completed six months of Service, who normally works fewer
than 17-1/2 hours per week or in fewer than six months per year, who
has not reached age 21, whose employment is covered by a collective
bargaining agreement, or who is a nonresident alien who receives no
earned income from United States sources.
"HOURS OF SERVICE" means hours to be credited to an Employee under the
following rules:
(a) Each hour for which an Employee is paid or is entitled
to be paid for services to an Employer is an Hour of Service.
(b) Each hour for which an Employee is directly or
indirectly paid or is entitled to be paid for a period of vacation,
holidays, illness, disability, lay-off, jury duty, temporary military
duty, or leave of absence is an Hour of Service. However, except as
otherwise specifically provided, no more than 501 Hours of Service
shall be credited for any single continuous period
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<PAGE> 9
which an Employee performs no duties. No more than 501 hours of service
will be credited under this paragraph for any single continuous period
(whether or not such period occurs in a single computation period).
Further, no Hours of Service shall be credited on account of payments
made solely under a plan maintained to comply with worker's
compensation, unemployment compensation, or disability insurance laws,
or to reimburse an Employee for medical expenses.
(c) Each hour for which back pay (ignoring any mitigation
of damages) is either awarded or agreed to by an Employer is an Hour
of Service. However, no more than 501 Hours of Service shall be
credited for any single continuous period during which an Employee
would not have performed any duties. The same hours of service will
not be credited both under paragraph (a) or (b) as the case may be,
and under this paragraph (c). These hours will be credited to the
employee for the computation period or periods to which the award or
agreement pertains rather than the computation period in which the
award agreement or payment is made.
(d) Hours of Service shall be credited in any one period
only under one of the foregoing paragraphs (a), (b) and (c); an
Employee may not get double credit for the same period.
(e) If an Employer finds it impractical to count the
actual Hours of Service for any class or group of non-hourly
Employees, each Employee in that class or group shall be credited
with 45 Hours of Service for each weekly pay period in which he has at
least one Hour of Service. However, an Employee shall be credited only
for his normal working hours during a paid absence.
(f) Hours of Service to be credited on account of a
payment to an Employee (including back pay) shall be recorded in the
period of Service for which the payment was made. If the period
overlaps two or more Plan Years, the Hours of Service credit shall be
allocated in proportion to the respective portions of the period
included in the several Plan Years. However, in the case of periods
of 31 days or less, the Administrator may apply a uniform policy of
crediting the Hours of Service to either the first Plan Year or the
second.
(g) In all respects an Employee's Hours of Service shall
be counted as required by Section 2530.200b-2(b) and (c) of the
Department of Labor's regulations under Title I of ERISA.
"INVESTMENT FUND" means that portion of the Trust Fund consisting of
assets other than Stock. Notwithstanding the above, assets from the Investment
Fund may be used to purchase Stock in the open market or otherwise, or used to
pay on the Stock Obligation, and shares so purchased will be allocated to a
Participant's Stock Fund.
"NORMAL RETIREMENT" means retirement on or after a Participant's 65th
birthday.
"NORMAL RETIREMENT DATE" means the date on which a Participant attains
age 65.
"PARTICIPANT" means any Employee who is participating in the Plan, or
who has previously participated in the Plan and still has a balance credited to
his Account.
"PLAN YEAR" means the twelve month period commencing January 1 and
ending December 31, 1998 and each period of 12 consecutive months beginning on
January 1 of each succeeding year.
"RECOGNIZED ABSENCE" means a period for which --
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<PAGE> 10
(a) an Employer grants an Employee a leave of absence for
a limited period, but only if an Employer grants such leave on a
nondiscriminatory basis; or
(b) an Employee is temporarily laid off by an Employer
because of a change in business conditions; or
(c) an Employee is on active military duty, but only to
the extent that his employment rights are protected by the Military
Selective Service Act of 1967 (38 U.S.C. Sec. 2021).
"ROLL OVER ACCOUNT" means the separate account established to hold a
Participant's roll-over contributions and direct transfers.
"SERVICE" means an Employee's period(s) of employment or
self-employment with an Employer, excluding for initial eligibility purposes
any period in which the individual was a nonresident alien and did not receive
from an Employer any earned income which constituted income from sources within
the United States. An Employee's Service shall include any service which
constitutes service with a predecessor employer within the meaning of Section
414(a) of the Code. An Employee's Service shall also include any service with
an entity which is not an Employer, but only either (i) for a period after 1975
in which the other entity is a member of a controlled group of corporations or
is under common control with other trades and businesses within the meaning of
Section 414(b) or 414(c) of the Code, and a member of the controlled group or
one of the trades and businesses is an Employer, (ii) for a period after 1979
in which the other entity is a member of an affiliated service group within the
meaning of Section 414(m) of the Code, and a member of the affiliated service
group is an Employer, or (iii) all employers aggregated with the Employer under
Section 414(o) of the Code (but not until the Proposed Regulations under
Section 414(o) become effective).
"SPOUSE" means the individual, if any, to whom a Participant is
lawfully married on the date benefit payments to the Participant are to begin,
or on the date of the Participant's death, if earlier. A former spouse shall
be treated as the Spouse or surviving spouse to the extent provided under a
qualified domestic relations order as described in section 414(p) of the Code.
"STOCK" means shares of the Company's voting common stock or
preferred stock meeting the requirements of Section 409(e)(3) of the Code
issued by an Employer which is a member of the same controlled group of
corporations within the meaning of Code Section 414(b).
"STOCK FUND" means that portion of the Trust Fund consisting of Stock.
"STOCK OBLIGATION" means an indebtedness arising from any extension of
credit to the Plan or the Trust which satisfies the requirements set forth in
Section 6.3 and which was obtained for any or all of the following purposes:
(i) to acquire qualifying employer securities as defined
in Treasury Regulations Section 54,4975012l
(ii) to repay such Stock Obligation; or
(iii) to repay a prior exempt loan.
"TOTAL COMPENSATION" (a) shall mean:
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<PAGE> 11
(i) A Participant's wages, salaries, fees for professional
services and other amounts received (without regard to whether an
amount is paid in cash) for personal services actually rendered in the
course of employment with the Employer while a Participant in the
Plan, (including, but not limited to, commissions paid to salesmen,
compensation for services on the basis of a percentage of profits,
commissions on insurance premiums, tips, bonuses, severance payments
and amounts paid as a result of termination, and any deferred
compensation contributions made to this or any other Section 401(k)
Plan on behalf of the Participants), taxable fringe benefits,
reimbursements and expense allowances under a nonaccountable plan (as
described in Section 1.62-2(c) of the Treasury Regulations).
(ii) Amounts described in sections 104(a)(3), 105(a), and
105(h), but only to the extent that these amounts are includable in
the gross income of the employee.
(iii) Amounts paid or reimbursed by the employer for moving
expenses incurred by an employee, but only to the extent that at the
time of payment it is reasonable to believe that these amounts are not
deductible by the employee under section 217.
(iv) The value of a non-qualified stock option granted to
an employee by the employer, but only to the extent that the value of
the option is includable in the gross income of the employee for the
taxable year in which granted.
(v) The amount includable in the gross income of an
employee upon making the election described in section 83(b).
(b) The term "Total Compensation" does not include items
such as:
(i) Contributions made by the Employer to a Plan of
deferred compensation to the extent that before the application of
Section 415 limitations to the Plan, the contributions are not
includable in the gross income of the Employee for the taxable year in
which contributed, except for deferred compensation contributions made
by the Employer to a Section 401(k) Plan on behalf of the Participant.
However, for purposes of computing Code Section 415 annual additions,
deferred compensation contributions made by the Employer to a Section
401(k) Plan on behalf of a Participant shall be deducted from Total
Compensation. In addition, Employer contributions made on behalf of
an Employee to a simplified employee pension plan described in Code
Section 408(k) are not considered as compensation for the taxable year
in which contributed to the extent such contributions are deductible
by the Employee under Code Section 219(b)(7). Additionally, any
distributions from a Plan of deferred compensation are not considered
as compensation for Code Section 415 purposes, regardless of whether
such amounts are includable in the gross income of the Employee when
distributed. However, any amounts received by an Employee pursuant to
an unfunded non-qualified Plan may be considered as compensation for
Code Section 415 purposes in the year such amounts are includable in
the gross income of the Employee.
(ii) Amounts realized from the exercise of a non-qualified
stock option, or when restricted stock (or property) held by an
Employee either becomes freely transferable or is no longer subject to
a substantial risk of forfeiture.
(iii) Amounts realized from the sale, exchange or other
disposition of stock acquired under a qualified stock option.
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<PAGE> 12
(iv) Other amounts which receive special tax benefits, such
as premiums for group term life insurance (but only to the extent that
the premiums are not includable in the gross income of the Employee),
or contributions made by the Employer (whether or not under a salary
reduction agreement) towards the purchase of an annuity contract
described in Code Section 403(b) (whether or not the contributions are
excludable from the gross income of the Employee).
(c) For Plan Years beginning after December 31, 1993,
Total Compensation in excess of $150,000 (as indexed) shall be
disregarded for all Participants. For purposes of this sub-section,
the $150,000 limit shall be referred to as the "applicable limit" for
the Plan Year in question. Such amount shall be adjusted in such
manner as permitted under Code Section 401(a)(17)(B), effective for
the Plan Year which begins within the applicable calendar year. For
purposes of the applicable limit, Total Compensation shall be prorated
over short plan years.
"TRUST" OR "TRUST FUND" means the trust fund created under this Plan.
"TRUST AGREEMENT" means the agreement between the Bank and the Trustee
concerning the Trust Fund. If any assets of the Trust Fund are held in a
co-mingled trust fund with assets of other qualified retirement plans, "Trust
Agreement" shall be deemed to include the trust agreement governing that
co-mingled trust fund. With respect to the allocation of investment
responsibility for the assets of the Trust Fund, the provisions of Article II
of the Trust Agreement are incorporated herein by reference.
"TRUSTEE" means one or more corporate persons or individuals selected
from time to time by the Bank to serve as trustee or co-trustees of the Trust
Fund.
"UNALLOCATED STOCK FUND" means that portion of the Stock Fund
consisting of the Plan's holding of stock which have been acquired in exchange
for one or more Stock obligations and which have not yet been allocated to the
Participant's Accounts in accordance with Section 4.2
"VALUATION DATE" means the last day of the Plan Year and each other
date as of which the committee shall determine the investment experience of the
Investment Fund and adjust the Participants' accounts accordingly.
"VALUATION PERIOD" means the period following a Valuation Date and
ending with the next Valuation Date.
"VESTING YEAR" means a unit of Service credited to a Participant
pursuant to Section 9.2 for purposes of determining his vested interest in his
Account.
SECTION 3. ELIGIBILITY FOR PARTICIPATION.
3.1 INITIAL ELIGIBILITY. An Employee shall enter the Plan as of
the Entry Date coincident with or next following the later of the following
dates:
(a) the last day of the Employee's first Eligibility Year,
and
(b) the Employee's 21st birthday. However, if an Employee
is not in active Service with an Employer on the date he would
otherwise first enter the Plan, his entry shall be deferred until the
next day he is in Service.
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3.2 DEFINITION OF ELIGIBILITY YEAR. An "Eligibility Year" means
an applicable eligibility period (as defined below) in which the Employee has
completed 1,000 Hours of Service for the Employer. For this purpose:
(a) an Employee's first "eligibility period" is the
12-consecutive month period beginning on the first day on which he has
an Hour of Service, and
(b) his subsequent eligibility periods will be
12-consecutive month periods beginning on each January 1 after that
first day of Service.
3.3 TERMINATED EMPLOYEES. No Employee shall have any
interest or rights under this Plan if he is never in active Service with an
Employer on or after the Effective Date.
3.4 CERTAIN EMPLOYEES INELIGIBLE. No Employee shall participate
in the Plan while his Service is covered by a collective bargaining agreement
between an Employer and the Employee's collective bargaining representative if
(i) retirement benefits have been the subject of good faith bargaining between
the Employer and the representative and (ii) the collective bargaining
agreement does not provide for the Employee's participation in the Plan. No
Employee shall participate in the Plan while he is actually employed by a
leasing organization rather than an Employer.
3.5 PARTICIPATION AND REPARTICIPATION. Subject to the
satisfaction of the foregoing requirements, an Employee shall participate in
the Plan during each period of his Service from the date on which he first
becomes eligible until his termination. For this purpose, an Employee who
returns before five (5) consecutive Breaks in Service who previously satisfied
the initial eligibility requirements or who returns after 5 consecutive one
year Breaks in Service with a vested account balance in the Plan shall re-enter
the Plan as of the date of his return to Service with an Employer.
3.6 OMISSION OF ELIGIBLE EMPLOYEE. If, in any Plan Year, any
Employee who should be included as a Participant in the Plan is erroneously
omitted and discovery of such omission is not made until after a contribution
by his Employer for the year has been made, the Employer shall make a
subsequent contribution with respect to the omitted Employee in the amount
which the said Employer would have contributed shall be made regardless of
whether or not it is deductible in whole or in part in any taxable year under
applicable provisions of the Code.
3.7 INCLUSION OF INELIGIBLE EMPLOYEE. If, in any Plan Year, any
person who should not have been included as a Participant in the Plan is
erroneously included and discovery of such incorrect inclusion is not made
until after a contribution for the year has been made, the Employer shall not
be entitled to recover the contribution made with respect to the ineligible
person regardless of whether or not a deduction is allowable with respect to
the ineligible person shall constitute a Forfeiture for the Plan Year in which
the discovery is made.
SECTION 4. CONTRIBUTIONS AND CREDITS.
4.1 DISCRETIONARY CONTRIBUTIONS. The Employer shall from time to
time contribute, with respect to a Plan Year, such amounts as it may determine
from time to time. The Employer shall have no obligation to contribute any
amount under this Plan except as so determined in its sole discretion. The
Employer's contributions and available forfeitures for a Plan Year shall be
credited as of the last day of the year to the Accounts of the Active
Participants in proportion to their amounts of Cash Compensation.
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4.2 CONTRIBUTIONS FOR STOCK OBLIGATIONS. If the Trustee, upon
instructions from the Committee, incurs any Stock Obligation upon the purchase
of Stock, the Employer may contribute for each Plan Year an amount sufficient
to cover all payments of principal and interest as they come due under the
terms of the Stock Obligation. If there is more than one Stock Obligation, the
Employer shall designate the one to which any contribution is to be applied.
Investment earnings realized on Employer contributions and any dividends paid
by the Employer on Stock held in the Unallocated Stock Account, shall be
applied to the Stock Obligation related to that Stock, subject to Section 7.2.
In each Plan Year in which Employer contributions, earnings on
contributions, or dividends on unallocated Stock are used as payments under a
Stock Obligation, a certain number of shares of the Stock acquired with that
Stock Obligation which is then held in the Unallocated Stock Fund shall be
released for allocation among the Participants. The number of shares released
shall bear the same ratio to the total number of those shares then held in the
Unallocated Stock Fund (prior to the release) as (i) the principal and interest
payments made on the Stock Obligation in the current Plan Year bears to (ii)
the sum of (i) above, and the remaining principal and interest payments
required (or projected to be required on the basis of the interest rate in
effect at the end of the Plan Year) to satisfy the Stock Obligation.
At the direction of the Committee, the current and projected payments
of interest under a Stock Obligation may be ignored in calculating the number
of shares to be released in each year if (i) the Stock Obligation provides for
annual payments of principal and interest at a cumulative rate that is not less
rapid at any time than level annual payments of such amounts for 10 years, (ii)
the interest included in any payment is ignored only to the extent that it would
be determined to be interest under standard loan amortization tables, and (iii)
the term of the Stock Obligation, by reason of renewal, extension, or
refinancing, has not exceeded 10 years from the original acquisition of the
Stock.
For these purposes, each Stock Obligation, the Stock purchased with
it, and any dividends on such Stock, shall be considered separately. The Stock
released from the Unallocated Stock Fund in any Plan Year shall be credited as
of the last day of the year to the Accounts of the Active Participants in
proportion to their amounts of Cash Compensation.
4.3 DEFINITIONS RELATED TO CONTRIBUTIONS. For the purposes of this
Plan, the following terms have the meanings specified:
"ACTIVE PARTICIPANT" means a Participant who has satisfied the
eligibility requirements under Section 3 and who has at least 1000 Hours of
Service during the current Plan Year. However, a Participant shall not qualify
as an Active Participant unless (i) he is in active Service with an Employer as
of the last day of the Plan Year, or (ii) he is on a Recognized Absence as of
that date, or (iii) his Service terminated during the Plan Year by reason of
Disability, death, Early or Normal Retirement.
"CASH COMPENSATION" A Participant's Cash Compensation shall include
base salary, bonuses and overtime received by the Participant during the Plan
Year while a Participant in the Plan, and shall also include amounts
contributed under a salary reduction agreement pursuant to Section 401(k) or
Section 125 of the Code.
In the event a Plan Year is a period of less than 12 months for any
reason, then Cash Compensation for the short period shall not exceed the pro
rata portion of this limit created by multiplying a fraction which is the
number of months in the short period divided by twelve times the annual
compensation limit.
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<PAGE> 15
4.4 CONDITIONS AS TO CONTRIBUTIONS. Employers' contributions
shall in all events be subject to the limitations set forth in Section 5.
Contributions may be made in the form of cash, or securities and other property
to the extent permissible under ERISA, including Stock, and shall be held by
the Trustee in accordance with the Trust Agreement. In addition to the
provisions of Section 13.3 for the return of an Employer's contributions in
connection with a failure of the Plan to qualify initially under the Code, any
amount contributed by an Employer due to a good faith mistake of fact, or based
upon a good faith but erroneous determination of its deductibility under Section
404 of the Code, shall be returned to the Employer within one year after the
date on which the contribution was originally made, or within one year after its
nondeductibility has been finally determined. However, the amount to be returned
shall be reduced to take account of any adverse investment experience within the
Trust Fund in order that the balance credited to each Participant's Account is
not less that it would have been if the contribution had never been made.
4.5 TRANSFERS. This plan shall accept direct and indirect
transfers, including roll-over contributions from other tax-qualified plans,
provided, however, that this Plan shall not accept any direct or indirect
transfers from any other retirement plan that is tax-qualified under Section
401(a) of the Code and which is subject to the survivor annuity requirements of
section 401(a)(11) and section 417 of the Code.
SECTION 5. LIMITATIONS ON CONTRIBUTIONS AND ALLOCATIONS.
5.1 LIMITATION ON ANNUAL ADDITIONS. Notwithstanding anything
herein to the contrary, allocation of Employer contributions for any Plan Year
shall be subject to the following:
5.1-1 If allocation of Employer contributions in accordance
with Section 4.1 will result in an allocation of more than one-third
the total contributions for a Plan Year to the accounts of Highly Paid
Employees, then allocation of such amount shall be adjusted so that
such excess will not occur.
5.1-2 After adjustment, if any, required by the preceding
paragraph, the annual additions during any Plan Year to any
Participant's Account under this and any other defined contribution
plans maintained by the Employer or an affiliate (within the purview
of Section 414(b), (c) and (m) and Section 415(h) of the Code, which
affiliate shall be deemed the Employer for this purpose) shall not
exceed the lesser of $30,000 (or such other dollar amount which
results from cost-of- living adjustments under Section 415(d) of the
Code) or "25 percent of the Participant's Total Compensation for such
limitation year." In the event that annual additions exceed the
aforesaid limitations, they shall be reduced in the following
priority:
(i) If the Participant is covered by the Plan at the end
of the Plan Year, any excess amount at the end of the Plan Year that
cannot be allocated to the Participant's account shall be used to
reduce the employer contribution for such Participant in the next
limitation year and any succeeding limitation years if necessary.
(ii) If the Participant is not covered by the Plan at the
end of the Plan Year, the excess amount will be held unallocated in a
suspense account. The suspense account will be applied to reduce
future employer contributions for all remaining Participants in the
next limitation year and each succeeding limitation year if necessary.
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<PAGE> 16
(iii) If a suspense account is in existence at any time
during a limitation year, it will not participate in any allocation of
investment gains and losses. All amounts held in suspense accounts
must be allocated to Participant's accounts before any contributions
may be made to the Plan for the limitation year.
(iv) If a suspense account exists at the time of plan
termination, amounts held in the suspense account that cannot be
allocated shall revert to the Employer.
5.1-3 For purposes of this Section 5.1 and the following
Section 5.2, the "annual addition" to a Participant's accounts means
the sum of (I) employer contributions, (ii) employee contributions, if
any, and (iii) forfeitures. Annual additions to a defined
contribution plan also include amounts allocated, after March 31,
1984, to an individual medical account, as defined in Section
415(l)(2) of the Internal Revenue Code, which is part of a pension or
annuity plan maintained by the Employer, amounts derived from
contributions paid or accrued after December 31, 1985, in taxable
years ending after such date, which are attributable to post-
retirement medical benefits allocated to the separate account of a Key
Employee under a welfare benefit fund, as defined in Section 419A(d)
of the Internal Revenue Code, maintained by the Employer. For these
purposes, annual additions to a defined contribution plan shall not
include the allocation of the excess amounts remaining in the
Unallocated Stock Fund subsequent to a sale of stock from such fund in
accordance with a transaction described in Section 8.1 of the Plan.
The $30,000 limitations referred to shall, for each limitation year
ending after 1988, be automatically adjusted to the new dollar
limitations determined by the Commissioner of Internal Revenue for the
calendar year beginning in that limitation year.
5.1-4 Notwithstanding the foregoing, if no more than
one-third of the Employer Contributions to the Plan for a year which
are deductible under Section 404(a)(9) of the Code are allocated to
Highly Paid Employees (within the meaning of Section 414(q) of the
Internal Revenue Code), the limitations imposed herein shall not apply
to:
(i) forfeitures of employer securities (within the meaning
of Section 409 of the Code) under the Plan if such securities were
acquired with the proceeds of a loan described in Section 404(a)(9)(A)
of the Code), or
(ii) Employer Contributions to the Plan which are
deductible under Section 404(a)(9)(B) and charged against a
Participant's account.
5.1-5 If the Employer contributes amounts, on behalf of
Employees covered by this Plan, to other "defined contribution plans"
as defined in Section 3(34) of ERISA, the limitation on annual
additions provided in this Section shall be applied to annual
additions in the aggregate to this Plan and to such other plans.
Reduction of annual additions, where required, shall be accomplished
first by reductions under such other plan pursuant to the directions
of the named Fiduciary for administration of such other plans or under
priorities, if any, established under the terms of such other plans
and then by allocating any remaining excess for this Plan in the
manner and priority set out above with respect to this Plan."
5.1-6 A limitation year shall mean each 12 consecutive month
period beginning each January 1.
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<PAGE> 17
5.2 COORDINATED LIMITATION WITH OTHER PLANS. Aside from the
limitation prescribed by Section 5.1 with respect to the annual addition to a
Participant's accounts for any single limitation year, if a Participant has
ever participated in one or more defined benefit plans maintained by an
Employer or an affiliate, then the accrued benefit shall be limited so that the
sum of his defined plan fraction and his defined contribution plan fraction
does not exceed one. For this purpose:
5.2-1 A Participant's defined contribution plan fraction with
respect to a Plan Year shall be a fraction, (i) the numerator of which
is the sum of the annual additions to his accounts through the current
year, and (ii) the denominator of which is the sum of the lesser of the
following amounts -A- and -B- determined for the current limitation
year and each prior limitation year of Service with an Employer: -A- is
1.25 times the dollar limit in effect for the year under Section
415(c)(1)(A) of the Code, or 1.0 times such dollar limitation if the
Plan is top-heavy, and -B- is 35 percent of the Participant's Total
Compensation for such year. Further, if the Participant participated in
any related defined contribution plan in any years beginning before
1976, any-excess of the sum of the actual annual additions to the
Participant's accounts for those years over the maximum annual
additions which could have been made in accordance with Section 5.1
shall be ignored, and voluntary contributions by the Participant during
those years shall be taken into account as to each such year only to
the extent that his average annual voluntary contribution in those
years exceeded 10 percent of his average annual Total Compensation in
those years.
5.2-2 A Participant's defined benefit plan fraction with
respect to a limitation year shall be a fraction, (i) the numerator of
which is his projected annual benefit payable at normal retirement
under the Employers' defined benefit plans, and (ii) the denominator
of which is the lesser of (a) 1.25 times $90,000, or 1.0 times such
dollar limitation if the Plan is top-heavy, and (b) 1.4 times the
Participant's average Total Compensation during his highest-paid three
consecutive limitation years.
5.3 EFFECT OF LIMITATIONS. The Committee shall take whatever
action may be necessary from time to time to assure compliance with the
limitations set forth in Section 5.1 and 5.2. Specifically, the Committee shall
see that each Employer restrict its contributions for any Plan Year to an
amount which, taking into account the amount of available forfeitures, may be
completely allocated to the Participants consistent with those limitations.
Where the limitations would otherwise be exceeded by any Participant, further
allocations to the Participant shall be curtailed to the extent necessary to
satisfy the limitations. Where an excessive amount is contributed on account of
a mistake as to one or more Participants' compensation, or there is an amount
of forfeitures which may not be credited in the Plan Year in which it becomes
available, the amount shall be corrected in accordance with Section 5.1-2 of
the Plan.
5.4 LIMITATIONS AS TO CERTAIN PARTICIPANTS. Aside from the
limitations set forth in Section 5.1 and 5.2, if the Plan acquires any Stock in
a transaction as to which a selling shareholder or the estate of a deceased
shareholder is claiming the benefit of Section 1042 of the Code, the Committee
shall see that none of such Stock, and no other assets in lieu of such Stock,
are allocated to the Accounts of certain Participants in order to comply with
Section 409(n) of the Code.
This restriction shall apply at all times to a Participant who owns
(taking into account the attribution rules under Section 318(a) of the Code,
without regard to the exception for employee plan trusts in Section
318(a)(2)(B)(i) more than 25 percent of any class of stock of a corporation
which issued the Stock acquired by the Plan, or another corporation within the
same controlled group, as defined in Section 409(l)(4) of the Code (any such
class of stock hereafter called a "Related Class"). For this purpose, a
Participant who owns more than 25 percent of any Related Class at any time
within the one year preceding the Plan's
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<PAGE> 18
purchase of the Stock shall be subject to the restriction as to all allocations
of the Stock, but any other Participant shall be subject to the restriction only
as to allocations which occur at a time when he owns more than 25 percent of any
Related Class.
Further, this restriction shall apply to the selling shareholder
claiming the benefit of Section 1042 and any other Participant who is related
to such a shareholder within the meaning of Section 267(b) of the Code, during
the period beginning on the date of sale and ending on the later of (1) the
date that is ten years after the date of sale, or (2) the date of the plan
allocation attributable to the final payment of acquisition indebtedness
incurred in connection with the sale.
This restriction shall not apply to any Participant who is a lineal
descendant of a selling shareholder if the aggregate amounts allocated under
the Plan for the benefit of all such descendants do not exceed five percent of
the Stock acquired from the shareholder.
SECTION 6. TRUST FUND AND ITS INVESTMENT.
6.1 CREATION OF TRUST FUND. All amounts received under the Plan
from Employers and investments shall be held as the Trust Fund pursuant to the
terms of this Plan and of the Trust Agreement between the Bank and the Trustee.
The benefits described in this Plan shall be payable only from the assets of
the Trust Fund, and none of the Bank, any other Employer, its board of
directors or trustees, its stockholders, its officers, its employees, the
Committee, and the Trustee shall be liable for payment of any benefit under
this Plan except from the Trust Fund.
6.2 STOCK FUND AND INVESTMENT FUND. The Trust Fund held by the
Trustee shall be divided into the Stock Fund, consisting entirely of Stock, and
the Investment Fund, consisting of all assets of the Trust other than Stock.
The Trustee shall have no investment responsibility for the Stock Fund, but
shall accept any Employer contributions made in the form of Stock, and shall
acquire, sell, exchange, distribute, and otherwise deal with and dispose of
Stock in accordance with the instructions of the Committee. The Trustee shall
have full responsibility for the investment of the Investment Fund, except to
the extent such responsibility may be delegated from time to time to one or
more investment managers pursuant to Section 2.2 of the Trust Agreement, or to
the extent the Committee directs the Trustee to purchase Stock with the assets
in the Investment Fund.
6.3 ACQUISITION OF STOCK. From time to time the Committee may, in
its sole discretion, direct the Trustee to acquire Stock from the issuing
Employer or from shareholders, including shareholders who are or have been
Employees, Participants, or fiduciaries with respect to the Plan. The Trustee
shall pay for such Stock no more than its fair market value, which shall be
determined conclusively by the Committee pursuant to Section 12.4. The
Committee may direct the Trustee to finance the acquisition of Stock by
incurring or assuming indebtedness to the seller or another party which
indebtedness shall be called a "Stock Obligation". The term "Stock Obligation"
shall refer to a loan made to the Plan by a disqualified person within the
meaning of Section 4975(e)(2) of the Code, or a loan to the Plan which is
guaranteed by a disqualified person. A Stock Obligation includes a direct loan
of cash, a purchase-money transaction, and an assumption of an obligation of a
tax-qualified employee stock ownership plan under Section 4975(e)(7) of the
Code ("ESOP"). For these purposes, the term "guarantee" shall include an
unsecured guarantee and the use of assets of a disqualified person as
collateral for a loan, even though the use of assets may not be a guarantee
under applicable state law. An amendment of a Stock Obligation in order to
qualify as an "exempt loan" is not a refinancing of the Stock Obligation or the
making of another Stock Obligation. The term "exempt loan" refers to a loan
that satisfies the provisions of this paragraph.
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<PAGE> 19
A "non-exempt loan" fails to satisfy this paragraph. Any Stock Obligation shall
be subject to the following conditions and limitations:
6.3-1 A Stock Obligation shall be for a specific term, shall
not be payable on demand except in the event of default, and shall
bear a reasonable rate of interest.
6.3-2 A Stock Obligation may, but need not, be secured by a
collateral pledge of either the Stock acquired in exchange for the
Stock Obligation, or the Stock previously pledged in connection with a
prior Stock Obligation which is being repaid with the proceeds of the
current Stock Obligation. No other assets of the Plan and Trust may
be used as collateral for a Stock Obligation, and no creditor under a
Stock Obligation shall have any right or recourse to any Plan and
Trust assets other than Stock remaining subject to a collateral
pledge.
6.3-3 Any pledge of Stock to secure a Stock Obligation must
provide for the release of pledged Stock in connection with payments
on the Stock obligations in the ratio prescribed in Section 4.2.
6.3-4 Repayments of principal and interest on any Stock
Obligation shall be made by the Trustee only from Employer cash
contributions designated for such payments, from earnings on such
contributions, and from cash dividends received on Stock, in the last
case, however, subject to the further requirements of Section 7.2.
6.3-5 In the event of default of a Stock Obligation, the
value of plan assets transferred in satisfaction of the Stock
Obligation must not exceed the amount of the default. If the lender
is a disqualified person within the meaning of Section 4975 of the
Code, a Stock Obligation must provide for a transfer of plan assets
upon default only upon and to the extent of the failure of the plan to
meet the payment schedule of said Stock Obligation. For purposes of
this paragraph, the making of a guarantee does not make a person a
lender."
6.4 PARTICIPANTS' OPTION TO DIVERSIFY. The Committee shall
provide for a procedure under which each Participant may, during the qualified
election period, elect to "diversify" a portion of the Employer Stock allocated
to his Account, as provided in Section 401(a)(28)(B) of the Code. An election
to diversity must be made on the prescribed form and filed with the Committee
within the period specified herein. For each of the first five (5) Plan years in
the qualified election period, the Participant may elect to diversify an amount
which does not exceed 25% of the number of shares allocated to his Account since
the inception of the Plan, less all shares with respect to which an election
under this Section has already been made. For the last year of the qualified
election period, the Participant may elect to have up to 50 percent of the value
of his Account committed to other investments, less all shares with respect to
which an election under this Section has already been made. The term "qualified
election period" shall mean the six (6) Plan Year period beginning with the
first Plan Year in which a Participant has both attained age 55 and completed 10
years of participation in the Plan. A Participant's election to diversify his
Account may be made within each year of the qualified election period and shall
continue for the 90-day period immediately following the last day of each year
in the qualified election period. Once a Participant makes such election, the
Plan must complete diversification in accordance with such election within 90
days after the end of the period during which the election could be made for the
Plan Year. In the discretion of the Committee, the Plan may satisfy the
diversification requirement by any of the following methods:
6.4-1 The Plan may distribute all or part of the amount
subject to the diversification election.
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<PAGE> 20
6.4-2 The Plan may offer the Participant at least three
other distinct investment options, if available under the Plan. The
other investment options shall satisfy the requirements of Regulations
under Section 404(c) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA").
6.4-3 The Plan may transfer the portion of the
Participant's Account subject to the diversification election to
another qualified defined contribution plan of the Employer that
offers at least three investment options satisfying the requirements
of the Regulations under Section 404(c) of ERISA.
SECTION 7. VOTING RIGHTS AND DIVIDENDS ON STOCK.
7.1 VOTING AND TENDERING OF STOCK. The Trustee generally shall
vote all shares of Stock held under the Plan in accordance with the written
instructions of the Committee. However, if any Employer has registration-type
class of securities within the meaning of Section 409(e)(4) of the Code, or if a
matter submitted to the holders of the Stock involves a merger, consolidation,
recapitalization, reclassification, liquidation, dissolution, or sale of
substantially all assets of an entity, then (i) the shares of Stock which have
been allocated to Participants' Accounts shall be voted by the Trustee in
accordance with the Participants' written instructions, and (ii) the Trustee
shall vote any unallocated Stock and allocated Stock for which it has received
no voting instructions in the same proportions as it votes the allocated Stock
for which it has received instructions from Participants; provided, however,
that if an exempt loan, as defined in Section 4975(d) of the Code, is
outstanding and the Plan is in default on such exempt loan, as default is
defined in the loan documents, then to the extent that such loan documents
require the lender to exercise voting rights with respect to the unallocated
shares, the loan documents will prevail. In the event no shares of Stock have
been allocated to Participants' Accounts at the time Stock is to be voted and
any exempt loan which may be outstanding is not in default, each Participant
shall be deemed to have one share of Stock allocated to his or her account for
the sole purpose of providing the Trustee with voting instructions.
Notwithstanding any provision hereunder to the contrary, all
unallocated shares of Stock must be voted by the Trustee in a manner determined
by the Trustee to be for the exclusive benefit of the Participants and
Beneficiaries. Whenever such voting rights are to be exercised, the Employers
shall provide the Trustee, in a timely manner, with the same notices and other
materials as are provided to other holders of the Stock, which the Trustee
shall distribute to the Participants. The Participants shall be provided with
adequate opportunity to deliver their instructions to the Trustee regarding the
voting of Stock allocated to their Accounts. The instructions of the
Participants' with respect to the voting of allocated shares hereunder shall be
confidential.
7.1-1 In the event of a tender offer, Stock shall be tendered
by the Trustee in the same manner as set forth above with respect to
the voting of Stock. Notwithstanding any provision hereunder to the
contrary, Stock must be tendered by the Trustee in a manner determined
by the Trustee to be for the exclusive benefit of the Participants and
Beneficiaries.
7.2 DIVIDENDS ON STOCK. Dividends on Stock which are received by
the Trustee in the form of additional Stock shall be retained in the Stock
Fund, and shall be allocated among the Participant's Accounts and the
Unallocated Stock Fund in accordance with their holdings of the Stock on which
the dividends have been paid. Dividends on Stock credited to Participants'
Accounts which are received by the Trustee in the form of cash shall, at the
direction of the Employer paying the dividends, either (i) be credited to the
Accounts in accordance with Section 8.3 and invested as part of the Investment
Fund, (ii) be distributed immediately to the Participants in proportion with the
Participants' Stock Fund Account
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<PAGE> 21
balance (iii) be distributed to the Participants within 90 days of the close of
the Plan Year in which paid in proportion with the Participants' Stock Fund
Account balance or (iv) be used to make payments on the Stock Obligation. If
dividends on Stock allocated to a Participant's Account are used to repay the
Stock Obligation, Stock with a fair market value equal to the dividends so used
must be allocated to such Participant's Account in lieu of the dividends.
Dividends on Stock held in the Unallocated Stock Fund which are received by the
Trustee in the form of cash shall be allocated to Participants' Investment Fund
Accounts (pro rata based on the Participant's Account balance in relation to all
Participants' Account balances) and shall be applied as soon as practicable to
payments of principal and interest under the Stock Obligation incurred with the
purchase of the Stock.
SECTION 8. ADJUSTMENTS TO ACCOUNTS.
8.1 ADJUSTMENTS FOR TRANSACTIONS. An Employer contribution
pursuant to Section 4.1 shall be credited to the Participants' Accounts as of
the last day of the Plan Year for which it is contributed, in accordance with
Section 4.1. Stock released from the Unallocated Stock Fund upon the Trust's
repayment of a Stock Obligation pursuant to Section 4.2 shall be credited to
the Participants' Accounts as of the last day of the Plan Year in which the
repayment occurred, pro rata based on the cash applied from such Participant's
Account relative to the cash applied from all Participants' Accounts. Any
excess amounts remaining from the use of proceeds of a sale of Stock from the
Unallocated Stock Fund to repay a Stock Obligation shall be allocated as
earnings of the Plan as of the last day of the Plan Year in which the repayment
occurred among the Participants' Accounts in proportion to the opening balance
in each Account. Any benefit which is paid to a Participant or Beneficiary
pursuant to Section 10 shall be charged to the Participant's Account as of the
first day of the Valuation Period in which it is paid. Any forfeiture or
restoral shall be charged or credited to the Participant's Account as of the
first day of the Valuation Period in which the forfeiture or restoral occurs
pursuant to Section 9.6.
8.2 VALUATION OF INVESTMENT FUND. As of each Valuation Date, the
Trustee shall prepare a balance sheet of the Investment Fund, recording each
asset (including any contribution receivable from an Employer) and liability at
its fair market value. Any liability with respect to short positions or
options and any item of accrued income or expense and unrealized appreciation
or depreciation shall be included; provided, however, that such an item may be
estimated or excluded if it is not readily ascertainable unless estimating or
excluding it would result in a material distortion. The Committee shall then
determine the net gain or loss of the Investment Fund since the preceding
Valuation Date, which shall mean the entire income of the Investment Fund,
including realized and unrealized capital gains and losses, net of any expenses
to be charged to the general Investment Fund and excluding any contributions by
the Employer. The determination of gain or loss shall be consistent with the
balance sheets of the Investment Fund for the current and preceding Valuation
Dates.
8.3 ADJUSTMENTS FOR INVESTMENT EXPERIENCE. Any net gain or loss
of the Investment Fund during a Valuation Period, as determined pursuant to
Section 8.2, shall be allocated as of the last day of the Valuation Period
among the Participants' Accounts in proportion to the opening balance in each
Account, as adjusted for benefit payments and forfeitures during the Valuation
Period, without regard to whatever Stock may be credited to an Account. Any
cash dividends received on Stock credited to Participant's Accounts shall be
allocated as of the last day of the Valuation Period among the Participants'
Accounts based on the opening balance in each Participant's Stock Fund Account.
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<PAGE> 22
SECTION 9. VESTING OF PARTICIPANTS' INTERESTS.
9.1 DEFERRED VESTING IN ACCOUNTS. A Participant's vested interest
in his Account shall be based on his Vesting Years in accordance with the
following Table, subject to the balance of this Section 9:
<TABLE>
<CAPTION>
Vesting Percentage of
Years Interest Vested
----- ---------------
<S> <C>
Fewer than 5 0%
5 or more 100%
</TABLE>
9.2 COMPUTATION OF VESTING YEARS. For purposes of this Plan, a
"Vesting Year" means generally a calendar year in which an Employee has at
least 1,000 Hours of Service, beginning with the first Plan Year in which the
Employee has completed an Hour of Service with the Employer, and including
Service with other employers as provided in the definition of "Service".
Notwithstanding the above, an Employee who was employed with Atlantic Liberty
Savings F.A., a federal mutual savings association (the "Mutual Association")
which is the predecessor to the Bank, shall receive credit for vesting purposes
for each calendar year of employment with the Mutual Association in which such
Employee completed 1,000 Hours of Service, not to exceed 5 years of credit for
vesting purpose (such years shall also be referred to as "Vesting Years").
However, a Participant's Vesting Years shall be computed subject to the
following conditions and qualifications:
9.2-1 A Participant's Vesting Years shall not include any
Service prior to the date on which an Employee attains age 18.
9.2-2 A Participant's vested interest in his Account
accumulated before five (5) consecutive Breaks in Service shall be
determined without regard to any Service after such five consecutive
Breaks in Service. Further, if a Participant has five (5) consecutive
Breaks in Service before his interest in his Account has become vested
to some extent, pre-Break years of Service shall not be required to be
taken into account for purposes of determining his post-Break vested
percentage.
9.2-3 In the case of a participant who has 5 or more
consecutive 1-year Breaks in Service, the participant's pre-break
service will count in vesting of the employer-derived post- break
accrued benefit only if either:
(i) such Participant has any nonforfeitable interest in
the accrued benefit attributable to employer
contributions at the time of separation from service,
or
(ii) upon returning to service the number of consecutive
1-year Breaks in Service is less than the number of
years of service.
9.2-4 Unless otherwise specifically excluded, a
Participant's Vesting Years shall include any period of active
military duty to the extent required by the Military Selective Service
Act of 1967 (38 U.S.C. Section 2021).
9.2-5 If any amendment changes the vesting schedule,
including an automatic change to or from a top-heavy vesting schedule,
any Participant with three (3) or more Vesting Years may, by filing a
written request with the Employer, elect to have his vested percentage
computed under the vesting schedule in effect prior to the amendment.
The election period must begin not later
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<PAGE> 23
than the later of sixty (60) days after the amendment is adopted, the
amendment becomes effective, or the Participant is issued written
notice of the amendment by the Employer or the Committee.
9.3 FULL VESTING UPON CERTAIN EVENTS.
9.3-1 Notwithstanding Section 9.1, a Participant's interest in his
Account shall fully vest on the Participant's Normal Retirement Date. The
Participant's interest shall also fully vest in the event that his Service is
terminated by Early Retirement, Disability or by death.
9.3-2 The Participant's interest in his Account shall also fully
vest in the event of a "Change in Control" of the Bank, or the Company. For
these purposes, "Change in Control" shall mean an event of a nature that; (i)
would be required to be reported in response to Item 1a of the current report
on Form 8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934 (the "Exchange Act'); or (ii) results in
a Change in Control of the Bank or the Company within the meaning of the Bank
Holding Company Act of 1956, as amended, and applicable rules and regulations
promulgated thereunder as in effect at the time of the Change in Control
(collectively, the BHCA"); or (iii) without limitation such a Change in Control
shall be deemed to have occurred at such time as (a) any "Person' (as the term
is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Bank or the Company representing 25% or more
of the Bank's or the Company's outstanding securities except for any securities
of the Bank purchased by the Company in connection with the conversion of the
Bank to the stock form and any securities purchased by the Bank's employee stock
ownership plan and trust; or (b) individuals who constitute the Board on the
date hereof (the "Incumbent Board") cease for any reason to constitute at least
a majority thereof, provided, however, that this sub-section (b) shall not apply
if the Incumbent Board is replaced by the appointment by a Federal banking
agency of a conservator or receiver for the Bank and, provided further that any
person becoming a director subsequent to the date hereof whose election was
approved by a vote of at least two-thirds of the directors comprising the
Incumbent Board or whose nomination for election by the Company's stockholders
was approved by the same Nominating Committee serving under an Incumbent Board,
shall be, for purposes of this clause (b), considered as though he were a member
of the Incumbent Board; or (c) a plan of reorganization, merger, consolidation,
sale of all or substantially all the assets of the Bank or the Company; or (d) a
proxy statement soliciting proxies from stockholders of the Company, by someone
other than the current management of the Company, seeking stockholder approval
of a plan of reorganization, merger or consolidation of the Company or Bank or
similar transaction with one or more corporations as a result of which the
outstanding shares of the class of securities then subject to such plan or
transaction are exchanged for or converted into cash or property or securities
not issued by the Bank or the Company shall be distributed and the requisite
number of proxies approving such plan of reorganization, merger or consolidation
of the Company or Bank are received and voted in favor of such transactions; or
(e) a tender offer is made for 25% or more of the outstanding securities of the
Bank or Company and shareholders owning beneficially or of record 25% or more of
the outstanding securities of the Bank or Company have tendered or offered to
sell their shares pursuant to such tender offer and such tendered shares have
been accepted by the tender offeror.
9.4 FULL VESTING UPON PLAN TERMINATION. Notwithstanding Section
9.1, a Participant's interest in his Account shall fully vest if he is in
active Service upon termination of this Plan or upon the permanent and complete
discontinuance of contributions by his Employer. In the event of a partial
termination, the interest of each affected Participant who is in Service shall
fully vest with respect to that part of the Plan which is terminated.
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<PAGE> 24
9.5 FORFEITURE, REPAYMENT, AND RESTORAL. If a Participant's
Service terminates before his interest in his Account is fully vested, that
portion which has not vested shall be forfeited if he either (i) receives a
distribution of his entire vested interest pursuant to Section 10.1, or (ii)
incurs five (5) consecutive one year Breaks In Service. If a Participant's
Service terminates prior to having any portion of his Account become vested,
such Participant shall be deemed to have a received a distribution of his
vested interest as of the Valuation Date next following his termination of
Service.
If a Participant who has received his entire vested interest returns
to Service before he has five (5) consecutive Breaks in Service, he may repay
to the Trustee an amount equal to the distribution. The Participant may repay
such amount at any time within five years after he has returned to Service.
The amount shall be credited to his account at the time it is repaid; an
additional amount equal to that portion of his Account which was previously
forfeited shall be restored to his Account at the same time from other
Employees' forfeitures and, if such forfeitures are insufficient, from a
special contribution by his Employer for that year. A Participant who was
deemed to have received a distribution of his vested interest in the Plan shall
have his account restored as of the first day on which he performs an Hour of
Service after his return.
9.6 ACCOUNTING FOR FORFEITURES. If a portion of a Participant's
account is forfeited, Stock allocated to said Participant's account shall be
forfeited only after other assets are forfeited. If interests in more than one
class of Stock have been allocated to a Participant's account, the Participant
must be treated as forfeiting the same proportion of each class of Stock. A
forfeiture shall be charged to the Participant's Account as of the first day of
the first Valuation Period in which the forfeiture becomes certain pursuant to
Section 9.5. Except as otherwise provided in that Section, a forfeiture shall
be added to the contributions of the terminated Participant's Employer which
are to be credited to other Participants pursuant to Section 4.1 as of the
last day of the Plan Year in which the forfeiture becomes certain.
9.7 VESTING AND NONFORFEITABILITY. A Participant's interest in
his Account which has become vested shall be nonforfeitable for any reason.
SECTION 10. PAYMENT OF BENEFITS.
10.1 BENEFITS FOR PARTICIPANTS. For a Participant whose Service
ends for any reason, distribution will be made to or for the benefit of the
Participant or, in the case of the Participant's death, his Beneficiary, by
either, or a combination of the following methods:
10.1.1 By payment in a lump sum, in accordance with Section
10.2; or
10.1.2 By payment in a series of substantially equal annual
installments over a period not to exceed five (5) years, provided the
maximum period over which the distribution of a Participant's Account
may be made shall be extended by 1 year, up to five (5) additional
years, for each $100,000 (or fraction thereof) by which such
Participant's Account balance exceeds $500,000 (the aforementioned
figures are subject to cost-of-living adjustments prescribed by the
Secretary of the Treasury pursuant to Section 409(o)(2) of the Code).
The Participant shall elect the manner in which his vested Account
balance will be distributed to him. If a Participant so desires, he may direct
how his benefits are to be paid to his Beneficiary. If a deceased Participant
did not file a direction with the Committee, the Participant's benefits shall
be distributed to his Beneficiary in a lump sum. Notwithstanding the
foregoing, if the balance credited to his Account exceeds $3,500, his benefits
shall not be paid before the latest of his 65th birthday or the tenth
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anniversary of the year in which he commenced participation in the Plan unless
he elects an early payment date in a written election filed with the Committee.
A Participant may modify such an election at any time, provided any new benefit
payment date is at least 30 days after a modified election is delivered to the
Committee, subject to the provisions of Section 10.11 hereof.
10.2 TIME FOR DISTRIBUTION.
10.2.1 Distribution of the balance of a Participant's
Account generally shall commence as soon as practicable after the last
day of the Plan Year next following his termination of Service for any
reason, but no later than one year after the close of the Plan Year:
(i) in which the Participant separates from
service by reason of Normal Retirement, Disability, or death;
or
(ii) which is the fifth Plan Year following the
year in which the Participant resigns or is dismissed, unless
he is reemployed before such date.
10.2.2 Unless the Participant elects otherwise, the
distribution of the balance of a Participant's Account shall commence not later
than the 60th day after the latest of the close of the plan year in which -
(i) the Participant attains the age of 65;
(ii) occurs the tenth anniversary of the year in
which the Participant commenced participation in the Plan; or
(iii) the participant terminates his service with
the Employer.
10.2.3 Notwithstanding anything to the contrary, (1) with
respect to a 5-percent owner (as defined in Code Section 416),
distribution of a Participant's Account shall commence (whether or not
he remains in the employ of the Employer) not later than the April 1
of the calendar year next following the calendar year in which the
Participant attains age 70- 1/2, and (2) with respect to all other
Participants, payment of a Participant's benefit will commence not
later than April 1 of the calendar year following the calendar year in
which the Participant attains age 70-1/2, or, if later, the year in
which the Participant retires. A Participant's benefit from that
portion of his Account committed to the Investment Fund shall be
calculated on the basis of the most recent Valuation Date before the
date of payment.
10.2.4 Distribution of a Participant's Account balance after
his death shall comply with the following requirements:
(i) If a Participant dies before his
distributions have commenced, distribution of his Account to
his Beneficiary shall commence not later than one year after
the end of the Plan Year in which the Participant died,
however, if the Participant's Beneficiary is his surviving
spouse, distributions may commence on the date on which the
Participant would have attained age 70-1/2. In either case,
distributions shall be completed within five years after the
they commence.
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(ii) If the Participant dies after distribution
has commenced pursuant to Section 10.1.2 but before his entire
interest in the Plan has been distributed to him, then the
remaining portion of that interest shall, in accordance with
Section 401(a)(9) of the Code, be distributed at least as
rapidly as under the method of distribution being used under
Section 10.1.2 at the date of his death.
(iii) If a married Participant dies before his
benefit payments begin, then unless he has specifically
elected otherwise the Committee shall cause the balance in his
Account to be paid to his Spouse. No election by a married
Participant of a different Beneficiary shall be valid unless
the election is accompanied by the Spouse's written consent,
which (i) must acknowledge the effect of the election, (ii)
must explicitly provide either that the designated Beneficiary
may not subsequently be changed by the Participant without the
Spouse's further consent, or that it may be changed without
such consent, and (iii) must be witnessed by the Committee,
its representative, or a notary public. (This requirement
shall not apply if the Participant establishes to the
Committee's satisfaction that the Spouse may not be located.)
10.3 MARITAL STATUS. The Committee shall from time to time take
whatever steps it deems appropriate to keep informed of each Participant's
marital status. Each Employer shall provide the Committee with the most
reliable information in the Employer's possession regarding its Participants'
marital status, and the Committee may, in its discretion, require a notarized
affidavit from any Participant as to his marital status. The Committee, the
Plan, the Trustee, and the Employers shall be fully protected and discharged
from any liability to the extent of any benefit payments made as a result of
the Committee's good faith and reasonable reliance upon information obtained
from a Participant and his Employer as to his marital status.
10.4 DELAY IN BENEFIT DETERMINATION. If the Committee
is unable to determine the benefits payable to a Participant or Beneficiary on
or before the latest date prescribed for payment pursuant to Section 10.1 or
10.2, the benefits shall in any event be paid within 60 days after they can
first be determined, with whatever makeup payments may be appropriate in view
of the delay.
10.5 ACCOUNTING FOR BENEFIT PAYMENTS. Any benefit payment shall be
charged to the Participant's Account as of the first day of the Valuation
Period in which the payment is made.
10.6 OPTIONS TO RECEIVE AND SELL STOCK. Unless ownership of
virtually all Stock is restricted to active Employees and qualified retirement
plans for the benefit of Employees pursuant to the certificates of
incorporation or by-laws of the Employers issuing Stock, a terminated
Participant or the Beneficiary of a deceased Participant may instruct the
Committee to distribute the Participant's entire vested interest in his Account
in the form of Stock. In that event, the Committee shall apply the
Participant's vested interest in the Investment Fund to purchase sufficient
Stock from the Stock Fund or from any owner of stock to make the required
distribution. In all other cases, the Participant's vested interest in the
Stock Fund shall be distributed in shares of Stock, and his vested interest in
the Investment Fund shall be distributed in cash.
Any Participant who receives Stock pursuant to Section 10.1, and any
person who has received Stock from the Plan or from such a Participant by
reason of the Participant's death or incompetency, by reason of divorce or
separation from the Participant, or by reason of a rollover contribution
described in Section 402(a)(5) of the Code, shall have the right to require the
Employer which issued the Stock to purchase the Stock for its current fair
market value (hereinafter referred to as the "put right"). The put right shall
be exercisable by written notice to the Committee during the first 60 days
after the Stock is
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distributed by the Plan, and, if not exercised in that period, during the first
60 days in the following Plan Year after the Committee has communicated to the
Participant its determination as to the Stock's current fair market value.
However, the put right shall not apply to the extent that the Stock, at the time
the put right would otherwise be exercisable, may be sold on an established
market in accordance with federal and state securities laws and regulations.
Similarly, the put option shall not apply with respect to the portion of a
Participant's account which the employee elected to have reinvested under Code
Section 401(a)(28)(B). If the put right is exercised, the Trustee may, if so
directed by the Committee in its sole discretion, assume the Employer's rights
and obligations with respect to purchasing the Stock. Notwithstanding anything
herein to the contrary, in the case of a plan established by a Bank (as defined
in Code Section 581), the put option shall not apply if prohibited by a federal
or state law and Participants are entitled to elect their benefits be
distributed in cash.
If a Participant elects to receive his distribution in the form of a
lump sum pursuant to Section 10.1.1 of the Plan, the Employer or the Trustee,
as the case may be, may elect to pay for the Stock in equal periodic
installments, not less frequently than annually, over a period not longer than
five years from the day after the put right is exercised, with adequate
security and interest at a reasonable rate on the unpaid balance, all such
terms to be set forth in a promissory note delivered to the seller with normal
terms as to acceleration upon any uncured default.
If a Participant elects to receive his distribution in the form of an
installment payment pursuant to Section 10.1.2 of the Plan, the Employer or the
Trustee, as the case may be, shall pay for the Stock distributed in the
installment distribution over a period which shall not exceed 30 days after the
exercise of the put right.
Nothing contained herein shall be deemed to obligate any Employer to
register any Stock under any federal or state securities law or to create or
maintain a public market to facilitate the transfer or disposition of any
Stock. The put right described herein may only be exercised by a person
described in the second preceding paragraph, and may not be transferred with
any Stock to any other person. As to all Stock purchased by the Plan in
exchange for any Stock Obligation, the put right shall be nonterminable. The
put right for Stock acquired through a Stock Obligation shall continue with
respect to such Stock after the Stock Obligation is repaid or the Plan ceases
to be an employee stock ownership plan.
10.7 RESTRICTIONS ON DISPOSITION OF STOCK. Except in the case of
Stock which is traded on an established market, a Participant who receives
Stock pursuant to Section 10.1, and any person who has received Stock from the
Plan or from such a Participant by reason of the Participant's death or
incompetency, by reason of divorce or separation from the Participant, or by
reason of a rollover contribution described in Section 402(a)(5) of the Code,
shall, prior to any sale or other transfer of the Stock to any other person,
first offer the Stock to the issuing Employer and to the Plan at the greater of
(i) its current fair market value, or (ii) the purchase price offered in good
faith by an independent third party purchaser. This restriction shall apply to
any transfer, whether voluntary, involuntary, or by operation of law, and
whether for consideration or gratuitous. Either the Employer or the Trustee may
accept the offer within 14 days after it is delivered. Any Stock distributed by
the Plan shall bear a conspicuous legend describing the right of first refusal
under this Section 10.7, as well as any other restrictions upon the transfer of
the Stock imposed by federal and state securities laws and regulations.
10.8 CONTINUING LOAN PROVISIONS; CREATIONS OF PROTECTIONS AND
RIGHTS. Except as otherwise provided in Sections 10.6 and 10.7 and this
Section, no shares of Employer Stock held or distributed by the Trustee may be
subject to a put, call or other option, or buy-sell arrangement. The
provisions of this
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Section shall continue to by applicable to such Stock even if the Plan ceases to
be an employee stock ownership plan under Section 4975(e)(7) of the Code.
10.9 DIRECT ROLLOVER OF ELIGIBLE DISTRIBUTION. A Participant or
distributee may elect, at the time and in the manner prescribed by the Trustee
or the Committee, to have any portion of an eligible rollover distribution paid
directly to an eligible retirement plan specified by the Participant or
distributee in a direct rollover.
10.9-1 An "eligible rollover" is any distribution that does
not include: any distribution that is one of a series of substantially
equal periodic payments (not less frequently than annually) made for
the life (or life expectancy) of the distributee or the joint lives
(or joint life expectancies) of the Participant and the Participant's
Beneficiary, or for a specified period of ten years or more; any
distribution to the extent such distribution is required under Code
Section 401(a)(9); and the portion of any distribution that is not
included in gross income (determined without regard to the exclusion
for net unrealized appreciation with respect to employer securities).
10.9-2 An "eligible retirement plan" is an individual
retirement account described in Code Section 401(a), an individual
retirement annuity described in Code Section 408(b), an annuity plan
described in Code Section 403(a), or a qualified trust described in
Code Section 401(a), that accepts the distributee's eligible rollover
distribution. However, in the case of an eligible rollover distribution
to the surviving spouse, an eligible retirement plan is an individual
retirement account or individual retirement annuity.
10.9-3 A "direct rollover" is a payment by the Plan to the
eligible retirement plan specified by the distributee.
10.9-4 The term "distributee" shall refer to a deceased
Participant's spouse or a Participant's former spouse who is the
alternate payee under a qualified domestic relations order, as defined
in Code Section 414(p).
10.10 IN SERVICE DISTRIBUTION OF ROLL-OVER ACCOUNT. Upon the
written election of a Participant delivered to the Committee, all or any
portion of the amounts held in the Participant's Roll-over Account, shall be
distributed to the Participant at any time within 30 days or as soon thereafter
as is reasonably practicable.
10.11 WAIVER OF 30 DAY PERIOD AFTER NOTICE OF DISTRIBUTION. If a
distribution is one to which Sections 401(a)(11) and 417 of the Code do not
apply, such distribution may commence less than 30 days after the notice
required under Section 4.11(a)-11(c) of the Income Tax Regulations is given,
provided that:
(i) the Trustee or Administrative Committee, as
applicable, clearly informs the Participant
that the Participant has a right to a period
of at least 30 days after receiving the
notice to consider the decision of whether or
not to elect a distribution (and, if
applicable, a particular option), and
(ii) the Participant, after receiving the notice,
affirmatively elects a distribution.
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SECTION 11. RULES GOVERNING BENEFIT CLAIMS AND REVIEW OF APPEALS.
11.1 CLAIM FOR BENEFITS. Any Participant or Beneficiary who
qualifies for the payment of benefits shall file a claim for his benefits with
the Committee on a form provided by the Committee. The claim, including any
election of an alternative benefit form, shall be filed at least 30 days before
the date on which the benefits are to begin. If a Participant or Beneficiary
fails to file a claim by the day before the date on which benefits become
payable, he shall be presumed to have filed a claim for payment for the
Participant's benefits in the standard form prescribed by Sections 10.1 or 10.2
11.2 NOTIFICATION BY COMMITTEE. Within 90 days after receiving a
claim for benefits (or within 180 days, if special circumstances require an
extension of time and written notice of the extension is given to the
Participant or Beneficiary within 90 days after receiving the claim for
benefits), the Committee shall notify the Participant or Beneficiary whether
the claim has been approved or denied. If the Committee denies a claim in any
respect, the Committee shall set forth in a written notice to the Participant
or Beneficiary:
(i) each specific reason for the denial;
(ii) specific references to the pertinent Plan provisions
on which the denial is based;
(iii) a description of any additional material or
information which could be submitted by the Participant or Beneficiary
to support his claim, with an explanation of the relevance of such
information; and
(iv) an explanation of the claims review procedures set
forth in Section 11.3.
11.3 CLAIMS REVIEW PROCEDURE. Within 60 days after a Participant
or Beneficiary receives notice from the Committee that his claim for benefits
has been denied in any respect, he may file with the Committee a written notice
of appeal setting forth his reasons for disputing the Committee's
determination. In connection with his appeal the Participant or Beneficiary or
his representative may inspect or purchase copies of pertinent documents and
records to the extent not inconsistent with other Participants' and
Beneficiaries' rights of privacy. Within 60 days after receiving a notice of
appeal from a prior determination (or within 120 days, if special circumstances
require an extension of time and written notice of the extension is given to the
Participant or Beneficiary and his representative within 60 days after receiving
the notice of appeal), the Committee shall furnish to the Participant or
Beneficiary and his representative, if any, a written statement of the
Committee's final decision with respect to his claim, including the reasons for
such decision and the particular Plan provisions upon which it is based.
SECTION 12. THE COMMITTEE AND ITS FUNCTIONS.
12.1 AUTHORITY OF COMMITTEE. The Committee shall be the "plan
administrator" within the meaning of ERISA and shall have exclusive
responsibility and authority to control and manage the operation and
administration of the Plan, including the interpretation and application of its
provisions, except to the extent such responsibility and authority are
otherwise specifically (i) allocated to the Bank, the Employers, or the Trustee
under the Plan and Trust Agreement, (ii) delegated in writing to other persons
by the Bank, the Employers, the Committee, or the Trustee, or (iii) allocated
to other parties by operation of law. The Committee shall have exclusive
responsibility regarding decisions concerning the payment of benefits under the
Plan. The Committee shall have no investment responsibility with respect to
the Investment Fund except to the extent, if any, specifically provided in the
Trust Agreement. In the
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discharge of its duties, the Committee may employ accountants, actuaries, legal
counsel, and other agents (who also may be employed by an Employer or the
Trustee in the same or some other capacity) and may pay their reasonable
expenses and compensation.
12.2 IDENTITY OF COMMITTEE. The Committee shall consists of three
or more individuals selected by the Bank. Any individual, including a
director, trustee, shareholder, officer, or employee of an Employer, shall be
eligible to serve as a member of the Committee. The Bank shall have the power
to remove any individual serving on the Committee at any time without cause
upon 10 days written notice, and any individual may resign from the Committee
at any time upon 10 days written notice to the Bank. The Bank shall notify the
Trustee of any change in membership of the Committee.
12.3 DUTIES OF COMMITTEE. The Committee shall keep whatever
records may be necessary to implement the Plan and shall furnish whatever
reports may be required from time to time by the Bank. The Committee shall
furnish to the Trustee whatever information may be necessary to properly
administer the Trust. The Committee shall see to the filing with the appropriate
government agencies of all reports and returns required of the plan Committee
under ERISA and other laws.
Further, the Committee shall have exclusive responsibility and
authority with respect to the Plan's holdings of Stock and shall direct the
Trustee in all respects regarding the purchase, retention, sale, exchange, and
pledge of Stock and the creation and satisfaction of Stock Obligations. The
Committee shall at all times act consistently with the Bank's long-term
intention that the Plan, as an employee stock ownership plan, be invested
primarily in Stock. Subject to the direction of the Board as to the
application of Employer contributions to Stock Obligations, and subject to the
provisions of Sections 6.4 and 10.6 as to Participants' rights under certain
circumstances to have their Accounts invested in Stock or in assets other than
Stock, the Committee shall determine in its sole discretion the extent to which
assets of the Trust shall be used to repay Stock Obligations, to purchase
Stock, or to invest in other assets to be selected by the Trustee or an
investment manager. No provision of the Plan relating to the allocation or
vesting of any interests in the Stock Fund or the Investment Fund shall
restrict the Committee from changing any holdings of the Trust, whether the
changes involve an increase or a decrease in the Stock or other assets
credited to Participants' Accounts. In determining the proper extent of the
Trust's investment in Stock, the Committee shall be authorized to employ
investment counsel, legal counsel, appraisers, and other agents to pay their
reasonable expenses and compensation.
12.4 VALUATION OF STOCK. If the valuation of any Stock is not
established by reported trading on a generally recognized public market, the
Committee shall have the exclusive authority and responsibility to determine
its value for all purposes under the Plan. Such value shall be determined as
of each Valuation Date, and on any other date as of which the Plan purchases or
sells such Stock. The Committee shall use generally accepted methods of
valuing stock of similar corporations for purposes of arm's length business and
investment transactions, and in this connection the Committee shall obtain, and
shall be protected in relying upon, the valuation of such Stock as determined
by an independent appraiser experienced in preparing valuations of similar
businesses.
12.5 COMPLIANCE WITH ERISA. The Committee shall perform all acts
necessary to comply with ERISA. Each individual member or employee of the
Committee shall discharge his duties in good faith and in accordance with the
applicable requirements of ERISA.
12.6 ACTION BY COMMITTEE. All actions of the Committee shall be
governed by the affirmative vote of a number of members which is a majority of
the total number of members currently appointed,
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including vacancies. The members of the Committee may meet informally and may
take any action without meeting as a group.
12.7 EXECUTION OF DOCUMENTS. Any instrument executed by the
Committee shall be signed by any member or employee of the Committee.
12.8 ADOPTION OF RULES. The Committee shall adopt such rules and
regulations of uniform applicability as it deems necessary or appropriate for
the proper administration and interpretation of the Plan.
12.9 RESPONSIBILITIES TO PARTICIPANTS. The Committee shall
determine which Employees qualify to enter the Plan. The Committee shall
furnish to each eligible Employee whatever summary plan descriptions, summary
annual reports, and other notices and information may be required under ERISA.
The Committee also shall determine when a Participant or his Beneficiary
qualifies for the payment of benefits under the Plan. The Committee shall
furnish to each such Participant or Beneficiary whatever information is
required under ERISA (or is otherwise appropriate) to enable the Participant or
Beneficiary to make whatever elections may be available pursuant to Sections 6
and 10, and the Committee shall provide for the payment of benefits in the
proper form and amount from the assets of the Trust Fund. The Committee may
decide in its sole discretion to permit modifications of elections and to defer
or accelerate benefits to the extent consistent with applicable law and the
best interests of the individuals concerned.
12.10 ALTERNATIVE PAYEES IN EVENT OF INCAPACITY. If the Committee
finds at any time that an individual qualifying for benefits under this Plan is
a minor or is incompetent, the Committee may direct the benefits to be paid, in
the case of a minor, to his parents, his legal guardian, or a custodian for him
under the Uniform Gifts to Minors Act, or, in the case of an incompetent, to
his spouse, or his legal guardian, the payments to be used for the individual's
benefit. The Committee and the Trustee shall not be obligated to inquire as to
the actual use of the funds by the person receiving them under this Section
12.10, and any such payment shall completely discharge the obligations of the
Plan, the Trustee, the Committee, and the Employers to the extent of the
payment.
12.11 INDEMNIFICATION BY EMPLOYERS. Except as separately agreed in
writing, the Committee, and any member or employee of the Committee, shall be
indemnified and held harmless by the Employer, jointly and severally, to the
fullest extent permitted by law against any and all costs, damages, expenses,
and liabilities reasonably incurred by or imposed upon it or him in connection
with any claim made against it or him or in which it or he may be involved by
reason of its or his being, or having been, the Committee, or a member or
employee of the Committee, to the extent such amounts are not paid by
insurance.
12.12 NONPARTICIPATION BY INTERESTED MEMBER. Any member of the
Committee who also is a Participant in the Plan shall take no part in any
determination specifically relating to his own participation or benefits,
unless his abstention would leave the Committee incapable of acting on the
matter.
SECTION 13. ADOPTION, AMENDMENT, OR TERMINATION OF THE PLAN.
13.1 ADOPTION OF PLAN BY OTHER EMPLOYERS. With the consent of the
Bank, any entity may become a participating Employer under the Plan by (i)
taking such action as shall be necessary to adopt the Plan, (ii) becoming a
party to the Trust Agreement establishing the Trust Fund, and (iii) executing
and delivering such instruments and taking such other action as may be
necessary or desirable to put the Plan into effect with respect to the entity's
Employees.
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13.2 ADOPTION OF PLAN BY SUCCESSOR. In the event that any Employer
shall be reorganized by way of merger, consolidation, transfer of assets or
otherwise, so that an entity other than an Employer shall succeed to all or
substantially all of the Employer's business, the successor entity may be
substituted for the Employer under the Plan by adopting the Plan and becoming a
party to the Trust Agreement. Contributions by the Employer shall be
automatically suspended from the effective date of any such reorganization
until the date upon which the substitution of the successor entity for the
Employer under the Plan becomes effective. If, within 90 days following the
effective date of any such reorganization, the successor entity shall not have
elected to become a party to the Plan, or if the Employer shall adopt a plan of
complete liquidation other than in connection with a reorganization, the Plan
shall be automatically terminated with respect to Employees of the Employer as
of the close of business on the 90th day following the effective date of the
reorganization, or as of the close of business on the date of adoption of a plan
of complete liquidation, as the case may be.
13.3 PLAN ADOPTION SUBJECT TO QUALIFICATION. Notwithstanding any
other provision of the Plan, the adoption of the Plan and the execution of the
Trust Agreement are conditioned upon their being determined initially by the
Internal Revenue Service to meet the qualification requirements of Section
401(a) of the Code, so that the Employers may deduct currently for federal
income tax purposes their contributions to the Trust and so that the
Participants may exclude the contributions from their gross income and
recognize income only when they receive benefits. In the event that this Plan
is held by the Internal Revenue Service not to qualify initially under Section
401(a), the Plan may be amended retroactively to the earliest date permitted by
U.S. Treasury Regulations in order to secure qualification under Section
401(a). If this Plan is held by the Internal Revenue Service not to qualify
initially under Section 401(a) either as originally adopted or as amended, each
Employer's contributions to the Trust under this Plan (including any earnings
thereon) shall be returned to it and this Plan shall be terminated. In the
event that this Plan is amended after its initial qualification and the Plan as
amended is held by the Internal Revenue Service not to qualify under Section
401(a), the amendment may be modified retroactively to the earliest date
permitted by U.S. Treasury Regulations in order to secure approval of the
amendment under Section 401(a).
13.4 RIGHT TO AMEND OR TERMINATE. The Bank intends to continue
this Plan as a permanent program. However, each participating Employer
separately reserves the right to suspend, supersede, or terminate the Plan at
any time and for any reason, as it applies to that Employer's Employees, and
the Bank reserves the right to amend, suspend, supersede, merge, consolidate,
or terminate the Plan at any time and for any reason, as it applies to the
Employees of each Employer. No amendment, suspension, supersession, merger,
consolidation, or termination of the Plan shall (i) reduce any Participant's or
Beneficiary's proportionate interest in the Trust Fund, (ii) reduce or
restrict, either directly or indirectly, the benefit provided any Participant
prior to the amendment, or (iii) divert any portion of the Trust Fund to
purposes other than the exclusive benefit of the Participants and their
Beneficiaries prior to the satisfaction of all liabilities under the Plan.
Moreover, there shall not be any transfer of assets to a successor plan or
merger or consolidation with another plan unless, in the event of the
termination of the successor plan or the surviving plan immediately following
such transfer, merger, or consolidation, each participant or beneficiary would
be entitled to a benefit equal to or greater than the benefit he would have been
entitled to if the plan in which he was previously a participant or beneficiary
had terminated immediately prior to such transfer, merger, or consolidation.
Following a termination of this Plan by the Bank, the Trustee shall continue to
administer the Trust and pay benefits in accordance with the Plan as amended
from time to time and the Committee's instructions.
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SECTION 14. MISCELLANEOUS PROVISIONS.
14.1 PLAN CREATES NO EMPLOYMENT RIGHTS. Nothing in this Plan shall
be interpreted as giving any Employee the right to be retained as an Employee
by an Employer, or as limiting or affecting the rights of an Employer to
control its Employees or to terminate the Service of any Employee at any time
and for any reason, subject to any applicable employment or collective
bargaining agreements.
14.2 NONASSIGNABILITY OF BENEFITS. No assignment, pledge, or other
anticipation of benefits from the Plan will be permitted or recognized by the
Employer, the Committee, or the Trustee. Moreover, benefits from the Plan
shall not be subject to attachment, garnishment, or other legal process for
debts or liabilities of any Participant or Beneficiary, to the extent permitted
by law. This prohibition on assignment or alienation shall apply to any
judgment, decree, or order (including approval of a property settlement
agreement) which relates to the provision of child support, alimony, or
property rights to a present or former spouse, child or other dependent of a
Participant pursuant to a State domestic relations or community property law,
unless the judgment, decree, or order is determined by the Committee to be a
qualified domestic relations order within the meaning of Section 414(p) of the
Code, as more fully set forth in Section 14.2 hereof.
14.3 LIMIT OF EMPLOYER LIABILITY. The liability of the Employer
with respect to Participants under this Plan shall be limited to making
contributions to the Trust from time to time, in accordance with Section 4.
14.4 TREATMENT OF EXPENSES. All expenses incurred by the Committee
and the Trustee in connection with administering this Plan and Trust Fund shall
be paid by the Trustee from the Trust Fund to the extent the expenses have not
been paid or assumed by the Employer or by the Trustee.
14.5 NUMBER AND GENDER. Any use of the singular shall be
interpreted to include the plural, and the plural the singular. Any use of the
masculine, feminine, or neuter shall be interpreted to include the masculine,
feminine, or neuter, as the context shall require.
14.6 NONDIVERSION OF ASSETS. Except as provided in Sections 5.3
and 13.3, under no circumstances shall any portion of the Trust Fund be diverted
to or used for any purpose other than the exclusive benefit of the Participants
and their Beneficiaries prior to the satisfaction of all liabilities under the
Plan.
14.7 SEPARABILITY OF PROVISIONS. If any provision of this Plan is
held to be invalid or unenforceable, the other provisions of the Plan shall not
be affected but shall be applied as if the invalid or unenforceable provision
had not been included in the Plan.
14.8 SERVICE OF PROCESS. The agent for the service of process upon
the Plan shall be the president of the Bank, or such other person as may be
designated from time to time by the Bank.
14.9 GOVERNING STATE LAW. This Plan shall be interpreted in
accordance with the laws of the State of New York to the extent those laws are
applicable under the provisions of ERISA.
14.10 EMPLOYER CONTRIBUTIONS CONDITIONED ON DEDUCTIBILITY. Employer
Contributions to the Plan are conditioned on deductibility under Code Section
404. In the event that the Internal Revenue Service shall determine that all
or any portion of an Employer Contribution is not deductible under that
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Section, the nondeductible portion shall be returned to the Employer within one
year of the disallowance of the deduction.
14.11 UNCLAIMED ACCOUNTS. Neither the Employer nor the Trustees
shall be under any obligation to search for, or ascertain the whereabouts of,
any Participant or beneficiary. The Employer or the Trustees, by certified or
registered mail addressed to his last known address of record with the
Employer, shall notify any Participant or beneficiary that he is entitled to a
distribution under this Plan, and the notice shall quote the provisions of this
Section. If the Participant or beneficiary fails to claim his benefits or make
his whereabouts known in writing to the Employer or the Trustees within seven
(7) calendar years after the date of notification, the benefits of the
Participant or beneficiary under the Plan will be disposed of as follows:
(a) If the whereabouts of the Participant is unknown but
the whereabouts of the Participant's beneficiary is known to the
Trustees, distribution will be made to the beneficiary.
(b) If the whereabouts of the Participant and his
beneficiary are unknown to the Trustees, the plan will forfeit the
benefit, provided that the benefit is subject to a claim for
reinstatement if the Participant or Beneficiary make a claim for the
forfeited benefit.
Any payment made pursuant to the power herein conferred upon the
Trustees shall operate as a complete discharge of all obligations of the
Trustees, to the extent of the distributions so made.
14.12 QUALIFIED DOMESTIC RELATIONS ORDER. Section 14.2 shall not
apply to a "qualified domestic relations order" defined in Code Section 414(p),
and such other domestic relations orders permitted to be so treated by
Administrator under the provisions of the Retirement Equity Act of 1984.
Further, to the extent provided under a "qualified domestic relations order", a
former spouse of a Participant shall be treated as the spouse or surviving
spouse for all purposes under the Plan.
In the case of any domestic relations order received by the Plan:
(a) The Employer or the Plan Committee shall promptly
notify the Participant and any other alternate payee of the receipt of
such order and the Plan's procedures for determining the qualified
status of domestic relations orders, and
(b) Within a reasonable period after receipt of such
order, the Employer or the Plan Committee shall determine whether such
order is a qualified domestic relations order and notify the
Participant and each alternate payee of such determination. The
Employer or the Plan Committee shall establish reasonable procedures
to determine the qualified status of domestic relations orders and to
administer distributions under such qualified orders.
During any period in which the issue of whether a domestic relations
order is a qualified domestic relations order is being determined (by the
Employer or Plan Committee, by a court of competent jurisdiction, or otherwise),
the Employer or the Plan Committee shall segregate in a separate account in the
Plan or in an escrow account the amounts which would have been payable to the
alternate payee during such period if the order had been determined to be a
qualified domestic relations order. If within eighteen (18) months the order
(or modification thereof) is determined to be a qualified domestic relations
order, the Employer or the Plan Committee shall pay the segregated amounts (plus
any interest thereon) to the person or persons entitled thereto. If within
eighteen (18) months it is determined that the order is not a qualified domestic
relations order, or the issue as to whether such order is a qualified domestic
relations
-29-
<PAGE> 35
order is not resolved, then the Employer or the Plan Committee shall pay the
segregated amounts (plus any interest thereon) to the person or persons who
would have been entitled to such amounts if there had been no order. Any
determination that an order is a qualified domestic relations order which is
made after the close of the eighteen (18) month period shall be applied
prospectively only. The term "alternate payee" means any spouse, former spouse,
child or other dependent of a Participant who is recognized by a domestic
relations order as having a right to receive all, or a portion of, the benefit
payable under a Plan with respect to such Participant.
SECTION 15. TOP-HEAVY PROVISIONS.
15.1 TOP-HEAVY PLAN. For any Plan Year beginning after December
31, 1983, this Plan is top-heavy if any of the following conditions exist:
(a) If the top-heavy ratio for this Plan exceeds sixty
percent (60%) and this Plan is not part of any required aggregation group or
permissive aggregation group;
(b) If this Plan is a part of a required aggregation group
(but is not part of a permissive aggregation group) and the aggregate top-heavy
ratio for the group of Plans exceeds sixty percent (60%); or
(c) If this Plan is a part of a required aggregation group
and part of a permissive aggregation group and the aggregate top-heavy ratio
for the permissive aggregation group exceeds sixty percent (60%).
15.2 SUPER TOP-HEAVY PLAN For any Plan Year beginning after
December 31, 1983, this Plan will be a super top-heavy Plan if any of the
following conditions exist:
(a) If the top-heavy ratio for this Plan exceeds ninety
percent (90%) and this Plan is not part of any required aggregation group or
permissive aggregation group.
(b) If this Plan is a part of a required aggregation group
(but is not part of a permissive aggregation group) and the aggregate top-heavy
ratio for the group of Plans exceeds ninety percent (90%), or
(c) If this Plan is a part of a required aggregation group
and part of a permissive aggregation group and the aggregate top-heavy ratio
for the permissive aggregation group exceeds ninety percent (90%).
15.3 DEFINITIONS.
In making this determination, the Committee shall use the following definitions
and principles:
15.3-1 The "Determination Date', with respect to the first
Plan Year of any plan, means the last day of that Plan Year, and with
respect to each subsequent Plan Year, means the last day of the
preceding Plan Year. If any other plan has a Determination Date which
differs from this Plan's Determination Date, the top-heaviness of this
Plan shall be determined on the basis of the other plan's
Determination Date falling within the same calendar years as this
Plan's Determination Date.
-30-
<PAGE> 36
15.3-2 A "Key Employee", with respect to a Plan Year, means
an Employee who at any time during the five years ending on the
top-heavy Determination Date for the Plan Year has received
compensation from an Employer and has been (i) an officer of the
Employer having Total Compensation greater than 50 percent of the
limit then in effect under Section 415(b)(1)(A) of the Code, (ii) one
of the 10 Employees owning the largest interests in the Employer
having Total Compensation greater than the limit then in effect under
Section 415(c)(1)(A), (iii) an owner of more than five percent of the
outstanding equity interest or the outstanding voting interest in any
Employer, or (iv) an owner of more than one percent of the outstanding
equity interest or the outstanding voting interest in an Employer
whose annual compensation exceeds $150,000. For purposes of
determining whether an Employee is a Key Employee, annual compensation
means compensation as defined in Section 415(c)(3) of the Code, but
including amounts contributed by the Employee pursuant to a salary
reduction agreement which are excludable from the Employee's gross
income under Section 125, Section 402(e)(3), Section 402(H)(1)(B) or
Section 403(b) of the Code. The Beneficiary of a Key Employee shall
also be considered a Key Employee.
15.3-3 A "Non-key Employee" means an Employee who at any time
during the five years ending on the top-heavy Determination Date for
the Plan Year has received compensation from an Employer and who has
never been a Key Employee, and the Beneficiary of any such Employee.
15.3-4 A "required aggregation group" includes (a) each
qualified Plan of the Employer in which at least one Key Employee
participates in the Plan Year containing the Determination Date and
any of the four (4) preceding Plan Years, and (b) any other qualified
Plan of the Employer which enables a Plan described in (a) to meet the
requirements of Code Sections 401(a)(4) and 410. For purposes of the
preceding sentence, a qualified Plan of the Employer includes a
terminated Plan maintained by the Employer within the five (5) year
period ending on the Determination Date. In the case of a required
aggregation group, each Plan in the group will be considered a
top-heavy Plan if the required aggregation group is a top-heavy group.
No Plan in the required aggregation group will be considered a
top-heavy Plan if the required aggregation group is not a top-heavy
group. All Employers aggregated under Code Sections 414(b), (c) or
(m) or (o) (but only after the Code Section 414(o) regulations become
effective) are considered a single Employer.
15.3-5 A "permissive aggregation group" includes the required
aggregation group of Plans plus any other qualified Plan(s) of the
Employer that are not required to be aggregated but which, when
considered as a group with the required aggregation group, satisfy the
requirements of Code Sections 401(a)(4) and 410 and are comparable to
the Plans in the required aggregation group. No Plan in the
permissive aggregation group will be considered a top-heavy Plan if
the permissive aggregation group is not a top-heavy group. Only a
Plan that is part of the required aggregation group will be considered
a top-heavy Plan if the permissive aggregation group is top-heavy.
15.4 TOP-HEAVY RULES OF APPLICATION.
For purposes of determining the value of account balances and
the present value of accrued benefits the following provisions shall apply:
15.4-1 The value of account balances and the present value of
accrued benefits will be determined as of the most recent valuation
date that falls within or ends with the twelve (12) month period ending
on the Determination Date.
-31-
<PAGE> 37
15.4-2 For purposes of testing whether this Plan is
top-heavy, the present value of an individual's accrued benefits and
an individual's account balances is counted only once each year.
15.4-3 The account balances and accrued benefits of a
Participant who is not presently a Key Employee but who was a Key
Employee in a Plan Year beginning on or after January 1, 1984 will be
disregarded.
15.4-4 For years beginning after December 31, 1984,
non-deductible Voluntary Employee Contributions will be taken into
account for purposes of computing the top-heavy ratio. Employer
contributions attributable to a salary reduction or similar
arrangement will be taken into account.
15.4-5 When aggregating Plans, the value of account balances
and accrued benefits will be calculated with reference to the
Determination Dates that fall within the same calendar year.
15.4-6 The present value of the accrued benefits or the
amount of the account balances of an Employee shall be increased by
the aggregate distributions made to such Employee from a Plan of the
Employer. No distribution, however, made from the Plan to an
individual (other than the beneficiary of a deceased Employee who was
an Employee within the five (5) year period ending on the
Determination Date) who has not been an Employee at any time during
the five (5) year period ending on the Determination Date shall be
taken into account in determining whether the Plan is top-heavy.
Also, any amounts recontributed by an Employee upon becoming a
Participant in the Plan shall no longer be counted as a distribution
under this paragraph.
15.4-7 The present value of the accrued benefits or the
amount of the account balances of an Employee shall be increased by
the aggregate distributions made to such Employee from a terminated
Plan of the Employer, provided that such Plan (if not terminated)
would have been required to be included in the aggregation group.
15.4-8 Accrued benefits and account balances of an
individual shall not be taken into account for purposes of determining
the top-heavy ratios if the individual has performed no services for
the Employer during the five (5) year period ending on the applicable
Determination Date. Compensation for purposes of this subparagraph
shall not include any payments made to an individual by the Employer
pursuant to a qualified or non-qualified deferred compensation plan.
15.4-9 The present value of the accrued benefits or the
amount of the account balances of any Employee participating in this
Plan shall not include any rollover contributions or other transfers
voluntarily initiated by the Employee except as described below. If a
rollover was received by this Plan after December 31, 1983, the
rollover or transfer voluntarily initiated by the Employee was
received prior to January 1, 1984, then the rollover or transfer shall
be considered as part of the accrued benefit by the Plan receiving
such rollover or transfer. If this Plan transfers or rolls over funds
to another Plan in a transaction voluntarily initiated by the Employee
after December 31, 1983, then this Plan shall count the distribution
for purposes of determining account balances or the present value of
accrued benefits. A transfer incident to a merger or consolidation of
two or more Plans of the Employer (including Plans of related
Employers treated as a single Employer under Code Section 414), or a
transfer or rollover between Plans of the Employer, shall not be
considered as voluntarily initiated by the Employee.
-32-
<PAGE> 38
15.5 TOP-HEAVY RATIO.
If the Employer maintains one (1) or more defined contribution plans
(including any simplified Employee pension plan) and the Employer has never
maintained any defined benefit plans which have covered or could cover a
Participant in this Plan, the top-heavy ratio is a fraction, the numerator of
which is the sum of the account balances of all Key Employees as of the
Determination Date, and the denominator of which is the sum of the account
balances of all Employees as of the Determination Date. Both the numerator and
denominator of the top-heavy ratio shall be increased to reflect any
contribution which is due but unpaid as of the Determination Date.
If the Employer maintains one (1) or more defined contribution plans
(including any simplified Employee pension plan) and the Employer maintains or
has maintained one (1) or more defined benefit plans which have covered or could
cover a Participant in this Plan, the top-heavy ratio is a fraction, the
numerator of which is the sum of account balances under the defined contribution
plans for all Key Employees and the present value of accrued benefits under the
defined benefit plans for all Key Employees, and the denominator of which is the
sum of the account balances under the defined contribution plans for all
Employees and the present value of accrued benefits under the defined benefit
plans for all Employees.
15.6 MINIMUM CONTRIBUTIONS. For any Top-Heavy Year, each Employer
shall make a special contribution on behalf of each Participant to the extent
that the total allocations to his Account pursuant to Section 4 is less than
the lesser of:
(i) three percent of his Total Compensation for that
year, or
(ii) the highest ratio of such allocation to Total
Compensation received by any Key Employee for that year. For purposes
of the special contribution of this Section 15.2, a Key Employee's
Total Compensation shall include amounts the Key Employee elected to
defer under a qualified 401(k) arrangement. Such a special
contribution shall be made on behalf of each Participant who is
employed by an Employer on the last day of the Plan Year, regardless
of the number of his Hours of Service, and shall be allocated to his
Account.
For any Plan Year when (1) the Plan is top-heavy and (2) a Non-key
Employee is a Participant in both this Plan and a defined benefit plan included
in the plan aggregation group which is top heavy, the sum of the Employer
contributions and forfeitures allocated to the Account of each such Non-key
Employee shall be equal to at least five percent (5%) of such Non-key
Employee's Total Compensation for that year.
15.7 MINIMUM VESTING. If a Participant's vested interest in his
Account is to be determined in a Top-Heavy Year, it shall be based on the
following "top-heavy table":
<TABLE>
<CAPTION>
Vesting Percentage of
Years Interest Vested
----- ---------------
<S> <C>
Fewer than 3 years 0%
3 or more 100%
</TABLE>
15.8 TOP-HEAVY PROVISIONS CONTROL IN TOP-HEAVY PLAN. In the event
this Plan becomes top-heavy and a conflict arises between the top-heavy
provisions herein set forth and the remaining provisions set forth in this Plan,
the top-heavy provisions shall control.
-33-
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
The following is a list of the subsidiaries of Brooklyn Heights Bancorp
following the Reorganization:
Name State of Incorporation
---- ----------------------
Atlantic Liberty Savings, F.A. Federal
<PAGE> 1
EXHIBIT 23.2
[SOL MASCH & COMPANY LETTERHEAD]
To the Board of Directors
Atlantic Liberty Savings, F.A.
Brooklyn, New York
We consent to the use in the Registration Statement of Brooklyn Heights
Bancorp on Form SB-2 and the Notice of Intent to organize into a mutual holding
company and conduct a minority stock offering on combined application
MHC-1/MHC-2 of our report dated August 5, 1997, except for note 17, as to which
date is November 14, 1997, on the financial statements of Atlantic Liberty
Savings, F.A. as of and for the years ended March 31, 1997 and 1996, and to the
references to our firm under the headings "Legal and Tax Matters" and "Experts"
in the related prospectus.
/s/ SOL MASCH & COMPANY
Croton-on-Hudson, New York
December 24, 1997
<PAGE> 1
EXHIBIT 23.3
[FELDMAN FINANCIAL ADVISORS, INC. LETTERHEAD]
December 22, 1997
Board of Directors
Atlantic Liberty Savings, F.A.
186 Montague Street
Brooklyn, New York 11201
Gentlemen:
We hereby consent to the use of our name and summary of our valuation opinion,
as referenced in the Application for Approval of Reorganization (the
"Application") filed by Atlantic Liberty Savings, F.A. (the "Association") with
the Office of Thrift Supervision, regarding the estimated aggregate pro forma
market value of the Association in connection with its reorganization from
mutual to stock form and simultaneous offering for sale of a minority ownership
interest of shares of common stock by Brooklyn Heights Bancorp (the "Company").
We also consent to reference in the Application the summary of our opinion as
to the value of subscription rights granted by the Association. We further
consent to the use of our name and summary opinions as noted above in the
Registration Statement and Prospectus filed by the Company with the Securities
and Exchange Commission.
Sincerely,
/s/ FELDMAN FINANCIAL ADVISORS, INC.
FELDMAN FINANCIAL ADVISORS, INC.
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> MAR-31-1997 MAR-31-1997
<PERIOD-START> APR-01-1996 APR-01-1997
<PERIOD-END> MAR-31-1997 SEP-30-1997
<CASH> 10,285,364 9,440,915
<INT-BEARING-DEPOSITS> 100,797,875 100,539,486
<FED-FUNDS-SOLD> 0 0
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 0 0
<INVESTMENTS-CARRYING> 36,288,248 32,167,166
<INVESTMENTS-MARKET> 35,599,705 32,190,133
<LOANS> 60,058,821 65,485,670
<ALLOWANCE> 977,829 1,083,302
<TOTAL-ASSETS> 109,793,832 109,886,901
<DEPOSITS> 100,797,875 100,539,486
<SHORT-TERM> 0 0
<LIABILITIES-OTHER> 2,122,837 2,138,903
<LONG-TERM> 0 0
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 6,873,120 7,208,512
<TOTAL-LIABILITIES-AND-EQUITY> 109,793,832 109,886,901
<INTEREST-LOAN> 4,676,981 2,807,851
<INTEREST-INVEST> 1,433,772 646,827
<INTEREST-OTHER> 1,137,225 610,276
<INTEREST-TOTAL> 7,247,978 4,064,954
<INTEREST-DEPOSIT> 4,356,710 2,300,345
<INTEREST-EXPENSE> 4,363,378 2,303,930
<INTEREST-INCOME-NET> 2,113,422 1,655,551
<LOAN-LOSSES> 771,178 105,473
<SECURITIES-GAINS> 1,433,772 646,827
<EXPENSE-OTHER> 3,390,808 1,267,024
<INCOME-PRETAX> (23,800) 585,314
<INCOME-PRE-EXTRAORDINARY> (23,800) 585,314
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 123,525 335,392
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
<YIELD-ACTUAL> 2.81 3.40
<LOANS-NON> 3,341,000 1,752,198
<LOANS-PAST> 3,341,000 1,752,198
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 610,119 662,000
<ALLOWANCE-OPEN> 977,829 745,216
<CHARGE-OFFS> 538,566 0
<RECOVERIES> 0 0
<ALLOWANCE-CLOSE> 1,083,302 977,829
<ALLOWANCE-DOMESTIC> 1,083,302 977,829
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 0 0
</TABLE>
<PAGE> 1
EXHIBIT 99.1
[FELDMAN FINANCIAL ADVISORS, INC. LETTERHEAD]
August 20, 1997
Board of Directors
Atlantic Liberty Savings, F.A.
186 Montague Street
Brooklyn, New York 11201
Gentlemen:
This letter sets forth the agreement between Atlantic Liberty Savings, F.A.
(the "Association") and Feldman Financial Advisors, Inc. ("FFA"), whereby the
Association has engaged FFA to provide an independent appraisal of the
estimated aggregate pro forma market value (the "Valuation") of the shares of
common stock that are to be outstanding upon completion of the reorganization
of the Association from a federally chartered savings and loan association into
the mutual holding company structure and the contemporaneous issuance of a
minority ownership interest in the resulting stock savings and loan association
subsidiary (the "Reorganization").
FFA agrees to deliver the Valuation, in writing, to the Association at the
address above on or before a mutually agreed upon date. Further, FFA agrees to
perform such other services as are necessary or required of the independent
appraiser in connection with comments from the Association's regulatory
authorities and updates of the Valuation as from time to time may be necessary,
both after initial approval by the Association's regulatory authorities and
prior to the time the Reorganization is completed. FFA also agrees to assist
the Association in the preparation of its regulatory business plan in
connection with the Reorganization application to be filed with the Office of
Thrift Supervision ("OTS") and to accompany the Association at all meetings
with the OTS to review the business plan. FFA will also assist the Association
in responding to all OTS inquiries regarding the business plan.
The Association agrees to pay FFA a consulting fee of $14,000: $11,000 for
FFA's appraisal services and $3,000 for services in conjunction with the
preparation of the Association's regulatory business plan. The Association
also agrees to reimburse FFA for certain out-of-pocket expenses necessary and
incident to the completion of the services described above. These expenses
shall not exceed $2,000 without the prior consent of the Association.
Reimbursable expenses for courier delivery, copying, travel, data materials and
report reproduction shall be paid to FFA as incurred and billed. Payment of
the consulting fee shall be made according to the following schedule:
- $2,000 upon execution of this Agreement;
- $3,000 upon completion of the Association's regulatory
business plan;
- $6,000 upon delivery of the completed appraisal report to the
Association; and,
- $3,000 upon completion of the Reorganization.
<PAGE> 2
FELDMAN FINANCIAL ADVISORS, INC.
Board of Directors
Atlantic Liberty Savings, F.A.
August 20, 1997
Page 2
If, during the course of the Association's Reorganization, unforeseen events
occur so as to materially change the nature of the work content of the
appraisal services described above such that FFA must supply services beyond
that contemplated at the time this contract was executed, the terms of this
agreement shall be subject to renegotiation by the Association and FFA. Such
unforeseen events shall include, but not be limited to, major changes in the
stock conversion and mutual holding company regulations, appraisal guidelines
or processing procedures as they relate to conversion appraisals, major changes
in the Association's management or operating policies, and excessive delays or
suspension of processing of the Reorganization.
In the event the Association shall for any reason discontinue the
Reorganization prior to delivery of the completed appraisal and payment of the
progress payment fee totaling $6,000, the Association agrees to compensate FFA
according to FFA's standard billing rates for consulting appraisal services
based on accumulated and verifiable time expended, provided that the total of
such charges shall not exceed $8,000 plus reimbursable expenses.
In order to induce FFA to render the aforesaid services, the Association agrees
to the following:
1. The Association agrees to supply FFA such information with
respect to the Association's business and financial condition
as FFA may reasonably request in order for FFA to perform the
aforesaid services. Such information shall include, without
limitation: annual financial statements, periodic regulatory
filings and material agreements, corporate books and records,
and such other documents as are material for the performance
by FFA of the aforesaid services.
2. The Association hereby represents and warrants to FFA (i) that
to its best knowledge any information provided to FFA by or on
behalf of the Association, will not, at any relevant time,
contain any untrue statement of a material fact or fail to
state a material fact necessary to make the information or
statements therein not false or misleading, (ii) that the
Association will not use the product of FFA services in any
manner, including in a proxy or offering circular, in
connection with any untrue statement of a material fact or in
connection with the failure to state a material fact necessary
to make other statements not false or misleading, and (iii)
that all documents incorporating or relying upon FFA services
or the product of FFA services will otherwise comply with all
applicable federal and state laws and regulations. Any
valuations or opinions issued by FFA may be included in its
entirety in any communication by the Association in any
application, proxy statement or prospectus; however, such
valuations or opinions may not be excerpted or otherwise
publicly referred to without FFA's prior written consent nor
shall FFA be publicly referred to without FFA's prior written
consent; however, such consent shall not be unreasonably
withheld.
<PAGE> 3
FELDMAN FINANCIAL ADVISORS, INC.
Board of Directors
Atlantic Liberty Savings, F.A.
August 20, 1997
Page 3
3. FFA's Valuation will be based upon the Association's
representation that the information contained in the
Reorganization application and additional information
furnished to us by the Association and its independent
auditors is truthful, accurate, and complete in all material
respects. FFA will not independently verify the financial
statements and other information provided by the Association
and its independent auditors, nor will FFA independently value
the assets or liabilities of the Association. The Valuation
will consider the Association only as a going concern and will
not be considered as an indication of the liquidation value of
the Association.
4. FFA's Valuation is not intended, and must not be represented
to be, a recommendation of any kind as to the advisability of
purchasing shares of common stock in the Reorganization.
Moreover, because the Valuation is necessarily based upon
estimates and projections of a number of matters, all of which
are subject to change from time to time, FFA will give no
assurance that persons who purchase shares of common stock in
the Reorganization will thereafter be able to sell such shares
at prices related to FFA's Valuation.
5. The Association agrees that it will indemnify and hold
harmless FFA and its officers and employees (collectively,
"FFA indemnified persons") from and against any and all
liabilities arising from or based upon this agreement or the
services provided by FFA hereunder, except to the extent that
such liabilities are adjudicated by a final judgment (after
all appeals or the expiration of time to appeal) to result
from the negligence or willful misconduct of a FFA indemnified
person. The Association agrees that it will promptly
reimburse, as incurred, all reasonable legal fees and
expenses, and other reasonable out-of-pocket disbursements,
paid by any FFA indemnified person in connection with any
claim subject to indemnification hereunder in advance of the
final determination of any proceeding if the FFA indemnified
person furnishes the Association: (i) a written statement
that it is FFA's good faith belief that the FFA indemnified
person is entitled to indemnification hereunder; (ii) a
written undertaking by such indemnified person to repay the
advance if a final judgment (after all appeals or the
expiration of time to appeal) is entered against such person
based upon such person's negligence or willful misconduct; and
(iii) an acknowledgment that the FFA indemnified person shall
not be entitled to indemnification hereunder and shall
promptly reimburse any advancement of fees and expenses if the
FFA indemnified person enters into any settlement of a claim
subject to indemnification hereunder without the prior written
consent of the Association. Each FFA indemnified person shall
give prompt written notice to the Association of the
commencement of any action or proceeding and the Association
shall have the right to participate, at its expense, in
contesting, defending or litigating the
<PAGE> 4
FELDMAN FINANCIAL ADVISORS, INC.
Board of Directors
Atlantic Liberty Savings, F.A.
August 20, 1997
Page 4
same. A FFA indemnified person shall have the right to employ
its own counsel in connection with all matters referred to in
this Paragraph, and such counsel shall have the right to take
charge of such matter for such person; provided, however, that
the Association shall not be liable under this Paragraph for
the fees and expenses of more than one counsel for all FFA
indemnified persons unless a conflict of interest exists
between or among FFA indemnified persons.
6. The Association and FFA are not affiliated, and neither the
Association nor FFA has an economic interest in, or is held in
common with, the other and has not derived a significant
portion of its gross revenues, receipts or net income for any
period from transactions with the other. It is understood
that FFA is not a seller of securities within the scope of any
federal or state securities law and any report prepared by FFA
shall not be used as an offer or solicitation with respect to
the purchase or sale of any security, it being understood that
the foregoing shall not be construed to prohibit the filing of
any such report as part of the Reorganization application or
SEC and blue sky filings or customary references thereto in
applications, filings, proxy statements and prospectuses.
* * * *
Please acknowledge your agreement to the foregoing by signing as indicated
below and returning to FFA a signed copy of this letter.
Yours very truly,
FELDMAN FINANCIAL ADVISORS, INC.
By: /s/ TRENT R. FELDMAN
----------------------------------------
Trent R. Feldman
President
AGREED AND ACCEPTED:
ATLANTIC LIBERTY SAVINGS, F.A.
By: [SIG]
---------------------------------------
Title: President
--------------------------------------
Date: 8/27/97
---------------------------------------
<PAGE> 1
EXHIBIT 99.3
ATLANTIC LIBERTY SAVINGS, F.A.
186 Montague Street
Brooklyn, New York 11201
(718) 855-3555
----------------------------------
NOTICE OF SPECIAL MEETING OF MEMBERS
----------------------------------
Notice is hereby given that a Special Meeting of Members (the "Special
Meeting") of Atlantic Liberty Savings, F.A. (the "Association"), will be held
at the main office of the Association, located at 186 Montague Street,
Brooklyn, New York, on _______, ____________, 1998 at _:__ _.m., local time.
The purpose of this Special Meeting is to consider and vote upon:
A Plan of Reorganization from Mutual Savings Association to
Mutual Holding Company and Stock Issuance Plan (the "Plan")
pursuant to which the Association will be reorganized into
the mutual holding company structure. As part of the Plan,
the Association will: (i) convert to a federally-chartered
stock savings association (the "Stock Association"); (ii)
establish Brooklyn Heights Bancorp, a federal corporation
(the "Company"), which will own 100% of the common stock
of the Stock Association; and (iii) establish Atlantic
Liberty, MHC, a federally-chartered mutual holding company
(the "Mutual Holding Company") which will own at least a
majority of the common stock of the Company.
Contemporaneously with the Reorganization, the Company
will offer for sale to the public 46% of its common stock
and issue 54% of its total outstanding shares of common
stock to the Mutual Holding Company; and
such other business as may properly come before this Special Meeting or any
adjournment thereof. Management is not aware of any such other business.
The members who shall be entitled to notice of and to vote at the
Special Meeting and any adjournment thereof are depositors and borrowers at the
close of business on ________, 1998. In the event there are insufficient votes
for approval of the Plan at the time of the Special Meeting, the Special
Meeting may be adjourned from time to time in order to permit further
solicitation of proxies.
BY ORDER OF THE BOARD OF DIRECTORS
Stephen Irving
President and Chief Executive Officer
Brooklyn, New York
_________, 1998
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YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE
FOR APPROVAL OF THE PLAN BY COMPLETING THE
ENCLOSED PROXY CARD AND RETURNING IT IN THE ENCLOSED
POSTAGE-PAID ENVELOPE AS SOON AS POSSIBLE.
YOUR VOTE IS VERY IMPORTANT
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SUMMARY OF PROPOSED REORGANIZATION
This summary does not purport to be complete and is qualified in its
entirety by the more detailed information contained in the remainder of this
Proxy Statement and the accompanying Prospectus.
Under its present mutual form of organization, the Association has no
stockholders. Its deposit account holders and certain of its borrowers are
members of the Association and have voting rights in that capacity. In the
unlikely event of liquidation, the Association's deposit account holders would
have the sole right to receive any assets of the Association remaining after
payment of its liabilities (including the claims of all deposit account holders
to the withdrawal value of their deposits). Under the Plan to be voted on at
the Special Meeting, the Association would reorganize (the "Reorganization")
into the mutual holding company structure whereby the Association would be
converted into a federally chartered savings association organized in stock
form and all of the Association's common stock would be issued concurrently to
the Company, which would be a majority-owned subsidiary of the Mutual Holding
Company. The Company will offer and sell 46% of its common stock (the "Common
Stock") in a subscription offering (1) to depositors of the Association with
aggregate account balances of $50 or more as of June 30, 1996 ("Eligible
Account Holders"), (2) tax-qualified employee stock benefit plans of the
Association ("Tax-Qualified Employee Plans"), (3) depositors of the Association
with aggregate account balance of $50 or more as of December 31, 1997
("Supplemental Eligible Account Holders"), (4) depositors of the Association as
of January __, 1998, who are not Eligible Account Holders or Supplemental
Eligible Account Holders, and borrowers as of __________, 1998 ("Other
Members"), and (5) employees, officers and directors of the Association
pursuant to priorities established by the Board of Directors (the "Subscription
Offering"). It is anticipated that Tax-Qualified Employee Plans will purchase
8% of the Common Stock sold in the Offering.
Concurrent with, during or following completion of the Subscription
Offering, to the extent the Common Stock is not all sold to the persons in the
foregoing categories, the Company may offer Common Stock to members of the
general public to whom a prospectus (the "Prospectus") has been delivered
("Other Subscribers"), with first preference to natural persons residing in the
borough of Brooklyn (the "Community Offering"). The Subscription Offering and
the Community Offering are referred to collectively as the "Offering." All
depositors who have membership and liquidation rights with respect to the
Association immediately prior to the completion of the Reorganization will
continue to have such rights solely with respect to the Mutual Holding Company
as long as they maintain deposit accounts in the Stock Association after the
completion of the Reorganization. All borrower members of the Association will
continue to have membership rights in the Mutual Holding Company so long as
their existing borrowings remain outstanding.
THE REORGANIZATION WILL NOT AFFECT THE BALANCE, INTEREST RATE OR
FEDERAL INSURANCE PROTECTION OF ANY SAVINGS DEPOSIT, AND NO PERSON WILL BE
OBLIGATED TO PURCHASE ANY STOCK IN THE OFFERING.
Business Purposes The primary purpose of the Reorganization and Offering
for Reorganization is to raise additional equity capital for the
and Offering Association. The increased capital will be used in
part to expand the Association's lending activities.
The Reorganization also is intended to create a holding
company and a stock charter, which is the corporate
form used by all commercial banks and an increasing
number of savings institutions. The holding company
structure will expand the investment and operating
authority currently available to the Association. The
Offering also will provide you with the opportunity to
become a stockholder of the Company.
Subscription and As part of the Offering, Common Stock is being
Community Offering offered for sale in a Subscription Offering, in the
following priorities summarized below, to the
Association's (1) Eligible Account Holders, (2)
Tax-Qualified Employee Plans, (3) Supplemental Eligible
Account Holders (4) Other Members, and (5) employees,
officers and directors of the Association pursuant to
priorities established by the Board of Directors. In
addition, in the Community Offering, Other Subscribers
may purchase Common Stock to the extent shares are
available after satisfaction of subscriptions in the
Subscription Offering, with a preference first to
natural persons residing in the counties in which the
Association maintains its offices.
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Subscription Rights Each Eligible Account Holder shall be given
of Eligible Account non-transferable rights to subscribe for up to $50,000
Holders of Common Stock; provided, however, that no Eligible
Account Holder may purchase alone or with his or her
Associates (as defined in the Plan and including
relatives living in the same household) and persons
acting in concert, more than $50,000 of Common Stock.
The Association may, in its sole discretion and without
further notice to, or solicitation of subscribers or
other prospective purchasers, increase the maximum
purchase limitation to 5% of the maximum number of
shares offered in the Offering, or decrease the maximum
purchase limitation to .5% of the maximum number of
shares offered in the Offering. If there are
insufficient shares available to satisfy all
subscriptions of Eligible Account Holders, shares will
be allocated to Eligible Account Holders so as to
permit each such subscribing Eligible Account Holder to
purchase a number of shares sufficient to make his
total allocation equal to the lesser of 100 shares or
the number of shares subscribed for. Thereafter,
unallocated shares will be allocated pro rata to
remaining subscribing Eligible Account Holders whose
subscriptions remain unfilled. To ensure proper
allocation of stock, each Eligible Account Holder must
list on his subscription order form all accounts in
which he had an ownership interest as June 30, 1996.
Subscription Rights The Association's Tax-Qualified Employee Plans shall
of Tax-Qualified be given non-transferable rights to subscribe for up
Employee Plans to 10% of the total number of shares of Common Stock
offered in the Offering on behalf of participants,
provided that shares remain available after satisfying
the subscription rights of Eligible Account Holders.
In the event of an oversubscription in the Offering,
subscriptions for shares by the Tax-qualified Employee
Plans may be satisfied, in whole or in part, out of
authorized but unissued shares of the Company subject
to the maximum purchase limitations applicable to such
plans, or may be satisfied, in whole or in part,
through open market purchases by the Tax-Qualified
Employee Plans subsequent to the closing of the
Offering. It is anticipated that Tax-Qualified
Employee Plans will purchase 8% of the Common Stock
sold in the Offering.
Subscription Rights To the extent there are sufficient shares remaining
of Supplemental after satisfaction of subscriptions by Eligible
Eligible Account Account Holders, and the Tax-Qualified Employee Plans,
Holders each Supplemental Eligible Account Holder shall be
given non-transferable rights to subscribe for up to
$50,000 of Common Stock; provided, however, that no
Supplemental Eligible Account Holder may purchase
alone or with his or her Associates (as defined in the
Plan, and including relatives living in the same
household) and persons acting in concert, more than
$50,000 of Common Stock. The Association may, in
its sole discretion and without further notice to, or
solicitation of subscribers or other prospective
purchasers, increase the maximum purchase limitation to
5% of the maximum number of shares offered in the
Offering, or decrease the maximum purchase limitation
to .5% of the maximum number of shares offered in the
Offering. The subscription rights of each Supplemental
Eligible Account Holder shall be reduced to the extent
of such persons subscription rights as an Eligible
Account Holder.
Subscription Rights To the extent that there are sufficient shares
of Other Members remaining after satisfaction of subscriptions by
Eligible Account Holders, the Tax-Qualified Employee
Plans and Supplemental Account Holders, each Other
Member has been given non-transferable rights to
subscribe for up to $50,000 of Common Stock; provided
however, that no Other Member may purchase alone or
with his or her Associates (as defined in the Plan, and
including relatives living in the same household) and
persons acting in concert, more than $50,000 of Common
Stock. The Association may, in its sole discretion and
without further notice to, or solicitation of
subscribers or other prospective purchasers, increase
the maximum purchase limitation to 5% of the maximum
number of shares offered in the Offering, or decrease
the maximum purchase limitation to .5% of the maximum
number of shares offered in the Offering. In the event
Other Members subscribe for a number of shares which,
when added to the shares subscribed for by the Eligible
Account Holders, Tax-Qualified Employee Plans and
Supplemental Account Holders is in excess of the total
number of shares offered in the Offering, the
subscriptions of such Other Members will be allocated
among subscribing Other Members on a pro rata basis
based on the size of such Other Members' orders.
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<PAGE> 4
Subscription Rights To the extent that there are sufficient shares
of Association remaining after satisfaction of subscriptions by
Personnel Eligible Account Holders, the Tax-Qualified Employee
Plans, Supplemental Account Holders and Other Members,
each individual director, officer and employee of the
Association shall be given the right to subscribe for
up to $50,000 of Common Stock; provided, however, that
no director, officer or employee may purchase alone or
with his or her Associates (as defined in the Plan, and
including relatives living in the same household) and
persons acting in concert more than $50,000 of Common
Stock. The Association may, in its sole discretion and
without further notice to, or solicitation of
subscribers or other prospective purchasers, increase
the maximum purchase limitation to 5% of the maximum
number of shares offered in the Offering, or decrease
the maximum purchase limitation to .5% of the maximum
number of shares offered in the Offering. For purposes
of the Plan, directors, officers and employees are not
Associates of one another, nor are they acting in
concert solely as a result of their positions as
directors, officers and employees of the Association.
Purchase The minimum order in the Offering is 25 shares (or
Limitations $250). The maximum order in the Offering is 5,000
shares (or $50,000); provided, however, that no
Eligible Account Holder may purchase alone or with his
or her Associates (as defined in the Plan, and
including relatives living in the same household) and
persons acting in concert, more than 5,000 shares of
Common Stock. The Association may, in its sole
discretion and without further notice to, or
solicitation of, subscribers or other prospective
purchasers, increase the maximum purchase limitation to
5% of the maximum number of shares offered in the
Offering, or decrease the maximum purchase limitation
to .5% of the maximum number of shares offered in the
Offering.
Expiration Date of All subscriptions for Common Stock must be received by
Subscription and ____, New York time on _____________, 1998 (the
Community Offerings "Expiration Date"). The Expiration Date may be
extended by the Association and the Company for
successive 90-day periods, subject to OTS approval, to
________, 1998.
How to Subscribe For information on how to subscribe for Common Stock
for Shares being offered in the Offering Reorganization, please
read the Prospectus and the stock order form and
instructions accompanying this Proxy Statement.
Subscriptions will not become effective until the Plan
has been approved by the Association's members and all
of the Common Stock offered in the Offering has been
subscribed for or sold in the Subscription and
Community Offering or through such other means as may
be approved by the OTS.
Price of Common All sales of Common Stock in the Subscription and
Stock Community Offering will be made at the same price
per share which is currently expected to be $10.00 per
share on the basis of an independent appraisal of the
pro forma market value of the converted Association.
On the basis of a preliminary appraisal by Feldman
Financial which has been reviewed by the OTS, a minimum
of 391,000 and a maximum of 529,000 shares (subject to
a possible increase to 608,350 shares) will be offered
in the Offering. See "The Reorganization and
Offering--Stock Pricing" in the Prospectus.
Tax Consequences The Association has received an opinion from its
special counsel, Luse Lehman Gorman Pomerenk & Schick,
P.C., stating that the Reorganization is a nontaxable
reorganization under Section 368(a)(1)(F) of the
Internal Revenue Code of 1986, as amended (the "Code").
Required Vote Approval of the Plan will require the affirmative vote
of a majority of all votes eligible to be cast at the
Special Meeting.
YOUR BOARD OF DIRECTORS URGES YOU TO VOTE FOR
THE PLAN
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ATLANTIC LIBERTY SAVINGS, F.A.
PROXY STATEMENT
SPECIAL MEETING OF MEMBERS TO BE HELD ON ____________, 1998
PURPOSE OF MEETING
This Proxy Statement is being furnished to you in connection with the
solicitation on behalf of the Board of Directors of Atlantic Liberty Savings,
F.A. (the "Association") of the proxies to be voted at the Special Meeting of
Members (the "Special Meeting") of the Association to be held at the main
office of the Association, located at 186 Montague Street, Brooklyn, New York,
on ____________, 1998 at _:__ _.m. local time and at any adjournments thereof.
The Special Meeting is being held for the purpose of considering and voting
upon a Plan of Reorganization from Mutual Savings Association to Mutual Holding
Company (the "Plan") under which the Association would be converted from its
present mutual form of organization into a federally chartered savings
association organized in stock form, the concurrent sale of all the common
stock of the stock savings association to Brooklyn Heights Bancorp (the
"Company"), a federal corporation, the acquisition of 54% of the Company's
common stock by Atlantic Liberty, MHC, a federally-chartered mutual holding
company (the "Mutual Holding Company") and the sale by the Company of 46% of
its common stock (the "Common Stock") to the public (the "Offering").
A description of the Reorganization and Offering is described in
detail in the section of the Prospectus entitled "The Reorganization and
Offering--Description of and Reasons for the Reorganization," which is
incorporated herein by reference.
THE BOARD OF DIRECTORS OF THE ASSOCIATION RECOMMENDS THAT YOU VOTE TO APPROVE
THE PLAN
VOTING IN FAVOR OF THE PLAN WILL NOT OBLIGATE ANY PERSON TO PURCHASE ANY COMMON
STOCK.
THE OTS HAS APPROVED THE PLAN SUBJECT TO THE APPROVAL OF THE
ASSOCIATION'S MEMBERS AND THE SATISFACTION OF CERTAIN OTHER CONDITIONS.
HOWEVER, SUCH APPROVAL DOES NOT CONSTITUTE A RECOMMENDATION OR ENDORSEMENT OF
THE PLAN BY THE OTS.
<PAGE> 6
INFORMATION RELATING TO VOTING AT THE SPECIAL MEETING
The Board of Directors of the Association has fixed ________, 1998 as
the voting record date ("Voting Record Date") for the determination of members
entitled to notice of the Special Meeting. All holders of the Association's
savings and demand accounts and all borrowers therefrom are members of the
Association under its current charter. All Association members of record as of
the close of business on the Voting Record Date will be entitled to vote at the
Special Meeting or any adjournment thereof.
Each holder of an account (including IRA and Keogh account
beneficiaries) will be entitled at the Special Meeting to cast one vote for
each $100, or fraction thereof, of the aggregate withdrawal value of all of
such depositor's accounts in the Association as of the Voting Record Date, up
to a maximum of 1,000 votes. Each borrower member of the Association as of
_______, 1998 shall be able to cast one vote as a borrower member and to cast
the number of votes to which such borrower may be entitled as the holder of an
account. Joint accounts shall be entitled to no more than 1,000 votes, and any
owner may cast all the votes unless notified in writing. In general, accounts
held in different ownership capacities will be treated as separate memberships
for purposes of applying the 1,000 vote limitation. For example, if two
persons hold a $50,000 account in their joint names and each of the persons
also holds a separate account for $50,000 in his own name, each person would be
entitled to 500 votes for each separate account and they would together be
entitled to cast 500 votes on the basis of the joint account. Where no proxies
are received from IRA and Keogh account beneficiaries, after due notification,
the Association, as trustee of these accounts, is entitled to vote these
accounts in favor of the Plan.
Approval of the Plan requires the affirmative vote of a majority of
the total outstanding votes of the Association's members eligible to be cast at
the Special Meeting. As of ________, 1998, the Association had _____ members
who were entitled to cast a total of ______ votes at the Special Meeting.
Association members may vote at the Special Meeting or any adjournment
thereof in person or by proxy. Any member giving a proxy will have the right
to revoke the proxy at any time before it is voted by giving written notice to
the Secretary of the Association, provided that such written notice is received
by the Secretary prior to the Special Meeting or any adjournment thereof, or
upon request if the member is present and chooses to vote in person.
All properly executed proxies received by the Board of Directors of
the Association will be voted in accordance with the instructions indicated
thereon by the members giving such proxies. If no instructions are given, such
proxies will be voted in favor of the Plan. If any other matters are properly
presented at the Special Meeting and may properly be voted on, the proxies
solicited hereby will be voted on such matters in accordance with the best
judgment of the proxy holders named thereon. Management is not aware of any
other business to be presented at the Special Meeting.
If a proxy is not executed and is returned or the member does not vote
in person, the Association is prohibited by OTS regulations from using a
previously executed proxy to vote for the Plan. As a result, failure to vote
may have the same effect as a vote against the Plan.
To the extent necessary to permit approval of the Plan, proxies may be
solicited by officers, directors or regular employees of the Association, in
person, by telephone or through other forms of communication and, if necessary,
the Special Meeting may be adjourned to a later date. Such persons will be
reimbursed by the Association for their expenses incurred in connection with
such solicitation. The Association will bear all costs of this solicitation.
The proxies solicited hereby will be used only at the Special Meeting and at
any adjournment thereof.
THE SUBSCRIPTION OFFERING HAS COMMENCED AS OF THE DATE OF MAILING OF
THIS PROXY STATEMENT. A PROSPECTUS EXPLAINING THE TERMS OF THE SUBSCRIPTION
AND COMMUNITY OFFERING, INCLUDING HOW TO ORDER AND PAY FOR SHARES AND
DESCRIBING THE BUSINESS OF THE ASSOCIATION, THE COMPANY AND THE MUTUAL HOLDING
COMPANY, ACCOMPANIES THIS PROXY STATEMENT AND SHOULD BE READ BY ALL PERSONS WHO
WISH TO CONSIDER SUBSCRIBING FOR COMMON STOCK. THE SUBSCRIPTION AND COMMUNITY
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OFFERING EXPIRES AT NOON, LOCAL TIME ON ____________, 1998 UNLESS EXTENDED BY
THE ASSOCIATION, THE COMPANY AND THE MUTUAL HOLDING COMPANY.
PRINCIPAL EFFECTS OF REORGANIZATION
GENERAL. Each savings depositor in a mutual savings and loan
association such as the Association has both a savings account and a pro rata
ownership interest in the net worth of that institution, based upon the balance
in his or her savings account. This ownership interest has no tangible market
value separate from the depositor's savings account. Upon completion of the
Reorganization, the ownership of the Association's net worth will be
represented by the outstanding shares of stock to be owned by the Company.
Stock certificates will be issued to evidence ownership of the capital stock.
These stock certificates are transferable and, therefore, the shares may be
transferred with no effect on any account the seller may hold with the
Association.
CONTINUITY. While the Reorganization is being accomplished, the
Association's normal business of accepting deposits and making loans will be
continued without interruption. After the Reorganization, the Association will
continue to provide services for account holders and borrowers under current
policies carried on by the Association's present management and staff.
The Association's directors at the time of Reorganization will
continue to serve as our directors after the Reorganization until the
expiration of their current terms, and thereafter, if reelected. All of the
Association's executive officers at the time of Reorganization will retain
their positions after the Reorganization.
EFFECT ON DEPOSIT ACCOUNTS. Under the Plan, each of the Association's
depositors at the time of the Reorganization will automatically continue as a
depositor after the Reorganization, and each deposit account will remain the
same with respect to deposit balance, interest rate and other terms. Each
account will also continue to be insured by the FDIC in exactly the same way as
before. Depositors will continue to hold their existing certificates, passbooks
and other evidence of their accounts.
EFFECT ON LOANS OF BORROWERS. None of the Association's loans will be
affected by the Reorganization. The amount, interest rate, maturity and
security for each loan will be unchanged.
EFFECT ON VOTING RIGHTS OF MEMBERS. Currently in the Association's
mutual form, depositor and borrower members have voting rights and may vote for
the election of directors. Following the Reorganization, depositors and
borrowers will cease to have voting rights in the Association. All voting
rights in the Association will be vested in the Company as the Association's
sole shareholder. Voting rights in the Company will be vested exclusively in
its shareholders, with one vote for each share of common stock. The Mutual
Holding Company will at all times own a majority of the Mutual Holding
Company's common stock. Following the Reorganization, the Association's
depositors will continue to have voting rights in the Mutual Holding Company.
Neither the common stock to be sold in the Offering or issued to the Mutual
Holding Company in the Reorganization, nor the capital stock of the Association
will be insured by the FDIC or by any other government entity.
TAX CONSEQUENCES. The Association intends to proceed with the
Reorganization on the basis of an opinion from Luse Lehman Gorman Pomerenk &
Schick, P.C., Washington, D.C., as to certain tax matters that are material to
the Reorganization. The opinion is based, among other things, on certain
representations made by the Association, including the representation that the
exercise price of the subscription rights to purchase the common stock will be
approximately equal to the fair market value of the stock at the time of the
completion of the Reorganization. With respect to the subscription rights, the
Association has received an opinion of Feldman Financial which, based on
certain assumptions, concludes that the subscription rights to be received by
Eligible Account Holders, Supplemental Eligible Account Holders and Other
Members do not have any economic value at the time of distribution or the time
the subscription rights are exercised, whether or not a Community Offering
takes place, and Luse Lehman Gorman Pomerenk & Schick, P.C.'s opinion is given
in reliance thereon. Luse Lehman Gorman Pomerenk & Schick, P.C.'s opinion
provides substantially as follows:
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<PAGE> 8
1. The change in the Association's form from a mutual savings
association to a stock savings association (the "Stock
Association") will qualify as a reorganization under Section
368(a)(1)(F) of the Internal Revenue Code, as amended
("Code"), and no gain or loss will be recognized to the
Association in either its mutual form or stock form by reason
of the Reorganization.
2. No gain or loss will be recognized by the Association or the
Stock Association upon the transfer of the Association's
assets to the Stock Association solely in exchange for shares
of Stock Association stock and the assumption by the Stock
Association of the liabilities of the Association.
3. Stock Association's holding period in the assets received from
the Association will include the period during which such
assets were held by the Association.
4. Stock Association's basis in the assets of the Association
will be the same as the basis of such assets in the
Association immediately prior to the Reorganization.
5. The Stock Association will succeed to and take into account
the Association's earnings and profits or deficit in earnings
and profits, as of the date of the Reorganization.
6. The Stock Association's depositors will recognize no gain or
loss solely by reason of the Reorganization.
7. The Mutual Holding Company and the Minority Stockholders will
recognize no gain or loss upon the transfer of Stock
Association stock and cash, respectively, to the Company in
exchange for Common Stock of the Company.
8. The Company will recognize no gain or loss upon its receipt of
property from the Mutual Holding Company and Minority
Stockholders in exchange for Common Stock of the Company.
9. The basis of the Company Common Stock to the Minority
Stockholders will be the actual purchase price thereof, and
the holding period for Common Stock acquired through the
exercise of subscription rights will begin on the date the
rights are exercised.
The opinions of Luse Lehman Gorman Pomerenk & Schick, P.C., unlike a
letter ruling issued by the Internal Revenue Service, are not binding on the
Service and the conclusions expressed herein may be challenged at a future
date. The Service has issued favorable rulings for transactions substantially
similar to the proposed Reorganization, but any such ruling may not be cited as
precedent by any taxpayer other than the taxpayer to whom the ruling is
addressed. The Association does not plan to apply for a letter ruling
concerning the transactions described herein.
The Association has also received an opinion from O'Reilly, Marsh &
Corteselli, P.C. that implementation of the Plan will not result in any New
York income tax liability to the Association, its account holders, borrowers
the Company or the Mutual Holding Company.
APPROVAL, INTERPRETATION, AMENDMENT AND TERMINATION
Under the Plan, the letter from the OTS giving approval thereto, and
applicable regulations, consummation of the Reorganization is subject to the
satisfaction of the following conditions: (a) approval of the Plan by members
of the Association casting at least a majority of the votes eligible to be cast
at the Special Meeting; (b) sale of at least the minimum number of shares of
the Common Stock to be offered for sale in the Offering; and (c) receipt of
favorable rulings or opinions of counsel as to the federal tax consequences of
the Reorganization.
The Plan may be substantively amended by the Boards of Directors of
the Association with the concurrence of the OTS. If the Plan is amended,
proxies which have been received prior to such amendment will not be
resolicited unless otherwise required by the OTS. Also, as required by the
federal regulations, the Plan provides that the transactions contemplated
thereby may be terminated by the Board of Directors of the Association alone at
any time
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<PAGE> 9
prior to the Special Meeting and may be terminated by the Board of Directors of
the Association at any time thereafter with the concurrence of the OTS,
notwithstanding approval of the Plan by the members of the Association at the
Special Meeting. All interpretations by the Association of the Plan and of the
Stock Order Forms and related materials for the Subscription and Community
Offering will be final, except as regards or affects the OTS.
JUDICIAL REVIEW
Section 5(i)(2)(B) of the Home Owners' Loan Act, as amended, 12 U.S.C.
Section 1464(i)(2)(B) and Section 563b.8(u) of the Rules and Regulations
promulgated thereunder (12 C.F.R. Section 563b.8(u)) provide: (i) that persons
aggrieved by a final action of the OTS which approves, with or without
conditions, or disapproves a plan of reorganization, may obtain review of such
final action only by filing a written petition in the United States Court of
Appeals for the circuit in which the principal office or residence of such
person is located, or in the United States Court of Appeals for the District of
Columbia, requesting that the final action of the OTS be modified, terminated
or set aside, and (ii) that such petition must be filed within 30 days after
publication of notice of such final action in the Federal Register, or 30 days
after the date of mailing of the notice and proxy statement for the meeting of
the converting institution's members at which the reorganization is to be voted
on, whichever is later. The notice of the Special Meeting of the Association's
members to vote on the Plan described herein is included at the beginning of
this Proxy Statement. The statute and regulation referred to above should be
consulted for further information.
ADDITIONAL INFORMATION
The information contained in the accompanying Prospectus, including a
more detailed description of the Plan, financial statements of the Association
and a description of the capitalization and business of the Association the
Company and the Mutual Holding Company, including the Association's directors
and executive officers and their compensation, the anticipated use of the net
proceeds from the sale of the Common Stock and a description of the Common
Stock, is intended to help you evaluate the Plan and is incorporated herein by
this reference.
YOUR VOTE IS VERY IMPORTANT TO US. PLEASE TAKE A MOMENT NOW TO
COMPLETE AND RETURN YOUR PROXY CARD IN THE POSTAGE-PAID ENVELOPE PROVIDED. YOU
MAY STILL ATTEND THE SPECIAL MEETING AND VOTE IN PERSON EVEN THOUGH YOU HAVE
VOTED YOUR PROXY. FAILURE TO SUBMIT A PROXY WILL HAVE THE SAME EFFECT AS
VOTING AGAINST THE PLAN.
If you have any questions, please call our Stock Information Center at
(718) __________.
IMPORTANT: YOU MAY BE ENTITLED TO VOTE IN MORE THAN ONE CAPACITY.
PLEASE SIGN, DATE AND PROMPTLY RETURN EACH PROXY CARD YOU RECEIVE.
-----------
THIS PROXY STATEMENT IS NOT AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY STOCK. THE OFFER WILL BE MADE ONLY BY THE PROSPECTUS.
THIS SECURITY IS NOT A DEPOSIT OR ACCOUNT AND IS NOT FEDERALLY
INSURED OR GUARANTEED.
5
<PAGE> 10
REVOCABLE PROXY
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
ATLANTIC LIBERTY SAVINGS, F.A.
FOR A SPECIAL MEETING OF MEMBERS
TO BE HELD ON ____________, 1998
The undersigned member of Atlantic Liberty Savings, F.A. (the
"Association"), hereby appoints the full Board of Directors, with full powers
of substitution, as attorneys-in-fact and agents for and in the name of the
undersigned, to vote such votes as the undersigned may be entitled to vote at
the Special Meeting of Members of the Association, to be held at the main
office of the Association, located at 186 Montague Street, Brooklyn, New York
on ____________, 1998, at _:__ _.m., local time, and at any and all
adjournments thereof. They are authorized to cast all votes to which the
undersigned is entitled as follows:
FOR AGAINST
--- -------
1. A Plan of Reorganization from Mutual Savings Association [ ] [ ]
to Mutual Holding Company and Stock Issuance Plan (the
"Plan") pursuant to which the Association will be
reorganized into the mutual holding company structure.
As part of the Plan, the Association will: (i) convert to
a federally-chartered stock savings association (the
"Stock Association"); (ii) establish Brooklyn Heights
Bancorp, a federal corporation (the "Company"), which will
own 100% of the common stock of the Stock Association; and
(iii) establish Atlantic Liberty, MHC, a federally-
chartered mutual holding company (the "Mutual Holding
Company") which will own at least a majority of the common
stock of the Company. Contemporaneously with the
Reorganization, the Company will offer for sale to the
public 46% of its common stock and issue 54% of its
total outstanding shares of common stock to the Mutual
Holding Company; and
NOTE: The Board of Directors is not aware of any other matter that may come
before the Special Meeting of Members.
- --------------------------------------------------------------------------------
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED,
THIS PROXY WILL BE VOTED FOR THE PROPOSITIONS STATED. IF ANY OTHER BUSINESS IS
PRESENTED AT THE MEETING, THIS PROXY WILL BE VOTED BY THE BOARD OF DIRECTORS IN
THEIR BEST JUDGMENT. AT THE PRESENT TIME, THE BOARD OF DIRECTORS KNOWS OF NO
OTHER BUSINESS TO BE PRESENTED AT THE MEETING.
- --------------------------------------------------------------------------------
<PAGE> 11
Votes will be cast in accordance with the Proxy. Should the
undersigned be present and elect to vote at the Special Meeting or at any
adjournment thereof and after notification to the Secretary of the Association
at said Meeting of the member's decision to terminate this Proxy, then the
power of said attorney-in-fact or agents shall be deemed terminated and of no
further force and effect.
The undersigned acknowledges receipt of a Notice of Special
Meeting of Members and a Proxy Statement dated _________, 1998, prior to the
execution of this Proxy.
------------------------------
Date
------------------------------
Signature
NOTE: Only one signature is required
in the case of a joint account.
- --------------------------------------------------------------------------------
PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY PROMPTLY IN
THE ENCLOSED ENVELOPE.
- --------------------------------------------------------------------------------
<PAGE> 1
EXHIBIT 99.4
MARKETING MATERIALS
FOR
ATLANTIC LIBERTY SAVINGS, F.A.
BROOKLYN, NEW YORK
<PAGE> 2
ATLANTIC LIBERTY SAVINGS, F.A.
TABLE OF CONTENTS
CORRESPONDENCE
Letter to Eligible Account Holders
Letter to Closed Accounts
Letter to Potential Investors (Non-Customers)
"Blue Sky" Member Letter
Ryan, Beck "Broker Dealer" Letter
Proxygram
Stockgram
Stock Order Form Acknowledgment
Stock Certificate Mailing Letter
Invitation
ADVERTISEMENTS
Lobby Poster
Tombstone Advertisement
Community Meeting Advertisement
PRESS RELEASES
Press Release for Approval of Sale
Press Release, Offering Completed
BROCHURES
Q&A
Folder
FORMS
Stock Order Form
<PAGE> 3
LETTER TO ELIGIBLE ACCOUNT HOLDERS
[Atlantic Liberty Savings, F.A. Letterhead]
February , 1998
Dear Depositor:
I am pleased to inform you that the directors of Atlantic Liberty Savings, F.A.
have unanimously approved a Plan of Reorganization from a Mutual Savings
Association to a Mutual Holding Company and Stock Issuance Plan (the "Plan").
Pursuant to the Plan, Atlantic Liberty will convert to a stock charter and form
a federally-chartered stock holding company, Brooklyn Heights Bancorp. (the
"Holding Company" or "Brooklyn Heights"), which will own 100% of the common
stock of the converted Atlantic Liberty Savings.
As part of the mutual holding company formation, the Holding Company will offer
for sale 46% of its common stock to eligible depositors and others in a
subscription offering, and the remaining shares will be held by Atlantic
Liberty, MHC (the "Mutual Holding Company"). The primary purpose of the Plan is
to establish a holding company and to convert Atlantic Liberty to the stock form
of ownership, which will enable it to compete and expand more effectively in the
financial services marketplace. The Bank's mutual form of ownership, and its
ability to remain an independent institution, will be preserved through the
mutual holding company structure.
The Holding Company is offering between 391,000 and 529,000 shares of common
stock at $10.00 per share, subject to adjustment, to certain of its customers
and to members of the public. The shares of stock sold to investors will
represent a minority interest in Brooklyn Heights, and the Mutual Holding
Company will own the remainder of the outstanding shares.
The Plan is subject to a favorable vote of our members. OUR OFFICERS AND
DIRECTORS URGE YOU TO VOTE "FOR" THE PLAN. Enclosed you will find a Proxy
Statement describing the Plan, Proxy Card(s) and a reply envelope. Please vote
and sign the Proxy Card(s), then mail it in the enclosed reply envelope or bring
your card(s) into either of our offices. IN ORDER TO ENSURE THAT YOUR VOTE WILL
BE COUNTED, WE MUST RECEIVE YOUR PROXY CARD(S) BY __:00 .M., NEW YORK TIME,
ON ______,1998.
We have also enclosed a Prospectus, Stock Order Form, reply envelope and
Informational Brochure. IF YOU ARE INTERESTED IN PURCHASING SHARES, YOU MAY DO
SO DURING THE OFFERING WITHOUT PAYING A COMMISSION OR FEE. YOUR COMPLETED STOCK
ORDER FORM, ALONG WITH PAYMENT OR AUTHORIZATION TO WITHDRAW FUNDS FROM YOUR
DEPOSIT ACCOUNT(S) AT ATLANTIC LIBERTY, MUST BE RECEIVED BY US BY 11:00 A.M.,
NEW YORK TIME, ON _________, 1998.
<PAGE> 4
LETTER TO ELIGIBLE ACCOUNT HOLDERS
Page 2
Interest will be paid by Atlantic Liberty at its rate of interest on passbook
savings accounts on all funds received, or at the account contract rate with
respect to withdrawals from existing accounts. You may purchase the common stock
by a withdrawal from your savings or certificate account without the customary
early withdrawal penalty.
IF YOU WISH TO PURCHASE COMMON STOCK THROUGH YOUR IRA, PLEASE CALL THE STOCK
INFORMATION CENTER EARLY IN THE OFFERING PERIOD BECAUSE IRA-RELATED PURCHASES
REQUIRE ADDITIONAL PROCESSING TIME.
Please remember:
- - YOUR SAVINGS ACCOUNTS, CERTIFICATES OF DEPOSIT AND CHECKING ACCOUNTS AT
ATLANTIC LIBERTY WILL CONTINUE TO BE INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION UP TO APPLICABLE LIMITS.
- - THERE WILL BE NO CHANGE IN THE TERMS OF YOUR ACCOUNTS OR LOANS.
- - CUSTOMERS WILL ENJOY THE SAME SERVICES WITH THE SAME STAFF.
- - YOUR VOTE IN FAVOR OF THE PLAN DOES NOT OBLIGATE YOU TO BUY COMMON
STOCK.
- - DEPOSITORS MAY BUY ATLANTIC LIBERTY COMMON STOCK BEFORE STOCK IS SOLD
TO THE GENERAL PUBLIC.
IF YOU HAVE ANY QUESTIONS, PLEASE CALL THE STOCK INFORMATION CENTER AT
(718)_____ - __________ 9:00 A.M. TO 4:00 P.M., MONDAY THROUGH FRIDAY.
We hope that you will take advantage of this opportunity to join us as
stockholders of Brooklyn Heights Bancorp.
Sincerely,
Stephen Irving
President and Chief Executive Officer
<PAGE> 5
LETTER TO ELIGIBLE ACCOUNT HOLDERS
Page 3
THIS LETTER IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY
COMMON STOCK. THE OFFER IS MADE ONLY BY THE PROSPECTUS. THE SHARES OF COMMON
STOCK ARE NOT SAVINGS ACCOUNTS OR SAVINGS DEPOSITS AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
- --------------------------------------------------------------------------------
STOCK INFORMATION CENTER
186 MONTAGUE STREET
BROOKLYN, NEW YORK 11201
(718)___-
<PAGE> 6
LETTER TO DEPOSITORS NOT ELIGIBLE TO VOTE (CLOSED ACCOUNTS)
[Atlantic Liberty Savings, F.A. Letterhead]
February , 1998
Dear Sir/Madam:
I am pleased to inform you that the directors of Atlantic Liberty Savings, F.A.
have unanimously approved a Plan of Reorganization from a Mutual Savings
Association to a Mutual Holding Company and Stock Issuance Plan (the "Plan").
Pursuant to the Plan, Atlantic Liberty will convert to a stock charter and form
a federally-chartered stock holding company, Brooklyn Heights Bancorp. (the
"Holding Company" or "Brooklyn Heights"), which will own 100% of the common
stock of the converted Atlantic Liberty Savings.
As part of the mutual holding company formation, the Holding Company will offer
for sale 46% of its common stock to eligible depositors and others in a
subscription offering, and the remaining shares will be held by Atlantic
Liberty, MHC (the "Mutual Holding Company"). The primary purpose of the Plan is
to establish a holding company and to convert Atlantic Liberty to the stock form
of ownership, which will enable it to compete and expand more effectively in the
financial services marketplace. The Bank's mutual form of ownership, and its
ability to remain an independent institution, will be preserved through the
mutual holding company structure.
The Holding Company is offering between 391,000 and 529,000 shares of common
stock at $10.00 per share, subject to adjustment, to certain of its customers
and to members of the public. The shares of stock sold to investors will
represent a minority interest in Brooklyn Heights, and the Mutual Holding
Company will own the remainder of the outstanding shares.
AS A DEPOSITOR OF ATLANTIC LIBERTY AS OF JUNE 1996 OR DECEMBER 31, 1997,
YOU HAVE PRIORITY TO BUY STOCK BEFORE STOCK IS SOLD TO THE GENERAL PUBLIC.
We have enclosed an Prospectus, Stock Order Form, reply envelope and
Informational Brochure. IF YOU ARE INTERESTED IN PURCHASING SHARES, YOU MAY DO
SO DURING THE OFFERING WITHOUT PAYING A COMMISSION OR FEE. YOUR COMPLETED STOCK
ORDER FORM, ALONG WITH PAYMENT MUST BE RECEIVED BY ATLANTIC LIBERTY BY 11:00
A.M., NEW YORK TIME, ON _________, 1998.
Interest will be paid by Atlantic Liberty at its passbook savings account rate
on all funds received until the offering is completed.
IF YOU HAVE ANY QUESTIONS, PLEASE CALL THE STOCK INFORMATION CENTER AT
(718)___-____ 9:00 A.M. TO 4:00 P.M., MONDAY THROUGH FRIDAY.
<PAGE> 7
LETTER TO DEPOSITORS NOT ELIGIBLE TO VOTE (CLOSED ACCOUNTS)
Page 2
We hope that you will take advantage of this opportunity to join us as
stockholders of Brooklyn Heights Bancorp.
Sincerely,
Stephen Irving
President and Chief Executive Officer
THIS LETTER IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY
COMMON STOCK. THE OFFER IS MADE ONLY BY THE PROSPECTUS. THE SHARES OF COMMON
STOCK ARE NOT SAVINGS ACCOUNTS OR SAVINGS DEPOSITS AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
- -------------------------------------------------------------------------------
STOCK INFORMATION CENTER
186 MONTAGUE STREET
BROOKLYN, NEW YORK 11201
(718)____ -
<PAGE> 8
POTENTIAL INVESTOR LETTER (Non-Customers)
[Atlantic Liberty Savings, F.A. Letterhead]
February , 1998
Dear Potential Investor:
I am pleased to inform you that the directors of Atlantic Liberty Savings, F.A.
have unanimously approved a Plan of Reorganization from a Mutual Savings
Association to a Mutual Holding Company and Stock Issuance Plan (the "Plan").
Pursuant to the Plan, Atlantic Liberty will convert to a stock charter and form
a federally-chartered stock holding company, Brooklyn Heights Bancorp. (the
"Holding Company" or "Brooklyn Heights"), which will own 100% of the common
stock of the converted Atlantic Liberty Savings.
As part of the mutual holding company formation, the Holding Company will offer
for sale 46% of its common stock to eligible depositors and others in a
subscription offering, and the remaining shares will be held by Atlantic
Liberty, MHC (the "Mutual Holding Company"). The primary purpose of the Plan is
to establish a holding company and to convert Atlantic Liberty to the stock form
of ownership, which will enable it to compete and expand more effectively in the
financial services marketplace. The Bank's mutual form of ownership, and its
ability to remain an independent institution, will be preserved through the
mutual holding company structure.
The Holding Company is offering between 391,000 and 529,000 shares of common
stock at $10.00 per share, subject to adjustment, to certain of its customers
and to members of the public. The shares of stock sold to investors will
represent a minority interest in Brooklyn Heights, and the Mutual Holding
Company will own the remainder of the outstanding shares.
We have enclosed an Prospectus, Stock Order Form and Informational Brochure. IF
YOU ARE INTERESTED IN PURCHASING SHARES, YOU MAY DO SO DURING THE OFFERING
WITHOUT PAYING A COMMISSION OR FEE. TO ORDER, YOUR COMPLETED STOCK ORDER FORM,
ALONG WITH PAYMENT MUST BE RECEIVED BY ATLANTIC LIBERTY BY 11:00 A.M., NEW YORK
TIME, ON __________, 1998.
Interest will be paid by Atlantic Liberty at its passbook savings account rate
on all funds received until the transaction is completed.
IF YOU HAVE ANY QUESTIONS, PLEASE CALL OUR STOCK INFORMATION CENTER AT
(718) - , 9:00 A.M. TO 4:00 P.M., MONDAY THROUGH FRIDAY.
We hope that you will take advantage of this opportunity to join us as
stockholders of Brooklyn Heights Bancorp.
<PAGE> 9
POTENTIAL INVESTOR LETTER (Non-Customers)
Page 2
Sincerely,
Stephen Irving
President and Chief Executive Officer
THIS LETTER IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY
COMMON STOCK. THE OFFER IS MADE ONLY BY THE PROSPECTUS. THE SHARES OF COMMON
STOCK ARE NOT SAVINGS ACCOUNTS OR SAVINGS DEPOSITS AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
- -------------------------------------------------------------------------------
STOCK INFORMATION CENTER
186 MONTAGUE STREET
BROOKLYN, NEW YORK 11201
(718)___-
<PAGE> 10
"BLUE SKY" MEMBER LETTER
[Atlantic Liberty Savings, F.A. Letterhead]
February , 1998
Dear Member:
I am pleased to inform you that the directors of Atlantic Liberty Savings, F.A.
have unanimously approved a Plan of Reorganization from a Mutual Savings
Association to a Mutual Holding Company and Stock Issuance Plan (the "Plan").
Pursuant to the Plan, Atlantic Liberty will convert to a stock charter and form
a federally-chartered stock holding company, Brooklyn Heights Bancorp. (the
"Holding Company" or "Brooklyn Heights"), which will own 100% of the common
stock of the converted Atlantic Liberty Savings.
The Plan is subject to a favorable vote of our members. OUR OFFICERS AND
DIRECTORS URGE YOU TO VOTE "FOR" THE PLAN. Enclosed you will find a Proxy
Statement describing the Plan, Proxy Card(s) and a reply envelope. Please vote
and sign the Proxy Card(s), then mail it in the enclosed reply envelope. IN
ORDER TO ENSURE THAT YOUR VOTE WILL BE COUNTED, WE MUST RECEIVE YOUR PROXY
CARD(S) BY :00 _.M., EASTERN TIME, ON ___________, 1998.
The Board of Directors of Atlantic Liberty believes that the mutual holding
company formation and related stock offering are in the best interest of its
customers and the communities it serves. Please remember:
THERE WILL BE NO CHANGE IN YOUR DEPOSIT ACCOUNTS OR LOANS. YOUR DEPOSIT
ACCOUNTS AT ATLANTIC LIBERTY WILL CONTINUE TO BE INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION UP TO APPLICABLE LIMITS.
Although you may vote on the Plan, unfortunately, Brooklyn Heights is unable to
offer or sell its common stock to you because the small number of depositors in
your state makes registration or qualification of the Holding Company, its
officers, directors, or employees under your state securities laws impractical.
<PAGE> 11
"BLUE SKY" MEMBER LETTER
Page 2
If you have any questions about your voting rights or the Plan, please call the
Stock Information Center at (718) -, 9:00 a.m. to 4:00 p.m., Monday through
Friday.
Sincerely,
Stephen Irving
President and Chief Executive Officer
THIS LETTER IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY
COMMON STOCK. THE OFFER IS MADE ONLY BY THE PROSPECTUS. THE SHARES OF COMMON
STOCK ARE NOT SAVINGS ACCOUNTS OR SAVINGS DEPOSITS AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
- --------------------------------------------------------------------------------
STOCK INFORMATION CENTER
186 MONTAGUE STREET
BROOKLYN, NEW YORK 11201
(718)___-
<PAGE> 12
RYAN, BECK "BROKER DEALER" LETTER
[Ryan, Beck Letterhead]
February , 1998
Dear Sir/Madam:
At the request of Atlantic Liberty Savings, F.A. and Brooklyn Heights Bancorp,
we are enclosing materials regarding its stock offering. The materials include a
Prospectus, Stock Order Form and Informational Brochure describing the Atlantic
Liberty's mutual holding company reorganization and the related offering of the
Brooklyn Heights Bancorp. common stock. Ryan, Beck & Co., Inc. has been retained
by Atlantic Liberty Savings, F.A. as its selling agent in connection with the
Offering.
We have been asked to forward these materials to you in view of certain
regulatory requirements and the securities laws of your state.
Sincerely,
RYAN, BECK & CO.
THIS LETTER IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY
COMMON STOCK. THE OFFER IS MADE ONLY BY THE PROSPECTUS. THE SHARES OF COMMON
STOCK ARE NOT SAVINGS ACCOUNTS OR SAVINGS DEPOSITS AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
- ------------------------
This letter goes only in packages located in specified states.
<PAGE> 13
PROXYGRAM
[Atlantic Liberty Savings, F.A. Letterhead]
PROXYGRAM
DEAR ATLANTIC LIBERTY SAVINGS, F.A. MEMBER:
TIME IS RUNNING OUT TO VOTE ON THE PLAN OF REORGANIZATION!
YOU SHOULD HAVE RECENTLY RECEIVED A PROXY STATEMENT AND PROXY CARD(S), HOWEVER,
WE HAVE NOT YET RECEIVED YOUR PROXY VOTE.
YOUR VOTE IS IMPORTANT TO US. THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE
FOR THE PLAN OF REORGANIZATION. PLEASE VOTE AND SIGN THE ENCLOSED PROXY CARD(S)
AND RETURN THEM PROMPTLY IN THE ENCLOSED POSTAGE-PAID ENVELOPE OR DELIVER THEM
TO ANY OF OUR OFFICES! VOTES WILL BE CAST ON SEPTEMBER 19, 1996.
VOTING ON THE PLAN OF REORGANIZATION DOES NOT OBLIGATE YOU TO PURCHASE STOCK IN
OUR COMMON STOCK OFFERING.
IF YOU HAVE ANY QUESTIONS, OR WOULD LIKE TO RECEIVE ANOTHER COPY OF THE PROXY
STATEMENT THAT WE MAILED YOU EARLIER, PLEASE CALL THE STOCK INFORMATION CENTER
AT (718) -, 9:00 A.M. TO 4:00 P.M., MONDAY THROUGH FRIDAY.
Sincerely,
Stephen Irving
President and Chief Executive Officer
THIS PROXYGRAM IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY
COMMON STOCK. THE OFFER IS MADE ONLY BY THE PROSPECTUS. THE SHARES OF COMMON
STOCK ARE NOT SAVINGS ACCOUNTS OR SAVINGS DEPOSITS AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
<PAGE> 14
STOCKGRAM
DEAR SIR/MADAM:
TIME IS RUNNING OUT FOR YOU TO PURCHASE STOCK IN OUR INITIAL STOCK OFFERING.
THIS IS A REMINDER THAT YOUR OPPORTUNITY TO PURCHASE STOCK IN OUR OFFERING
EXPIRES AT 11:00 A.M., NEW YORK TIME,__________ , 1998.
YOU SHOULD HAVE RECENTLY RECEIVED AN PROSPECTUS AND STOCK ORDER FORM. IF NOT,
PLEASE CALL OUR STOCK INFORMATION CENTER IMMEDIATELY.
A STOCK ORDER FORM AND POSTAGE-PAID REPLY ENVELOPE ARE ENCLOSED. YOUR STOCK
ORDER FORM AND PAYMENT MUST BE RECEIVED AT OUR OFFICE BY 11:00 A.M., NEW YORK
TIME, ON ___________, 1998.
IF YOU HAVE ALREADY PLACED AN ORDER FOR BROOKLYN HEIGHTS BANCORP STOCK, PLEASE
DISREGARD THIS NOTICE.
ANY QUESTIONS YOU MAY HAVE CAN BE ANSWERED BY CALLING THE STOCK INFORMATION
CENTER AT (718) - , FROM 9:00 A.M. TO 4:00 P.M., MONDAY THROUGH FRIDAY.
SINCERELY,
STEPHEN IRVING
PRESIDENT AND CHIEF EXECUTIVE OFFICER
THIS STOCKGRAM IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY
COMMON STOCK. THE OFFER IS MADE ONLY BY THE PROSPECTUS. THE SHARES OF COMMON
STOCK ARE NOT SAVINGS ACCOUNTS OR SAVINGS DEPOSITS AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
<PAGE> 15
STOCK ORDER ACKNOWLEDGMENT LETTER
[Atlantic Liberty Savings, F.A. Letterhead]
[Name]
[Social Security Number]
Dear Investor:
We are pleased to confirm the receipt of your order in the amount of $______ for
the purchase of Brooklyn Heights Bancorp Common Stock.
The Common Stock will be registered in the name(s) shown above. Please verify
the Social Security number and the spelling and accuracy of your name and
address. If this information is incorrect, please contact [Chase Mellon
Securities at (800) 526-0801].
PLEASE NOTE THIS ACKNOWLEDGMENT DOES NOT REPRESENT THE TOTAL NUMBER OF SHARES
THAT YOU MAY RECEIVE. THE ACTUAL PURCHASE WILL BE DETERMINED BY THE TOTAL NUMBER
OF ORDERS RECEIVED. THE ALLOCATION PROCESS IS DESCRIBED IN MORE DETAIL IN THE
PROSPECTUS.
We appreciate your confidence in our future and look forward to having you as a
stockholder.
- -----------------------------
PRINTED AND MAILED BY CONVERSION AGENT. (THE CONTACT NAME/PHONE IS AT CONVERSION
AGENT'S OFFICE.)
<PAGE> 16
STOCK CERTIFICATE MAILING LETTER
__________, 1998
Dear Stockholder:
On behalf of the Board of Directors of Brooklyn Heights Bancorp., I would like
to welcome you as a shareholder. A total of ________ shares were issued; of
these, _____ were purchased by investors at $10.00 per share. Our mutual holding
company, Atlantic Liberty, MHC., owns the balance of the outstanding shares.
YOUR STOCK CERTIFICATE IS ENCLOSED. Please review it to make sure the
registration and number of shares are correct. If you find an error or have
questions about your certificate, please call or write our Transfer Agent:
Chase Mellon Shareholder Services [CONFIRM]
Recordkeeping Services
P.O. Box 590
Ridgefield Park, NJ 07660 Phone: 1-800-647-4273
If the original stock certificate must be forwarded for reissue, it is
recommended that it be sent to the Transfer Agent by registered mail. If you
should change your address, please notify the Transfer Agent immediately so you
will continue to receive all Brooklyn Heights Bancorp's stockholder
communications.
IF YOU PAID FOR YOUR SHARES BY CHECK, please find enclosed a check representing
the interest which accrued on the amount of your check between the date of
receipt and the close of the Offering. However, if we were not able to fully
fill your order, this check also represents a refund of the amount of your
subscription we were unable to fill.
IF YOU PAID FOR YOUR SHARES BY AUTHORIZING WITHDRAWAL from a Atlantic Liberty
Savings, F.A. deposit account, that withdrawal has now been made. If we were
unable to fill your entire order, and you paid for your subscription in this
manner, only the amount necessary to pay for your allotment was withdrawn from
your account(s). Accrued interest earned during the Offering remains in your
account.
The Board of Directors and management of Atlantic Liberty Savings, F.A. thank
you for your participation in our Offering.
Sincerely,
Stephen Irving
President and Chief Executive Officer
<PAGE> 17
INVITATION
AN OPPORTUNITY . . .
YOU ARE CORDIALLY INVITED
TO A COMMUNITY INVESTOR MEETING AND RECEPTION
to learn about the formation of
Atlantic Liberty MHC
and the related Common Stock offering of
Brooklyn Heights Bancorp
, 1998
or
, 1998
7:00 p.m.
LOCATIONS TO FOLLOW
LIGHT REFRESHMENTS SERVED
Senior executives of Atlantic Liberty Savings, F.A. will present information and
answer your questions about Atlantic Liberty Savings, F.A.'s Plan of
Reorganization from Mutual Savings Association to Mutual Holding Company and
related Stock Offering. You'll also be presented with information about Atlantic
Liberty Savings, F.A.'s business focus and results of operations.
SEATING IS LIMITED
Please call and make your reservation.
(718)
Stock Information Center
[LOGO]
THIS INVITATION IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO
BUY COMMON STOCK. THE OFFER IS MADE ONLY BY THE PROSPECTUS. THE SHARES OF COMMON
STOCK ARE NOT SAVINGS ACCOUNTS OR SAVINGS DEPOSITS AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
<PAGE> 18
LOBBY POSTER
529,000 SHARES OF COMMON STOCK
ATLANTIC LIBERTY SAVINGS, F.A. IS CONDUCTING AN OFFERING OF COMMON STOCK.
If you have any questions, please call the Stock Information Center at
(718) , from 9:00 a.m. to 4:00 p.m., Monday through Friday.
[LOGO]
THIS NOTICE IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY
COMMON STOCK. THE OFFER IS MADE ONLY BY THE PROSPECTUS. THE SHARES OF COMMON
STOCK ARE NOT SAVINGS ACCOUNTS OR SAVINGS DEPOSITS AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
<PAGE> 19
TOMBSTONE ADVERTISEMENT
(Post-Community Meetings)
[LOGO]
Brooklyn Heights Bancorp
a Holding Company for
Atlantic Liberty Savings, F.A.
UP TO 529,000 SHARES
Common Stock
$10.00 Per Share
(Purchase Price)
Shares may be purchased during the Offering, without payment of additional
commissions or fees.
This Offering expires at 11:00 a.m., New York Time, on 1998.
To receive a copy of the Prospectus, please call the Stock Information Center at
(718) - from 9:00 a.m. to 4:00 p.m., Monday through Friday.
THIS ADVERTISEMENT IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO
BUY COMMON STOCK. THE OFFER IS MADE ONLY BY THE PROSPECTUS. THE SHARES OF COMMON
STOCK ARE NOT SAVINGS ACCOUNTS OR SAVINGS DEPOSITS AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
<PAGE> 20
COMMUNITY MEETING ADVERTISEMENT
Atlantic Liberty Savings, F.A. is reorganizing from a mutual savings bank to a
mutual holding company. As part of its reorganization, Brooklyn Heights Bancorp
is offering up to 529,000 shares of common stock at a subscription price of
$10.00 per share. Purchasers will not be required to pay a commission or fees.
YOU ARE INVITED
to a Community Investors Meeting and Reception
to meet senior officers and Directors of the Atlantic Liberty Savings, F.A.
In addition to hearing a discussion about the benefits of the mutual holding
company structure and stock offering, you'll learn more about Atlantic Liberty
Savings, F.A.'s business strategy and results of operations.
Community Investors Meeting
, 1998
or
, 1998
7:00 p.m.
[Location]
To receive a copy of the Prospectus, or to make a reservation to attend a
meeting, please call our Stock Information Center at (718) - .
Atlantic Liberty Savings, F.A. [LOGO]
THIS ADVERTISEMENT IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO
BUY COMMON STOCK. THE OFFER IS MADE ONLY BY THE PROSPECTUS. THE SHARES OF COMMON
STOCK ARE NOT SAVINGS ACCOUNTS OR SAVINGS DEPOSITS AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
<PAGE> 21
PRESS RELEASE
CONTACT: STEPHEN IRVING, PRESIDENT AND CHIEF EXECUTIVE OFFICER
TELEPHONE: (718) 855-3555
FOR IMMEDIATE RELEASE
- --------------------------------------------------------------------------------
BROOKLYN, NEW YORK. FEBRUARY , 1998 -- Atlantic Liberty Savings, F.A. has
received conditional approval from regulatory authorities to begin an offering
of common stock, in connection with its mutual holding company reorganization as
a subsidiary of Brooklyn Heights Bancorp. Shares of common stock of Brooklyn
Heights Bancorp are being offered to certain of its customers and to the public.
Brooklyn Heights Bancorp is offering up to 5290,000 shares of voting common
stock at a purchase price of $10.00 per share, subject to adjustment. The
offering will represent 46% of the total issued and outstanding shares of
Brooklyn Heights Bancorp. Outstanding shares not issued in the Offering will be
owned by the Atlantic Liberty MHC, the mutual holding company.
The best-efforts offering, which is being managed by Ryan, Beck & Co., Inc., is
expected to conclude on ______, 1998.
Atlantic Liberty's deposits are and will continue to be insured up to the
applicable limits by the FDIC.
Further information, including details of the Offering, and business and
financial information about Atlantic Liberty Savings, F.A. are described in a
prospectus, which is available upon request by calling the Stock Information
Center at (718) ___-____.
THIS NOTICE IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY
COMMON STOCK. THE OFFER IS MADE ONLY BY THE PROSPECTUS. THE SHARES OF COMMON
STOCK ARE NOT SAVINGS ACCOUNTS OR SAVINGS DEPOSITS AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
<PAGE> 22
PRESS RELEASE
CONTACT: STEPHEN IRVING, PRESIDENT AND CHIEF EXECUTIVE OFFICER
TELEPHONE: (718) 855-3555
FOR IMMEDIATE RELEASE
- --------------------------------------------------------------------------------
BROOKLYN, NEW YORK. , 1998. Stephen Irving, President & Chief Executive Officer
of Atlantic Liberty Savings, F.A. ("Atlantic Liberty") announced today the
completion of Atlantic Liberty's reorganization and common stock offering. In
connection with the stock offering by its holding company, Brooklyn Heights
Bancorp, Atlantic Liberty also formed a mutual holding company named Atlantic
Liberty MHC. Shares of voting common stock of Brooklyn Heights Bancorp were sold
to its eligible depositors and to the employee stock ownership plan at $10.00
per share. The ______ shares sold in the Offering represent a 46% minority
interest in Brooklyn Heights Bancorp. The remaining outstanding shares of stock
are owned by the mutual holding company.
Mr. Irving expressed his appreciation to the more than ___ individuals who have
become stockholders of Brooklyn Heights Bancorp. Mr. Irving was delighted by the
support and confidence shown by Atlantic Liberty's customers and local
community.
Net proceeds of approximately $ million were realized in the Offering, which
will add to the association's capital base and will support traditional
investment and lending activities. Ryan, Beck & Co., Inc. served as financial
advisor and selling agent with regard to the transaction. Ryan, Beck & Co. makes
a market in Brooklyn Bancorp's common stock which will start trading on ,
1998 and be quoted on the OTC Electronic Bulletin Board under the
symbol "_____".
<PAGE> 23
FOLDER COVER
Atlantic Liberty Savings, F.A.
[LOGO]
<PAGE> 24
BROCHURE
Cover:
Q & A
ABOUT THE FORMATION OF
BROOKLYN HEIGHTS BANCORP
AND THE RELATED OFFERING OF COMMON STOCK
[LOGO]
Inside Cover:
THE REORGANIZATION OF ATLANTIC LIBERTY SAVINGS, F.A. INTO A MUTUAL HOLDING
COMPANY, INCLUDING THE ORGANIZATION OF BROOKLYN HEIGHTS BANCORP AS A MID-TIER
STOCK HOLDING COMPANY, AND THE RELATED STOCK OFFERING BY BROOKLYN HEIGHTS
BANCORP ARE REFERRED TO HEREIN AS THE "TRANSACTION". REFERENCES HEREIN TO
ATLANTIC LIBERTY INCLUDE ATLANTIC LIBERTY SAVINGS, F.A. IN ITS CURRENT MUTUAL
FORM OR POST-REORGANIZATION STOCK FORM, AS INDICATED BY THE CONTEXT.
THIS PAMPHLET ANSWERS FREQUENTLY ASKED QUESTIONS ABOUT THE TRANSACTION AND ABOUT
YOUR OPPORTUNITY TO INVEST IN BROOKLYN HEIGHTS BANCORP. PLEASE READ THE ENCLOSED
PROSPECTUS BEFORE MAKING AN INVESTMENT DECISION. FOR A DISCUSSION OF CERTAIN
RISK FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS, PLEASE SEE THE
"RISK FACTORS" SECTION OF THE PROSPECTUS.
THE TRANSACTION
Q. WHAT IS THE TRANSACTION?
A. Atlantic Liberty Savings, F.A. ("Atlantic Liberty " or the
"Association") is changing its legal form from a federally-chartered
mutual (no stockholders) savings association to a federally-chartered
capital stock savings association that will be a subsidiary of Brooklyn
Heights Bancorp, a federally-chartered stock holding company (the
"Company"). In addition, the Association will organize Atlantic
Liberty, MHC (the "Mutual Holding Company") which will own the majority
of voting common stock of the Company. The Transaction concurrently
involves the sale of 46% of the common stock of the Company (the
"Offering") which will result in the public owning a minority interest
in the Company. After consummation of the Transaction, Atlantic
Liberty Savings, F.A. will continue to serve its customers as a
traditional savings institution.
1
<PAGE> 25
Q. WHY IS THE ASSOCIATION PURSUING THIS TRANSACTION?
A. The Board of Directors has determined that the Transaction is in the best
interests of Atlantic Liberty and its customers for a number of reasons
including:
- - The Offering gives customers (including directors, officers and
employees) and community members an opportunity to have equity
ownership in the Association and the Company. Management believes that
the Offering will provide purchasers of the common stock an opportunity
to share in Atlantic Liberty's future capital growth and potential
earnings. There can be no assurances, however, as to Atlantic Liberty's
capital growth, earnings or payment of future dividends.
- - While Atlantic Liberty currently exceeds all regulatory capital
requirements, the mutual holding company structure permits the
Association to strengthen its capital base and will help the
Association take advantage of future business opportunities by raising
equity capital through the Offering.
- - The Transaction will place the Association in stock form which is the
corporate form of organization used by commercial banks and most
savings institutions.
Q. WILL THERE BE ANY CHANGES IN DIRECTORS, OFFICERS OR EMPLOYEES AS A
RESULT OF THE TRANSACTION?
A. No. The directors, officers and employees of Atlantic Liberty will not
change as a result of the Transaction. The management and employees of
Atlantic Liberty will continue in their current capacity and its directors
will serve as the initial directors of the Holding Company. The day-to-day
activities of Atlantic Liberty will not change as a result of the
Transaction.
Q. WILL THE TRANSACTION AFFECT ON SAVINGS ACCOUNTS OR LOAN ACCOUNTS?
A. No. The Transaction will not affect the amount, interest rate or withdrawal
rights of deposit accounts, which will continue to be insured by the FDIC to
the maximum legal limit. Likewise, the loan accounts and rights of borrowers
will not be affected.
Q. WILL BROOKLYN HEIGHTS BANCORP BE ABLE TO CONVERT FROM THE MUTUAL TO THE STOCK
FORM OF ORGANIZATION IN THE FUTURE?
A. Yes, it is possible that Brooklyn Heights Bancorp will convert to the stock
form in the future. If the Company converts from the mutual to the stock form,
the conversion process will be subject to the Office of Thrift Supervision
regulations in effect at that time. For more complete information concerning the
possibility of future conversion, please refer to the Proxy Statement or the
Prospectus.
2
<PAGE> 26
VOTING RIGHTS
Q. WHO IS ELIGIBLE TO VOTE ON THE TRANSACTION?
A. Depositors and borrowers of the Association as of _____, 1998, the Voting
Record Date, are eligible to vote. These members have been provided with a
Proxy Statement describing the Transaction.
Q. IF I RECEIVED PROXY CARDS, AM I REQUIRED TO VOTE ON THE TRANSACTION?
A. No. However, the Board of Directors urges you to vote "FOR" the Plan
and sign the Proxy Card(s) and either hand-deliver to any of our
offices or use the enclosed reply envelope.
Q. WHY DID I GET SEVERAL PROXY CARDS?
A. If you have more than one account, you may have received more than one
Proxy Card, depending on the ownership structure of your accounts. Please
complete, execute and submit all Proxy Cards received by you.
Q. AM I REQUIRED TO PURCHASE STOCK IF I VOTE IN FAVOR OF THE TRANSACTION?
A. No. To become a stockholder, you must submit a Stock Order Form and
payment, as described below.
Q. MAY I VOTE IN PERSON AT THE SPECIAL MEETING?
A. Yes. If you attend the Special Meeting, you may revoke your existing
proxy, if any, and vote in person.
PURCHASING STOCK
Q. WHO MAY PURCHASE THE COMMON STOCK?
A. Depositors and members of the general public may subscribe for the
Company's common stock during the offering period. In the event,
however, that more orders are received than common stock available, the
common stock will be allocated on a priority basis to: (1) depositors
of the Association with aggregate deposits of $50 or more on June 30,
1996; (2) the Association's Employee Stock Ownership Plan; (3)
depositors of the Association with aggregate deposits of $50 or more on
December 31, 1997; (4) employees, officers and directors of the
Association; (5) to depositors
3
<PAGE> 27
and borrowers of the Association as of January _____, 1998; and (6)
members of the general public. Please note that you are not obligated to
purchase stock.
Q. HOW MUCH COMMON STOCK IS BEING OFFERED?
A. The Company is offering between 391,000 and 591,000 shares of common
stock, which represents a 46% minority ownership interest of the total
common stock expected to be outstanding.
The number of shares offered is based on an independent appraisal of the
Company and the Association, which determined that the estimated pro forma
market value to be between $8.5 and $11.5 million as of December_____,
1997. The final appraisal value will depend upon market and financial
conditions at the time the Offering is consummated.
Q. WHAT IS THE PRICE PER SHARE?
A. The Company is offering the shares at a purchase price of $10.00 per
share. All purchasers, including the directors and officers, will pay the
same price per share. NO COMMISSION WILL BE CHARGED FOR STOCK PURCHASED IN
THE OFFERING.
Q. HOW DO I PURCHASE COMMON STOCK?
A. Complete the Stock Order Form and submit it to Atlantic Liberty with
payment by 11:00 a.m. New York Time, on _______, 1998. You may
hand-deliver the Stock Order Form to either Atlantic Liberty office, or
you may use the enclosed Reply Envelope. Payment may be made by check or
money order or by authorization of withdrawal from Atlantic Liberty
deposit accounts. (NOTE THAT ANY APPLICABLE PENALTY FOR EARLY WITHDRAWAL
WILL BE WAIVED FOR SUCH WITHDRAWALS.)
4
<PAGE> 28
Q. WILL I RECEIVE INTEREST ON FUNDS I SUBMIT FOR STOCK PURCHASES?
A. Yes. Funds received will be placed in a deposit account at Atlantic
Liberty, and interest will be paid at the Association's passbook account
rate (currently __%) from the date payment is received until the Offering
is completed. With respect to authorized account withdrawals, interest
will continue to accrue at the account's contract rate until the Offering
is completed.
Q. WHAT IS THE MINIMUM AND MAXIMUM NUMBER OF SHARES THAT I MAY PURCHASE IN
THE OFFERING?
A. The minimum purchase is 25 shares. The maximum order in the Offering is
5,000 shares ($50,000).
Q. IS THE COMMON STOCK INSURED BY THE FDIC?
A. No. Stock cannot be insured by the FDIC or any other government agency.
Q. MAY I OBTAIN A LOAN FROM ATLANTIC LIBERTY TO PAY FOR MY SHARES?
A. No. Regulations do not allow Atlantic Liberty to make loans for this
purpose, but other financial institutions may be able to make such a
loan.
Q. MAY I PURCHASE THE COMMON STOCK THROUGH AN IRA?
A. Yes. However, if you have an IRA at Atlantic Liberty, you will need to
transfer your existing relationship to an independent trustee authorized
to hold self-directed IRA accounts. Please call the Stock Information
Center for assistance in transferring your account or establishing a new
self-directed IRA for the purchase of the stock. BECAUSE SUCH TRANSFERS
TAKE TIME, PLEASE CONTACT THE STOCK INFORMATION CENTER WITHIN THE FIRST
TWO WEEKS OF THE OFFERING PERIOD.
Q. WHEN DOES THE OFFERING TERMINATE?
A. The Offering will terminate at 11:00 a.m. New York Time, on ______, 1998,
unless extended by the Association.
Q. WHAT WILL HAPPEN TO MY ORDER IF ORDERS ARE RECEIVED FOR MORE COMMON STOCK
THAN IS AVAILABLE?
A. This is referred to as an over-subscription and shares will be
allocated on a priority basis as disclosed in the Prospectus. (The
order of priority is also provided previously.) There is no guarantee
than an order will be able to be filled in its
5
<PAGE> 29
entirety. Of course, if we are not able to fill an order (either wholly or
partly), funds remitted which are not used toward the purchase of stock
will be refunded with interest. If payment for the stock is made by
authorization to withdraw the funds from a Atlantic Liberty Savings, F.A.
account, those funds not used to purchase common stock will remain in that
account along with accrued interest.
Q. WHEN WILL I RECEIVE MY STOCK CERTIFICATE?
A. Stock certificates will be mailed as soon as practicable after the
Offering is completed. Please be aware that you may not be able to sell
the shares you purchased until you have received a stock certificate.
Q. HOW MAY I PURCHASE OR SELL SHARES IN THE FUTURE?
A. You may purchase or sell shares through a stockbroker. The Company
anticipates that following the offering the common stock will be traded in
the over-the-counter market through the OTC Electronic Bulletin Board.
There can be no assurance, however, that an active and liquid market for
the common stock will develop.
IF YOU HAVE ANY QUESTIONS, PLEASE CALL THE STOCK INFORMATION CENTER AT (718)
___-____ FROM 9:00 AM TO 4:00 PM, MONDAY THROUGH FRIDAY.
THIS BROCHURE IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY
COMMON STOCK. THE OFFER IS MADE ONLY BY THE PROSPECTUS. THE SHARES OF COMMON
STOCK ARE NOT SAVINGS ACCOUNTS OR SAVINGS DEPOSITS AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
6
<PAGE> 1
EXHIBIT 99.5
BROOKLYN HEIGHTS BANCORP
[LOGO]
STOCK ORDER FORM
Please read and complete this Stock Order Form. Instructions are included on the
reverse side of this form.
<TABLE>
<S> <C>
DEADLINE FOR DELIVERY
- ------------------------------------------------------------------------------------------------------------------------------------
11:00 A.M., NEW YORK TIME, ON _________, 1998
Please mail the completed Stock Order Form in the enclosed business reply envelope to the address listed below or hand-deliver to
any Atlantic Liberty Savings, F.A. office. Brooklyn Heights Bancorp, Inc. is not required to accept copies of Stock Order Forms.
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES
- -------------------------------------------------------------- -------------------------------------------------------------------
OFFICE USE ONLY
(1) Number of Shares Price per Share Total Amount Due
__________ x $10.00 = $ _________ ________________ __________________ _______________
(25 Share Minimum) Date Rec'd Batch # Order #
- -------------------------------------------------------------- -------------------------------------------------------------------
METHOD OF PAYMENT
- -------------------------------------------------------------- PURCHASER INFORMATION
(2) ___ Enclosed is a check or money order PAYABLE TO -------------------------------------------------------------------
ATLANTIC LIBERTY SAVINGS, F.A. for $__________. (4) Check the box which applies.
(a)__ Check here if you were a DEPOSITOR of Atlantic
(3) ___ I authorize Atlantic Liberty Savings, F.A. to make Liberty Savings, F.A. on June 30, 1996. List any
the withdrawal(s) from the Atlantic Liberty Savings, F.A. account(s) you had at that date.
account(s) listed below, and understand that the amounts I (b)__ Check here if you were NOT a depositor at June
authorize below will not otherwise be available to me once 30, 1996, but you WERE a depositor on December 31,
this Stock Order Form is submitted: 1997. List any account(s) you had at that date.
(c)__ Check here if you have never been a Atlantic
Account Number(s) Amount(s) Liberty Savings depositor.
- ----------------- ---------
- ----------------------------- ------------------- ACCOUNT TITLE (NAME(S) ON ACCOUNT) ACCOUNT NUMBER
- ----------------------------- -------------------
- ----------------------------- ------------------- --------------------------------------- -------------------
- ----------------------------- ------------------- --------------------------------------- -------------------
--------------------------------------- -------------------
Total Withdrawal $ =================== --------------------------------------- -------------------
THERE IS NO EARLY WITHDRAWAL PENALTY FOR THE PURCHASE OF IF ADDITIONAL SPACE IS NEEDED, PLEASE USE BACK OF THIS STOCK
STOCK. ORDER FORM.
- ------------------------------------------------------------ -------------------------------------------------------------------
STOCK REGISTRATION (PLEASE PRINT CLEARLY)
- ------------------------------------------------------------------------------------------------------------------------------------
(5) (6)
--------------------------------------------------------- -------------------------------------------------------
(First Name) (M.I.) (Last Name) Social Security # or Tax ID# (stock certificate will
show this number)
--------------------------------------------------------- -------------------------------------
(First Name) (M.I.) (Last Name) Social Security # or Tax ID#
(7)
--------------------------------------------------------- -------------------------------------
(Street Address) (Daytime Phone Number)
--------------------------------------------------------- -------------------------------------
(City) (State) (Zip) (Evening Phone Number)
(8) Form of Stock Ownership (check one)
_ Individual __ Joint Tenants __ Tenants in Common __ Uniform Transfer to Minors
_ Individual Retirement Account (IRA) __ Corporation __ Fiduciary (Under Agreement Dated___, 199__) __ Other ______________
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
NASD AFFILIATION (IF APPLICABLE)
- --------------------------------------------------------------------------------
__ Check here and initial below if you are a member of the NASD ("National
Association of Securities Dealers") or a person associated with an NASD member
or a member of the immediate family of any such person to whose support such
person contributes, directly or indirectly, or if you have an account in which
an NASD member, or person associated with an NASD member, has a beneficial
interest. I agree (i) not to sell, transfer or hypothecate the stock for a
period of 90 days following issuance; and (ii) to report this subscription in
writing to the applicable NASD member I am associated with within one day of
payment for the stock.
____ (Please initial)
- --------------------------------------------------------------------------------
ACKNOWLEDGMENT AND SIGNATURE (VERY IMPORTANT)
- --------------------------------------------------------------------------------
I(we) acknowledge receipt of the Prospectus dated _____, 1998, and I(we) have
read the terms and conditions described therein (including the section entitled
"Risk Factors"). I(we) understand that, after receipt by Atlantic Liberty
Savings, F.A., this order may not be modified or withdrawn without the consent
of Atlantic Liberty Savings, F.A. I(we) hereby certify that the shares which are
being subscribed for are for my(our) account only, and that I(we) have no
present agreement or understanding regarding any subsequent sale or transfer of
such shares and I (we) confirm that my (our) order does not conflict with the
purchase limitation and ownership limitation provisions in the Plan of
Reorganization from a Mutual Savings Association to a Mutual Holding Company and
Stock Issuance Plan. I(we) acknowledge that the common stock being ordered is
not a deposit or savings account, is not insured by the FDIC and is not
guaranteed by Atlantic Liberty Savings, F.A., or any government agency. Under
penalties of perjury, I(we) certify that (1) the Social Security #(s) or Tax
ID#(s) given above is(are) correct; and (2) I(we) am(are) not subject to backup
withholding tax (You must cross out #2 above if you have been notified by the
Internal Revenue Service that you are subject to backup withholding because of
underreporting interest or dividends on your tax return).
Please sign and date this form. Only one signature is required, unless
authorizing a withdrawal from a Atlantic Liberty Savings, F.A. deposit account
requiring more than one signature to withdraw funds. If signing as a custodian,
corporate officer, etc., please include your full title.
<TABLE>
<S> <C>
- ---------------------------------------------------------------------
Signature Title (if applicable) Date STOCK INFORMATION CENTER: Atlantic Liberty Savings,
F.A. 186 Montague Street
---------------------------------------------------------------- Brooklyn, NY 11201
Signature(if required) Date
THIS ORDER NOT VALID UNLESS SIGNED QUESTIONS? Call (718) ___-____
9:00 am to 4:00 pm, Monday-Friday
</TABLE>
- --------------------------------------------------------------------------------
THE SHARES OF COMMON STOCK ARE NOT SAVINGS ACCOUNTS OR SAVINGS DEPOSITS AND ARE
NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, OR ANY OTHER
GOVERNMENT AGENCY.
<PAGE> 2
STOCK ORDER FORM INSTRUCTIONS
-----------------------------
1 - Indicate the number of shares of Brooklyn Heights Bancorp common stock that
you wish to purchase and indicate the amount due. The minimum purchase is 25
shares or $250. No person may purchase more than $50,000 in the Offering.
Atlantic Liberty Savings, F.A. reserves the right to accept or reject orders
placed in the Offering.
2 - Payment for shares may be made by check or money order payable to ATLANTIC
LIBERTY SAVINGS, F.A.. Funds received in this form of payment will be cashed
immediately and deposited into a separate account established for the purposes
of this Offering. You will earn interest at Atlantic Liberty Savings, F.A.'s
passbook rate (currently __%) from the time funds are received until the
Offering is consummated.
3 - You may pay for your shares by withdrawal from your Atlantic Liberty
Savings, F.A. deposit account(s). Indicate the account number(s) and the
amount(s) to be withdrawn. These funds will be unavailable to you from the time
this Stock Order Form is received until the Offering is consummated. The funds
will continue to earn interest at the account's contractual rate until the
Offering is consummated. PLEASE CONTACT THE STOCK INFORMATION CENTER EARLY IN
THE OFFERING PERIOD, IF YOU ARE INTENDING TO UTILIZE ATLANTIC LIBERTY SAVINGS,
F.A. IRA FUNDS (OR ANY OTHER IRA FUNDS) TO MAKE YOUR STOCK PURCHASE.
4 - Check the applicable box. THIS INFORMATION IS VERY IMPORTANT BECAUSE
ELIGIBILITY DATES ARE UTILIZED TO PRIORITIZE YOUR ORDER IN THE EVENT THAT WE
RECEIVE MORE STOCK ORDERS THAN AVAILABLE STOCK. List the name(s) on the deposit
account(s) and account number(s) that you held at the applicable date. Please
see the portion of the Prospectus entitled "The Reorganization and Offering -
Subscription Offering" for a detailed explanation of how shares will be
allocated in the event the Offering is oversubscribed. Failure to complete this
section could result in a loss of all or part of your stock allocation.
- --------------------------------------------------------------------------------
(Continued from previous page)
Account Title (Name(s) on Account) Account Number
------------------------------------- -----------------------
------------------------------------- -----------------------
------------------------------------- -----------------------
- --------------------------------------------------------------------------------
5 - Please CLEARLY PRINT the name(s) and address in which you want the stock
certificate registered and mailed. If you are exercising subscription rights by
purchasing in the Subscription Offering as a Atlantic Liberty Savings, F.A. (i)
eligible depositor as of 6/30/96 or (ii) eligible depositor as of 12/31/97, you
must register the stock in the name of one of the account holders listed on your
account as of the applicable date. However, adding the name(s) of other persons
who are not account holders, or were account holders at a later date than
yourself, will be a violation of your subscription right and will result in a
loss of your purchase priority. NOTE: ONE STOCK CERTIFICATE WILL BE GENERATED
PER ORDER FORM. IF VARIOUS REGISTRATIONS AND SHARE AMOUNTS ARE DESIRED ON
VARIOUS CERTIFICATES, A SEPARATE STOCK ORDER FORM MUST BE COMPLETED FOR EACH
CERTIFICATE DESIRED.
6 - Enter the Social Security Number or Tax ID Number of the registered
owner(s). The first number listed will be identified with the stock certificate.
7 - Be sure to include at least one phone number, in the event you must be
contacted regarding this Stock Order Form.
8 - Please check the one type of ownership applicable to your registration. An
explanation of each follows:
GUIDELINES FOR REGISTERING STOCK
For reasons of clarity and standardization, the stock transfer industry
has developed uniform stockholder registrations which we will utilize in the
issuance of your Brooklyn Heights Bancorp Stock Certificate(s). If you have any
questions, please consult your legal advisor.
Stock ownership must be registered in one of the following manners:
- ----------------------------------------------------
INDIVIDUAL: Avoid the use of two initials. Include the first given
name, middle initial and last name of the stockholder. Omit
words of limitation that do not affect ownership rights
such as "special account," "single man," "personal
property," etc. If the stock is held individually upon the
individual's death, the stock will be owned by the
individual's estate and distributed as indicated by the
individual's will or otherwise in accordance with law.
- ---------------------------------------------------
JOINT: Joint ownership of stock by two or more persons shall be
inscribed on the certificate with one of the following
types of joint ownership. Names should be joined by "and";
do not connect with "or." Omit titles such as "Mrs.,"
"Dr.," etc.
JOINT TENANTS--Joint Tenancy with Right of Survivorship and
not as Tenants in Common may be specified to identify two
or more owners where ownership is intended to pass
automatically to the surviving tenant(s).
TENANTS IN COMMON--Tenants in Common may be specified to
identify two or more owners. When stock is held as tenancy
in common, upon the death of one co-tenant, ownership of the
stock will be held by the surviving co-tenant(s) and by the
heirs of the deceased co-tenant. All parties must agree to
the transfer or sale of shares held in this form of
ownership.
- ---------------------------------------------------
UNIFORM TRANSFER Stock may be held in the name of a custodian for a minor
TO MINORS: under the Uniform Transfers to Minors laws of the individual
states. There may be only one custodian and one minor
designated on a stock certificate. The standard abbreviation
of custodian is "CUST,", while the description "Uniform
Transfers to Minors Act" is abbreviated "UNIF TRAN MIN ACT."
Standard U.S. Postal Service state abbreviations should be
used to describe the appropriate state. For example, stock
held by John P. Jones under the Uniform Transfers to Minors
Act will be abbreviated:
JOHN P. JONES CUST SUSAN A. JONES
UNIF TRAN MIN ACT NY
- ---------------------------------------------------
FIDUCIARIES: Stock held in a fiduciary capacity must contain the
following:
1. The name(s) of the fiduciary(ies):
- If an individual, list the first given name,
middle initial and last name.
- If a corporation, list the corporate title
- If an individual and a corporation, list the
corporation's title before the individual.
2. The fiduciary capacity:
- Administrator
- Conservator
- Committee
- Executor
- Trustee
- Personal Representative
- Custodian
3. The type of document governing the fiduciary
relationship. Generally, such relationships are
either under a form of living trust agreement or
pursuant to a court order. Without a document
establishing a fiduciary relationship, your stock
may not be registered in a fiduciary capacity.
4. The date of the document governing the
relationship. The date of the document need not be
used in the description of a trust created by a
will.
5. Either of the following:
The name of the maker, donor or testator OR
The name of the beneficiary
Example of Fiduciary Ownership:
JOHN D. SMITH, TRUSTEE FOR TOM A. SMITH
UNDER AGREEMENT DATED 6/9/74
