As filed with the Securities and Exchange Commission on
March 6, 1998
Registration No. 333-
44697
_________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1 TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
BCB Financial Services Corporation
(Exact name of registrants as specified in their charters)
Pennsylvania 6720 23-2444807
(State or other jurisdic- (Primary Standard (I.R.S. Employer
tion of incorporation or Industrial Class- Identification
organization) ification Code No.)
Number)
400 Washington Street
Reading, Pennsylvania 19601
(610) 376-5933
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
Nelson R. Oswald
Chairman, President and Chief Executive Officer
BCB Financial Services Corporation
400 Washington Street
Reading, Pennsylvania 19601
(610) 376-5933
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Heritage Bancorp, Inc.
(Exact name of registrant as specified in its charter)
Pennsylvania 6720 23-2228542
(State or other jurisdic- (Primary Standard (I.R.S. Employer
tion of incorporation or Industrial Class- Identification
organization) ification Code No.)
Number)
120 South Centre Street
Pottsville, Pennsylvania 17901
(717) 622-2320
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
Allen E. Kiefer
President and Chief Executive Officer
Heritage Bancorp, Inc.
120 South Centre Street
Pottsville, Pennsylvania 17901
(717) 622-2320
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
To be consolidated into a new Pennsylvania
corporation known as _____________________.
with a copy to: with a copy to:
Jeffrey P. Waldron, Esquire Charles J. Ferry, Esquire
Stevens & Lee Paul F. Wessell, Esquire
111 North Sixth Street Rhoads & Sinon LLP
P.O. Box 679 Dauphin Bank Building
Reading, PA 19603 Twelfth Floor
One South Market Square
P.O. Box 1146
Harrisburg, PA 17108-
1146
<PAGE>
Approximate date of commencement of proposed sale to the public:
As soon as practicable after this Registration Statement becomes
effective.
If the securities being registered on this Form are being offered
in connection with the formation of a holding company and there
is compliance with General Instruction G, check the following
box: [ ]
CALCULATION OF REGISTRATION FEE
_________________________________________________________________
Title of Amount to be Proposed Proposed Amount of
each class registered (1) maximum maximum registra-
of secur- offering aggregate tion fee (2)
ities to be price per offering
registered unit price
_________________________________________________________________
Common Stock, 9,965,849 Not Not
par value shares applicable applicable $59,605
$1.00 per
share
_________________________________________________________________
(1) Based on the maximum number of shares of the Registrant's
common stock that may be issued in connection with the
proposed consolidation (the "Consolidation") of BCB
Financial Services Corporation ("BCB") and Heritage Bancorp,
Inc. ("Heritage") into __________, a new Pennsylvania
corporation to be formed upon the filing of articles of
consolidation (the "Holding Company"), and the conversion of
all outstanding shares of common stock of BCB and Heritage
(other than dissenting shares under Pennsylvania law and
shares directly or indirectly owned by BCB or Heritage) into
shares of common stock of the Holding Company. In
accordance with Rule 416, this Registration Statement shall
also register any additional shares of the Registrant's
common stock that may become issuable to prevent dilution
resulting from stock splits, stock dividends or similar
transactions as provided by the agreement relating to the
Consolidation.
(2) Estimated solely for purposes of calculating the
registration fee. Computed in accordance with
Rule 457(f)(1), on the basis of (i) the closing sale
price of the common stock of BCB on January 19, 1998 of
$26.75 with respect to 3,471,062 shares of BCB common
stock and on March 2, 1998 of $28.50 with respect to
967 additional shares of BCB common stock to be
exchanged in the Consolidation and unexercised options
to purchase 136,843 shares of BCB common stock, and
(ii) the closing sale price of the common stock of
Heritage on January 19, 1998 of $20.50 with respect to
4,772,230 shares of Heritage common stock and on March
5, 1998 of $21.56 with respect to 1,237 additional
shares of Heritage common stock to be exchanged in the
Consolidation and unexercised options to purchase
134,552 shares of Heritage common stock.
___________________________
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 Statement 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 Commission, acting
pursuant to said Section 8(a), may determine.
_________________________________________________________________
<PAGE>
[Letterhead of BCB Financial Services Corporation]
BCB FINANCIAL SERVICES CORPORATION
400 Washington Street
Reading, Pennsylvania 19601
March __, 1998
Dear Shareholder:
You are cordially invited to attend a special
meeting of the shareholders (the "BCB Special Meeting") of BCB
Financial Services Corporation ("BCB") which will be held at
Stokesay Castle, located at Hill Road and Spook Lane, Reading,
Pennsylvania, at 3:00 p.m., local time, on April 29, 1998.
At the BCB Special Meeting, shareholders will be asked
to approve and adopt the Agreement and Plan of Consolidation (the
"Agreement") dated as of November 18, 1997, by and between BCB
and Heritage Bancorp, Inc. ("Heritage") providing for the
consolidation (the "Consolidation") of BCB and Heritage into
__________, a Pennsylvania corporation to be formed upon
completion of the Consolidation (the "Holding Company") and the
conversion of each outstanding share of common stock of BCB
(other than any dissenting shares under Pennsylvania law and
shares directly or indirectly owned by BCB or Heritage) into
1.3335 shares of common stock of the Holding Company, all as more
fully described in the accompanying Proxy Statement/Prospectus.
The Holding Company will pay cash to BCB shareholders in lieu of
issuing fractional shares of common stock of the Holding Company.
Completion of the Consolidation is subject to certain conditions,
including the approval of the Agreement by the shareholders of
BCB and Heritage and the approval of the Consolidation by various
regulatory agencies.
The accompanying Proxy Statement/Prospectus and its
Annexes contain important information concerning the
Consolidation. Please read all of these materials carefully.
The Board of Directors of BCB has carefully considered
and approved the Agreement and believes that the Consolidation is
in the best interests of BCB and its Shareholders. ACCORDINGLY,
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR APPROVAL OF
THE AGREEMENT.
Your vote is important regardless of the number of
shares you own. Whether or not you plan to attend the BCB
Special Meeting, the Board of Directors of BCB urges you to
complete, sign, date and return the enclosed Proxy Card promptly
in the enclosed postage-paid envelope. This will not prevent you
from voting in person at the BCB Special Meeting but will ensure
that your vote is counted if you are unable to attend.
Thank you very much for your continued interest and
support. We look forward to seeing you at the BCB Special
Meeting.
Sincerely,
Nelson R. Oswald
Chairman, President and Chief
Executive Officer
<PAGE>
BCB FINANCIAL SERVICES CORPORATION
400 Washington Street
Reading, Pennsylvania 19601
(610) 376-5933
____________________
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held on April 29, 1998
NOTICE IS HEREBY GIVEN that a Special Meeting of
Shareholders (including any adjournment or postponement, the "BCB
Special Meeting") of BCB FINANCIAL SERVICES CORPORATION ("BCB")
will be held at Stokesay Castle, located at Hill Road and Spook
Lane, Reading, Pennsylvania, at 3:00 p.m., local time, on
April 29, 1998, to consider the following matters, all as more
fully described in the accompanying Joint Proxy Statement/
Prospectus:
1. To consider and vote upon the Agreement and Plan
of Consolidation (the "Agreement") dated as of November 18,
1997, by and between BCB and Heritage Bancorp, Inc.
("Heritage"), pursuant to which (a) BCB and Heritage will be
consolidated (the "Consolidation") into __________, a
Pennsylvania corporation to be formed upon completion of the
Consolidation (the "Holding Company"), (b) each BCB
shareholder will receive, for each outstanding share of the
common stock of BCB held by such person, 1.3335 shares of
the common stock of the Holding Company, and (c) each
Heritage shareholder will receive, for each outstanding
share of the common stock of Heritage held by such person,
1.05 shares of the common stock of the Holding Company.
2. To vote on adjournment of the BCB Special Meeting,
if necessary, to permit further solicitation of proxies in
the event there are not sufficient votes at the time of the
BCB Special Meeting to approve the Agreement.
3. To consider such other matters as may properly be
brought before the BCB Special Meeting.
The Board of Directors of BCB has fixed the close of
business on March 2, 1998, as the record date for determining
shareholders entitled to notice of, and to vote at, the BCB
Special Meeting.
The Board of Directors of BCB believes that the
Consolidation is fair to and in the best interests of BCB and its
shareholders and recommends that shareholders vote "FOR" approval
of the Agreement.
YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF
SHARES YOU OWN. WHETHER OR NOT YOU PLAN TO ATTEND THE BCB
SPECIAL MEETING, THE BOARD OF DIRECTORS OF BCB URGES YOU TO
COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD AS SOON
AS POSSIBLE IN THE ENCLOSED POSTAGE-PAID ENVELOPE. THIS WILL NOT
PREVENT YOU FROM VOTING IN PERSON AT THE BCB SPECIAL MEETING BUT
WILL ENSURE THAT YOUR VOTE IS COUNTED IF YOU ARE UNABLE TO
ATTEND.
PLEASE DO NOT SEND IN ANY CERTIFICATES FOR YOUR SHARES
AT THIS TIME.
By order of the Board of Directors
Harold C. Bossard
Secretary
Reading, Pennsylvania
March __, 1998
<PAGE>
[LETTERHEAD OF HERITAGE]
March __, 1998
Dear Shareholder:
You are cordially invited to attend a special meeting of
shareholders (the "Heritage Special Meeting") of Heritage
Bancorp, Inc. ("Heritage") to be held on Wednesday, April 29,
1998, at 9:00 a.m., local time, at The River Inn, Pottsville,
Pennsylvania.
At the Heritage Special Meeting, shareholders will consider
and vote upon the Agreement and Plan of Consolidation dated as of
November 18, 1997 (the "Agreement"), by and between Heritage and
BCB Financial Services Corporation ("BCB"), providing for the
consolidation (the "Consolidation") of BCB and Heritage into
__________, a Pennsylvania corporation to be formed upon
completion of the Consolidation (the "Holding Company") and the
conversion of each outstanding share of common stock of Heritage
(other than any dissenting shares under Pennsylvania law and
shares directly or indirectly owned by BCB or Heritage) into 1.05
shares of common stock of the Holding Company, all as more fully
described in the accompanying Proxy Statement/Prospectus. The
Holding Company will pay cash to Heritage shareholders in lieu of
issuing fractional shares of common stock of the Holding Company.
Completion of the Consolidation is subject to certain conditions,
including the approval of the Agreement by the shareholders of
Heritage and BCB and the approval of the Consolidation by various
regulatory agencies.
The accompanying Proxy Statement/Prospectus and its Annexes
contain important information concerning the Consolidation.
Please read all of these materials carefully.
The Board of Directors of Heritage has carefully considered
and approved the Agreement and believes that the Consolidation is
fair to and in the best interests of Heritage and its
shareholders. ACCORDINGLY, YOUR BOARD OF DIRECTORS HAS APPROVED
AND RECOMMENDS THAT YOU VOTE FOR APPROVAL OF THE AGREEMENT.
Your vote is important regardless of the number of shares
you own. Whether or not you plan to attend the Heritage Special
Meeting, the Board of Directors of Heritage urges you to
complete, sign, date and return the enclosed Proxy Card promptly
in the enclosed postage-paid envelope. This will not prevent you
from voting in person at the Heritage Special Meeting but will
ensure that your vote is counted if you are unable to attend.
Thank you very much for your continued interest and support.
We look forward to seeing you at the Heritage Special Meeting.
Sincerely yours,
Allen E. Kiefer,
President and Chief Executive
Officer
<PAGE>
HERITAGE BANCORP, INC.
120 South Centre Street
Pottsville, Pennsylvania 17901
____________________
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held on April 29, 1998
____________________
NOTICE IS HEREBY GIVEN that a Special Meeting of
Shareholders (including any adjournment or postponement, the
"Heritage Special Meeting") of Heritage Bancorp, Inc.
("Heritage"), a Pennsylvania corporation, will be held on
Wednesday, April 29, 1998, at 9:00 a.m., local time, at The River
Inn, Pottsville, Pennsylvania, to consider and vote upon the
following matters, all as more fully described in the
accompanying Joint Proxy Statement/Prospectus:
1. To consider and vote upon the Agreement and
Plan of Consolidation (the "Agreement") dated as of
November 18, 1997, by and between BCB Financial Services
Corporation ("BCB"), and Heritage, pursuant to which (a) BCB
and Heritage will be consolidated (the "Consolidation") into
__________, a Pennsylvania corporation to be formed upon
completion of the Consolidation (the "Holding Company"),
(b) each Heritage shareholder will receive, for each
outstanding share of the common stock of Heritage held by
such person, 1.05 shares of the common stock of the Holding
Company, and (c) each BCB shareholder will receive, for each
outstanding share of the common stock of BCB held by such
person, 1.3335 shares of the common stock of the Holding
Company.
2. The adjournment of the Heritage Special
Meeting, if necessary, to permit further solicitation of
proxies in the event there are not sufficient votes at the
time of the Heritage Special Meeting to approve the
Agreement.
3. The transaction of such other business as may
properly be brought before the Heritage Special Meeting.
The Board of Directors of Heritage has fixed the
close of business on March 2, 1998 as the record date for
determining shareholders entitled to notice of, and to vote at,
the Heritage Special Meeting.
The Board of Directors of Heritage believes that the
Consolidation is fair to and in the best interests of Heritage
and its shareholders and recommends that shareholders vote "FOR"
approval of the Agreement.
YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF
SHARES YOU OWN. WHETHER OR NOT YOU PLAN TO ATTEND THE HERITAGE
SPECIAL MEETING, THE BOARD OF DIRECTORS OF HERITAGE URGES YOU TO
COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD AS SOON
AS POSSIBLE IN THE ENCLOSED POSTAGE-PAID ENVELOPE. THIS WILL NOT
PREVENT YOU FROM VOTING IN PERSON AT THE HERITAGE SPECIAL MEETING
BUT WILL ENSURE THAT YOUR VOTE IS COUNTED IF YOU ARE UNABLE TO
ATTEND.
PLEASE DO NOT SEND IN ANY CERTIFICATES FOR YOUR SHARES
AT THIS TIME.
BY ORDER OF THE BOARD OF DIRECTORS
Richard A. Ketner,
Secretary
Pottsville, Pennsylvania
March __, 1998
<PAGE>
________________________________________________________________
BCB FINANCIAL SERVICES CORPORATION and HERITAGE BANCORP, INC.
JOINT PROXY STATEMENT
____________________
PROSPECTUS
_____________________
________________________________________________________________
This Joint Proxy Statement/Prospectus is being
furnished to shareholders of BCB Financial Services Corporation
("BCB") and to shareholders of Heritage Bancorp, Inc.
("Heritage"), each a Pennsylvania corporation, in connection with
the solicitation of proxies by the respective Boards of Directors
of BCB and Heritage for use at the Special Meeting of
Shareholders of BCB (including any adjournments or postponements
thereof, the "BCB Special Meeting") and the Special Meeting of
Shareholders of Heritage (including any adjournments or
postponements thereof, the "Heritage Special Meeting" and,
together with the BCB Special Meeting, the "Meetings") to be held
on April 29, 1998.
This Proxy Statement/Prospectus relates to an
Agreement and Plan of Consolidation (the "Agreement") dated as of
November 18, 1997, by and between BCB and Heritage, pursuant to
which (a) BCB and Heritage will be consolidated (the
"Consolidation") into __________, a Pennsylvania corporation to
be formed upon completion of the Consolidation (the "Holding
Company"), (b) each share of common stock, par value $2.50 per
share, of BCB (the "BCB Common Stock"), other than (i) any
dissenting shares under Pennsylvania law ("Dissenting Shares")
and (ii) shares directly or indirectly owned by BCB or Heritage
other than in a fiduciary capacity that are beneficially owned by
third parties or as a result of debts previously contracted
("Excluded Shares"), will be converted into and become the right
to receive 1.3335 shares of the common stock of the Holding
Company, and (c) each share of common stock, par value $5.00 per
share, of Heritage, (the "Heritage Common Stock") other than
Dissenting Shares and Excluded Shares, will be converted into and
become the right to receive 1.05 shares of the common stock of
the Holding Company. Upon completion of the Consolidation, the
former holders of Heritage Common Stock will hold approximately
52.0% of the issued and outstanding Holding Company Common Stock
(as defined below) and the former holders of BCB Common Stock
will hold approximately 48.0% of the issued and outstanding
Holding Company Common Stock.
This Proxy Statement/Prospectus constitutes both the
proxy statement of each of BCB and Heritage relating to (i) the
solicitation of proxies by their respective Boards of Directors
for use at the Meetings to be held for the purpose of considering
and voting upon a proposal to approve the Agreement and (ii) the
prospectus of the Holding Company with respect to up to a maximum
of 9,965,849 shares of common stock, par value $1.00 per share,
of the Holding Company (the "Holding Company Common Stock") to be
issued to shareholders of BCB and Heritage in the Consolidation.
The number of shares of Holding Company Common Stock into which
shares (other than any Dissenting Shares and Excluded Shares) of
BCB Common Stock and Heritage Common Stock will be converted in
the Consolidation will be further adjusted to prevent dilution in
the event of additional stock splits, reclassifications or other
similar events. The Holding Company will pay cash to BCB and
Heritage shareholders in lieu of issuing fractional shares of
Holding Company Common Stock.
This Proxy Statement/Prospectus and the accompanying
form of proxy are first being mailed to shareholders of BCB and
Heritage on or about March __, 1998.
THE SHARES OF HOLDING COMPANY COMMON STOCK OFFERED
HEREBY HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES OF HOLDING COMPANY COMMON STOCK OFFERED
HEREBY ARE NOT SAVINGS ACCOUNTS, DEPOSITS OR OTHER OBLIGATIONS OF
A BANK OR SAVINGS ASSOCIATION AND ARE NOT INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.
________________
The date of this Proxy Statement/Prospectus is
March __, 1998.
<PAGE>
Table of Contents
Page
AVAILABLE INFORMATION .................................. 1
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE ........ 2
SUMMARY ................................................ 5
The Companies .................................... 5
The Meetings ..................................... 7
The Consolidation ................................ 12
Certain Related Transactions ..................... 21
Interests of Certain Persons in the Consolidation. 23
Comparative Per Common Share Data ................ 26
SELECTED FINANCIAL DATA ................................ 29
PRO FORMA COMBINED FINANCIAL INFORMATION................ 36
Pro Forma Unaudited Combined Condensed Balance
Sheet as of December 31, 1997 .................. 36
Pro Forma Unaudited Combined Condensed Statements
of Income for the Years Ended December 31,
1997, 1996 and 1995 ............................ 40
THE MEETINGS ........................................... 44
Date, Time and Place ............................. 44
Matters To Be Considered at the Special Meetings . 44
Votes Required ................................... 45
Voting of Proxies ................................ 47
Revocability of Proxies .......................... 49
Record Date; Stock Entitled to Vote; Quorum ...... 49
Solicitation of Proxies .......................... 50
THE CONSOLIDATION ...................................... 51
Background of and Reasons for the Consolidation;
Recommendations of the Boards of Directors ..... 51
Terms of the Consolidation ....................... 65
Opinions of Financial Advisors ................... 68
Effective Date of the Consolidation .............. 90
Exchange of Stock Certificates ................... 90
Conditions to the Consolidation .................. 92
Regulatory Approvals ............................. 95
Representations and Warranties ................... 97
Business Pending the Consolidation ............... 98
Dividends ........................................ 103
No Solicitation of Transactions .................. 104
Amendment; Extension and Waivers ................. 105
Termination; Effect of Termination ............... 106
Management and Operations of the Holding Company
after the Consolidation ........................ 108
Employee Benefits ................................ 111
Accounting Treatment ............................. 113
Certain Federal Income Tax Consequences .......... 114
Expenses ......................................... 116
Resale of Holding Company Common Stock ........... 116
Dissenters' Rights ............................... 118
INTERESTS OF CERTAIN PERSONS IN THE CONSOLIDATION ...... 122
Stock Options .................................... 122
Indemnification; Directors and Officers
Insurance ...................................... 124
Continued Employment ............................. 125
Employment Agreements ............................ 126
Change in Control Agreements ..................... 127
Pension and ESOP Plans ........................... 129
CERTAIN RELATED TRANSACTIONS ........................... 129
Reciprocal Stock Option Agreements ............... 129
DESCRIPTION OF THE HOLDING COMPANY ..................... 135
General .......................................... 135
Board and Management ............................. 135
Renumeration of Directors and Officers ........... 138
Directors and Management of Subsidiaries ......... 138
Authorized Capital Stock ......................... 139
Market for Holding Company Common Stock and
Dividends ...................................... 141
Pennsylvania Anti-Takeover Provisions ............ 143
Comparison of Rights of Shareholders of BCB and
The Holding Company .................................. 145
Directors ........................................ 146
Shareholder Meetings ............................. 150
Action by Shareholders Without a Meeting ......... 151
Antitakeover Provisions .......................... 152
Required Shareholder Vote ........................ 152
Amendment of Bylaws .............................. 155
Mandatory Tender Offer Provision ................. 156
Dissenters' Rights ............................... 158
Dividends ........................................ 159
Voluntary Dissolution ............................ 159
Preemptive Rights ................................ 159
Voluntary Dissolution ............................ 160
Preemptive Rights ................................ 160
DESCRIPTION OF BCB ..................................... 161
Business ......................................... 161
Management's Discussion and Analysis of Financial
Condition and Results of Operations ............ 188
New Financial Accounting Standards ............... 210
Management ....................................... 211
Security Ownership of Certain Beneficial Owners
and Management ................................. 214
Executive Compensation ........................... 216
Executive Employment Agreements .................. 220
Certain Relationships and Related Transactions ... 222
Market Price of and Dividends on BCB Common Stock
and Related Shareholder Matters ................ 223
DESCRIPTION OF HERITAGE ................................ 225
Management ....................................... 225
Security Ownership Of Management ................. 227
Market Price of and Dividends on Heritage Common
Stock and Related Shareholder Matters .......... 230
ADJOURNMENT ............................................ 232
INDEMNIFICATION ........................................ 234
EXPERTS ................................................ 235
LEGAL MATTERS .......................................... 235
OTHER MATTERS .......................................... 235
FINANCIAL STATEMENTS OF BCB ............................ S-1
ANNEXES
A. Agreement and Plan of Consolidation between
BCB and Heritage, dated as of November 18, 1997 .. A-1
B. Stock Option Agreement between BCB and Heritage,
dated November 18, 1997 .......................... B-1
C. Stock Option Agreement between Heritage and BCB,
dated November 18, 1997 .......................... C-1
D. Opinion of Janney Montgomery Scott Inc. .......... D-1
E. Opinion of McConnell Budd & Downes Inc. .......... E-1
F. Sections 1930 and 1571-1580 of the Pennsylvania
Business Corporation Law of 1988, as amended ..... F-1
<PAGE>
No persons have been authorized to give any information or
to make any representations other than those contained in this
Proxy Statement/Prospectus in connection with the solicitation of
proxies or the offering of securities made hereby and, if given
or made, such information or representation must not be relied
upon as having been authorized by BCB or Heritage. This Proxy
Statement/Prospectus does not constitute an offer to sell, or a
solicitation of an offer to buy, any securities, or the
solicitation of a proxy, in any jurisdiction to or from any
person to whom it is not lawful to make any such offer or
solicitation in such jurisdiction. Neither the delivery of this
Proxy Statement/Prospectus nor any distribution of securities
made hereunder shall, under any circumstances, create an
implication that there has been no change in the affairs of BCB
or Heritage since the date hereof or that the information herein
is correct as of any time subsequent to its date.
All information concerning BCB and its subsidiaries
contained herein, incorporated herein by reference or supplied
herewith, has been furnished by BCB, and all information
concerning Heritage and its subsidiaries contained herein,
incorporated herein by reference or supplied herewith, has been
furnished by Heritage.
AVAILABLE INFORMATION
BCB and Heritage are each subject to the informational
requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and, in accordance therewith, file reports,
proxy statements and other information with the Securities and
Exchange Commission (the "Commission"). The reports, proxy
statements and other information filed by BCB and Heritage with
the Commission can be inspected and copied at the offices of the
Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's regional offices
located at Seven World Trade Center, New York, New York 10048,
and Citicorp Center, 500 West Madison Avenue, Suite 1400,
Chicago, Illinois 60661-2511. Copies of such material also can
be obtained from the Public Reference Section of the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates, and from the web site that the Commission maintains at
http://www.sec.gov.
BCB and Heritage have filed with the Commission a
Registration Statement on Form S-4 (together with any amendments
thereto, the "Registration Statement") under the Securities Act
of 1933, as amended (the "Securities Act"), with respect to the
Holding Company Common Stock to be issued pursuant to the
Agreement. This Proxy Statement/Prospectus does not contain all
the information set forth in the Registration Statement and the
exhibits thereto. Such additional information may be obtained
from the Commission's principal office in Washington, D.C.
Statements contained in this Proxy Statement/Prospectus or in any
document incorporated in this Proxy Statement/Prospectus by
reference or supplied herewith as to the contents of any contract
or other document referred to herein or therein are not
necessarily complete, and, in each instance, reference is made to
the copy of such contract or other document filed as an exhibit
to the Registration Statement or such other document, each such
statement being qualified in all respects by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by
BCB (File No. 0-16533) pursuant to the Exchange Act are
incorporated by reference in this Proxy Statement/Prospectus:
1. BCB's Annual Report on Form 10-KSB for the
year ended December 31, 1997.
The following documents filed with the Commission by
Heritage (File No. 0-12506) pursuant to the Exchange Act are
incorporated by reference in this Proxy Statement/Prospectus:
1. Heritage's Annual Report on Form 10-K for the
year ended December 31, 1997.
In addition, all documents filed by BCB and Heritage
pursuant to Section 13(a), 13(c), 14 and 15(d) of the Exchange
Act subsequent to the date of this Proxy Statement/Prospectus and
prior to the date of the Meetings shall be deemed to be
incorporated by reference in this Proxy Statement/Prospectus and
to be a part hereof from the dates of filing of such documents or
reports. Any statement contained herein or in a document all or
a portion of which is incorporated or deemed to be incorporated
by reference herein shall be deemed to be modified or superseded
for purposes of this Proxy Statement/Prospectus to the extent
that a statement contained herein or in any other subsequently
filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except
as modified or superseded, to constitute a part of this Proxy
Statement/Prospectus.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS
BY REFERENCE WHICH ARE NOT PRESENTED HEREIN OR DELIVERED
HEREWITH. SUCH DOCUMENTS (OTHER THAN EXHIBITS TO SUCH DOCUMENTS
UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE)
ARE AVAILABLE, WITHOUT CHARGE, TO ANY PERSON, INCLUDING ANY
BENEFICIAL OWNER, TO WHOM THIS PROXY STATEMENT/PROSPECTUS IS
DELIVERED, ON WRITTEN OR ORAL REQUEST. DOCUMENTS RELATING TO BCB
MAY BE REQUESTED FROM BCB FINANCIAL SERVICES CORPORATION, 400
WASHINGTON STREET, READING, PENNSYLVANIA 19601 (TELEPHONE NUMBER
(610) 376-5933), ATTENTION: PATRICIA A. YOCUM, ASSISTANT
SECRETARY. DOCUMENTS RELATING TO HERITAGE MAY BE REQUESTED FROM
HERITAGE BANCORP, INC., 120 SOUTH CENTRE STREET, POTTSVILLE,
PENNSYLVANIA 17901 (TELEPHONE NUMBER (717) 622-2320), ATTENTION:
RICHARD A. KETNER, SECRETARY. IN ORDER TO ENSURE DELIVERY OF THE
DOCUMENTS PRIOR TO THE APPLICABLE MEETING, REQUESTS SHOULD BE
RECEIVED BY _______ __, 1998.
<PAGE>
SUMMARY
The following is a summary of certain information
contained elsewhere in this Proxy Statement/Prospectus and in the
documents incorporated herein by reference. Reference is made
to, and this summary is qualified in its entirety by, the more
detailed information contained or incorporated by reference in
this Proxy Statement/Prospectus and the Annexes hereto. A copy
of the Agreement (including exhibits thereto) is set forth in
Annex A to this Proxy Statement/Prospectus and reference is made
thereto for a complete description of the terms of the
Consolidation. Shareholders of BCB and Heritage are urged to
read carefully this entire Proxy Statement/Prospectus, including
the Annexes hereto.
The Companies
BCB
BCB is a Pennsylvania corporation headquartered in
Reading, Pennsylvania and is a registered bank holding company
for Berks County Bank ("Berks County Bank"), a Pennsylvania-
chartered commercial bank. Berks County Bank was founded in 1987
to serve individuals and small- to medium-sized businesses that
management believed were not being adequately served by the
larger competitors in its market area. Berks County Bank offers
a full range of commercial and retail banking services. Berks
County Bank currently maintains six full-service branches in
Reading (Berks County), Exeter (Berks County), Wyomissing (Berks
County), Muhlenberg (Berks County), Shillington (Berks County)
and Pottstown (Montgomery County), Pennsylvania, and six loan
production offices in Wyomissing (Berks County), Pottstown
(Montgomery County), Schuylkill Haven (Schuylkill County),
Jamison (Bucks County), Exton (Chester County), and Allentown
(Lehigh County), Pennsylvania. Berks County Bank expects to open
a seventh full-service branch in Hamburg (Berks County) in the
first quarter of 1998 and its eighth and ninth full-service
branches in Douglass Township (Montgomery County) and Robesonia
(Berks County) in the third quarter of 1998.
At December 31, 1997, BCB and its subsidiaries had
total consolidated assets, deposits, net loans and shareholders'
equity of approximately $447.6 million, $360.6 million, $246.2
million and $44.1 million, respectively.
The principal executive offices of BCB are located at
400 Washington Street, Reading, Pennsylvania 19601, and its
telephone number is (610) 376-5933. For further information
concerning BCB and its subsidiaries, see "AVAILABLE INFORMATION,"
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE," "BCB SELECTED
FINANCIAL DATA" and "DESCRIPTION OF BCB."
Heritage
Heritage is a Pennsylvania business corporation formed
in 1983 with its headquarters located in Pottsville, Schuylkill
County, Pennsylvania. Prior to March 1, 1995, the name of the
Corporation was Miners National Bancorp, Inc. ("Miners"). As a
result of the merger on March 1, 1995 between Miners and Bankers'
Financial Services Corporation ("Bankers"), a one bank holding
company located in Schuylkill Haven, Pennsylvania, Miners changed
its name to Heritage Bancorp, Inc.
Heritage is a bank holding company as defined in the
Bank Holding Company Act of 1956, as amended. Heritage National
Bank ("Heritage National Bank") is a wholly-owned subsidiary of
Heritage, which includes the former Miners National Bank and
Bankers' subsidiary, The Schuylkill Haven Trust Company. Through
Heritage National Bank, Heritage acts as a community financial
service provider, and offers traditional banking and related
financial services to individual, business, and government
customers. Heritage National Bank, which is the oldest
commercial bank in its trade area, was originated under a state
bank charter in 1828 and is the third largest commercial bank in
Schuylkill County.
Heritage National Bank currently operates a network of
14 full service community offices throughout Schuylkill and
northern Dauphin Counties.
At December 31, 1997, Heritage and its subsidiaries
had total consolidated assets, deposits, net loans and
shareholders' equity of approximately $366.3 million, $266.3
million, $231.6 million and $44.6 million, respectively.
The principal executive offices of Heritage are located
at 120 South Centre Street, Pottsville, Pennsylvania 17901 and
its telephone number is (717) 622-2320. For additional
information concerning Heritage, see "AVAILABLE INFORMATION,"
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE," "HERITAGE
SELECTED FINANCIAL DATA" and "DESCRIPTION OF HERITAGE."
The Meetings
General
The BCB Special Meeting will be held at Stokesay
Castle, located at Hill Road and Spook Lane, Reading,
Pennsylvania, at 3:00 p.m., local time, on April 29, 1998.
The Heritage Special Meeting will be held at The
River Inn, located in Pottsville, Pennsylvania, at 9:00 a.m.,
local time, on Wednesday, April 29, 1998.
Record Dates
The record date for the BCB Special Meeting is
March 2, 1998 (the "BCB Record Date"). The record date for the
Heritage Special Meeting is March 2, 1998 (the "Heritage Record
Date"). Only shareholders of record at the close of business on
the BCB Record Date or the Heritage Record Date, as applicable,
will be entitled to receive notice of, and to vote at, the
Meetings.
Matters to be Considered at the Meetings
BCB. At the BCB Special Meeting, holders of BCB Common
Stock will consider and vote upon a proposal to approve and adopt
the Agreement, which is attached as Annex A to this Proxy
Statement/Prospectus and incorporated herein by reference. In
addition, shareholders of BCB are being asked to approve a
proposal to adjourn the BCB Special Meeting, if necessary, to
permit further solicitation of proxies in the event there are not
sufficient votes at the BCB Special Meeting to approve the
Agreement (the "BCB Adjournment Proposal"). Shareholders will
also consider and vote upon any other matter that may properly
come before the BCB Special Meeting.
Heritage. At the Heritage Special Meeting, holders of
Heritage Common Stock will consider and vote upon a proposal to
approve and adopt the Agreement attached as Annex A to this Proxy
Statement/Prospectus and incorporated herein by reference. In
addition, shareholders of Heritage are being asked to approve a
proposal to adjourn the Heritage Special Meeting, if necessary,
to permit further solicitation of proxies in the event there are
not sufficient votes at the Heritage Special Meeting to approve
the Agreement (the "Heritage Adjournment Proposal").
Shareholders will also consider and vote upon any other matter
that may properly come before the Heritage Special Meeting.
See "THE MEETINGS -- Matters to be Considered at the
Meetings."
Votes Required
BCB. Shareholders entitled to cast at least a
majority of the votes which all shareholders are entitled to cast
on the BCB Record Date must be represented in person or by proxy
at the BCB Special Meeting for a quorum to be present for
purposes of voting on the Agreement, the BCB Adjournment Proposal
and any other matter to be considered at the BCB Special Meeting.
The approval and adoption of the Agreement will require the
affirmative vote, in person or by proxy, of the holders of at
least 75% of the outstanding shares of BCB Common Stock. The
approval of the BCB Adjournment Proposal will require the
affirmative vote, in person or by proxy, of a majority of votes
which all shareholders are entitled to cast at the BCB Special
Meeting. Each holder of shares of BCB Common Stock outstanding
on the BCB Record Date will be entitled to one vote for each
share held of record at the BCB Special Meeting. The directors
and executive officers of BCB have agreed to vote all shares of
BCB Common Stock that they own on the BCB Record Date in favor of
the approval and adoption of the Agreement. On the BCB Record
Date, directors and executive officers of BCB owned approximately
511,643 shares of BCB Common Stock, or approximately 14.74% of
the then outstanding shares of BCB Common Stock. Management of
BCB is not aware of any other person or entity owning 5% or more
of BCB Common Stock.
Heritage. Shareholders entitled to cast at least a
majority of the votes which all shareholders are entitled to cast
on the Heritage Record Date must be represented in person or by
proxy at the Heritage Special Meeting for a quorum to be present
for purposes of voting on the Agreement, the Heritage Adjournment
Proposal and any other matter to be considered at the Heritage
Special Meeting. The approval and adoption of the Agreement will
require the affirmative vote of the holders of at least 75% of
the votes cast, in person or by proxy, at the Heritage Special
Meeting. The approval of the Heritage Adjournment Proposal will
require the affirmative vote of a majority of votes cast, in
person or by proxy, at the Heritage Special Meeting. Each holder
of shares of Heritage Common Stock outstanding on the Heritage
Record Date will be entitled to one vote for each share held of
record at the Heritage Special Meeting. Ten of the thirteen
directors and each of the executive officers of Heritage have
agreed to vote all shares of Heritage Common Stock that they own
on the Heritage Record Date in favor of the approval and adoption
of the Agreement. See "THE CONSOLIDATION -- Background of and
Reasons for the Consolidation; Recommendations of the Boards of
Directors -- Background of the Consolidation," for information
concerning the approval of the Agreement and recommendation by
the Heritage Board of Directors. On the Heritage Record Date,
such directors and executive officers of Heritage owned
approximately 261,105 shares of Heritage Common Stock, or
approximately 5.5% of the then outstanding shares of Heritage
Common Stock.
Management of Heritage is not aware of any person or
entity owning 5% or more of the outstanding shares of Heritage
Common Stock, except for 396,700 shares of Heritage Common Stock
(approximately 8.3% of outstanding shares) held, either directly
or indirectly, by Heritage National Bank in its trust department
as fiduciary for certain trusts, estates and agency accounts
which beneficially own such shares. Of these shares, Heritage
National Bank had sole voting and investment power with respect
to 243,370 shares, and shared voting and investment power with
respect to 34,213 shares. Pursuant to provisions of the
applicable governing instruments and/or in accordance with
applicable principles of fiduciary law, Heritage National Bank,
as fiduciary, has the right and power, exercisable either alone
or in conjunction with a co-fiduciary, to vote the shares in
which it has sole or shared voting power, either in person or by
proxy, for the Agreement and the Heritage Adjournment Proposal,
so long as such votes are in the best interest of any such trust,
estate or agency account and the beneficiaries or principals
thereof. It is currently anticipated that Heritage National Bank
will vote such shares in favor of the Agreement and the Heritage
Adjournment Proposal.
See "THE MEETINGS -- Votes Required."
Voting and Revocation of Proxies
Shares represented by all properly executed proxies
received in time for the Meetings will be voted at such Meetings
in the manner specified therein by the holders thereof. In the
case of BCB, properly executed proxies that do not contain voting
instructions will be voted in favor of the Agreement and in favor
of the BCB Adjournment Proposal. In the case of Heritage,
properly executed proxies that do not contain voting instructions
will be voted in favor of the Agreement and in favor of the
Heritage Adjournment Proposal.
The grant of a proxy on the enclosed BCB or Heritage
form does not preclude a BCB shareholder or a Heritage
shareholder from voting in person. A BCB shareholder or a
Heritage shareholder may revoke a proxy at any time prior to its
exercise by filing with the Secretary of BCB (in the case of a
BCB shareholder) or the Secretary of Heritage (in the case of a
Heritage shareholder) a duly executed revocation of proxy, by
submitting a duly executed proxy bearing a later date or by
appearing at the applicable Meeting and voting in person at such
Meeting. Attendance at the applicable Meeting will not, in and
of itself, constitute revocation of a proxy.
See "THE MEETINGS -- Voting of Proxies" and
"Revocability of Proxies."
The Consolidation
Terms of the Consolidation
At the Effective Date of the Consolidation, each
outstanding share of BCB Common Stock (other than any Dissenting
Shares and Excluded Shares) will be automatically converted into,
and become a right to receive, 1.3335 shares of Holding Company
Common Stock (the "BCB Exchange Ratio") and each outstanding
share of Heritage Common Stock (other than any Dissenting Shares
and Excluded Shares) will be automatically converted into, and
become a right to receive, 1.05 shares of Holding Company Common
Stock (the "Heritage Exchange Ratio").
The BCB Exchange Ratio and the Heritage Exchange Ratio
will be subject to adjustment to prevent dilution in the event of
additional stock splits, reclassifications or other similar
events.
The Holding Company will in all events pay cash to BCB
and Heritage shareholders in lieu of issuing fractional shares of
Holding Company Common Stock.
In connection with the Consolidation, all outstanding
options to purchase shares of BCB Common Stock and Heritage
Common Stock issued under BCB's and Heritage's preexisting stock
option plans generally will be converted on the Effective Date
into options to acquire that number of shares of Holding Company
Common Stock equal to the number of shares covered by the option
multiplied by the BCB Exchange Ratio or the Heritage Exchange
Ratio, as the case may be, and the exercise price for a whole
share of Holding Company Common Stock shall be the stated
exercise price for such option divided by the BCB Exchange Ratio
or the Heritage Exchange Ratio, as the case may be, such shares
to be issuable upon exercise in accordance with the terms of the
respective plans and grant agreements of BCB and Heritage under
which they were issued. See "THE CONSOLIDATION -- Terms of the
Consolidation."
The Effective Date will be the date on which Articles
of Consolidation are filed with the Pennsylvania Department of
State (the "PDS") which will be the same date as the closing date
(the "Closing Date").
The Closing Date will be the later of May 1, 1998 or
the fifth business day following satisfaction or waiver, to the
extent permitted under the Agreement, of the conditions to the
consummation of the Consolidation as specified in the Agreement
or such other date as BCB and Heritage may mutually agree. See
"THE CONSOLIDATION -- Effective Date."
Dividends
The Agreement permits BCB and Heritage to pay a regular
quarterly cash dividend, not to exceed $.08 and $.14,
respectively, per share of BCB Common Stock and Heritage Common
Stock outstanding, respectively, with respect to each calendar
quarter prior to the Effective Date. See "THE CONSOLIDATION --
Dividends."
Dissenters' Rights
Under Section 1930 and Chapter 15, Subchapter D, of the
Pennsylvania Business Corporation Law of 1988, as amended (the
"BCL"), holders of BCB Common Stock and Heritage Common Stock who
properly file with BCB or Heritage, respectively, a written
notice of intention to dissent will have the right to obtain a
cash payment for the "fair value" of their shares (excluding any
element of value arising in anticipation of the Consolidation).
In order to exercise such rights, BCB and Heritage shareholders
must comply with the procedural requirements of Chapter 15,
Subchapter D, of the BCL, a description of which is provided in
"THE CONSOLIDATION -- Dissenters' Rights" and the full text of
which is attached to this Proxy Statement/Prospectus as Annex F.
Such "fair value" would be determined in judicial proceedings,
the result of which cannot be predicted. Failure to take any of
the steps required under Chapter 15, Subchapter D, of the BCL on
a timely basis may result in the loss of dissenters' rights. See
"THE CONSOLIDATION -- Dissenters' Rights" and "DESCRIPTION OF THE
HOLDING COMPANY -- Comparison of Rights of Shareholders of BCB
and The Holding Company -- Dissenters' Rights" and " --
Comparison of Rights of Shareholders of Heritage and the Holding
Company -- Dissenters' Rights."
Accounting Treatment and Certain Federal Income Tax
Consequences
The Consolidation is intended to qualify as a pooling
of interests for financial accounting purposes and is expected to
constitute a tax-free reorganization for federal income tax
purposes. It is a condition to completion of the Consolidation
that BCB and Heritage each receive an opinion from Beard &
Company, Inc. ("Beard & Company") the independent auditor for
each of BCB and Heritage, that the Consolidation will be treated
as a pooling of interests for financial accounting purposes.
As of the date of this Proxy Statement/Prospectus,
neither BCB nor Heritage has any reason to believe that Beard &
Company will be unable to deliver an opinion that the
Consolidation will qualify as a pooling of interests for
financial accounting purposes.
Completion of the Consolidation is also subject to
the condition that BCB and Heritage each receive an opinion from
BCB's counsel that the Consolidation will constitute a tax-free
reorganization for federal income tax purposes. If, for any
reason, BCB and Heritage cannot obtain an opinion that the
consolidation will constitute a tax-free reorganization for
federal income tax purposes, then either BCB or Heritage could
terminate this Agreement or both BCB and Heritage could elect to
waive this condition. If the parties elected to waive this
condition, any vote of the shareholders of BCB and Heritage
approving the Consolidation would be resolicited. As of the date
of the Proxy Statement/Prospectus, BCB and Heritage each has no
reason to believe that BCB's counsel will be unable to deliver
such opinion.
See "THE CONSOLIDATION -- Certain Federal Income Tax
Consequences," "-- Accounting Treatment" and "-- Conditions to
the Merger."
Recommendations of Boards of Directors
BCB. The Board of Directors of BCB believes that the
terms of the Consolidation are fair and in the best interests of
BCB and its shareholders and has approved the Agreement. The
Board of Directors of BCB unanimously recommends that the
shareholders of BCB approve the Agreement.
Heritage. The Board of Directors of Heritage believes
that the terms of the Consolidation are fair and in the best
interests of Heritage and its shareholders and has approved the
Agreement. The Board of Directors of Heritage recommends that
the shareholders of Heritage approve the Agreement.
See "THE CONSOLIDATION -- Background of and Reasons for
the Consolidation; Recommendations of the Boards of Directors --
Background of the Consolidation."
Opinions of Financial Advisor
Janney Montgomery Scott Inc. ("JMS") has delivered
its oral opinion, as of November 18, 1997, and its written
opinion as of the date of this Proxy Statement/Prospectus, to the
Board of Directors of BCB that, as of the respective dates of
such opinions, and subject to the assumptions and considerations
set forth therein, the BCB Exchange Ratio is fair from a
financial point of view to the holders of BCB Common Stock. A
copy of the opinion of JMS, dated the date of this Proxy
Statement/Prospectus, is attached hereto as Annex D.
McConnell Budd & Downes Inc. ("MB&D") has delivered its
oral opinion, on November 18, 1997, and its written opinion as of
the date of this Proxy Statement/Prospectus, to the Board of
Directors of Heritage that, as of the respective dates of such
opinions, and subject to the assumptions and considerations set
forth therein, the Heritage Exchange Ratio is fair from a
financial point of view to the holders of Heritage Common Stock.
A copy of the opinion of MB&D, dated the date of this Proxy
Statement/Prospectus, is attached hereto as Annex E.
For information on the assumptions made, matters
considered and limits of the reviews by JMS and MB&D, see "THE
CONSOLIDATION -- Opinions of the Financial Advisors."
Conditions to the Consolidation; Regulatory Approvals
The obligations of BCB and Heritage to complete the
Consolidation are subject to various conditions usual and
customary in transactions similar to the Consolidation,
including, without limitation, that (i) the Consolidation qualify
as a tax-free reorganization for federal income tax purposes,
(ii) the Consolidation qualify as a pooling of interests for
accounting purposes, (iii) the approval of the Board of Governors
of the Federal Reserve System under the Bank Holding Company Act,
which is anticipated to be received in March 1998, (iv) the
approval of the Pennsylvania Department of Banking under the
Pennsylvania Banking Code of 1965 which is anticipated to be
received in April 1998, and (v) approvals of the shareholders of
both BCB and Heritage are obtained. No assurance can be given
that all such conditions will be met, including receipt of all
required approvals or the timing or conditions of such approvals.
See "THE CONSOLIDATION -- Conditions to the Consolidation."
Application has been made to obtain required regulatory
approvals. See "THE CONSOLIDATION -- Regulatory Approvals."
Termination; Effect of Termination
The Agreement may be terminated at any time prior to
the Effective Date by mutual consent of BCB and Heritage or by
either party if (i) the other party, in any material respect,
breaches any representation, warranty, covenant or understanding
contained in the Agreement which would have a Material Adverse
Effect (as defined in the Agreement) on the breaching party, and
such breach has not been cured by the earlier of thirty days from
the date written notice of such breach was given to such party
committing the breach or the Effective Date, unless on the
Effective Date such breach no longer causes a Material Adverse
Effect, (ii) the Closing Date of the Consolidation shall not have
occurred on or before July 31, 1998, unless the failure of such
occurrence shall be due to the failure of the party seeking to
terminate the Agreement to perform or observe in any material
respect its agreements required to be performed or observed by
such party on or before the Closing Date or (iii) either party
has received a final unappealable administrative order from a
regulatory authority whose approval or consent has been requested
that such approval or consent will not be granted or will not be
granted absent the imposition of terms and conditions which would
have a Material Adverse Effect on the Holding Company, unless
such occurrence shall be due to the failure of the party seeking
to terminate the Agreement or perform or observe in any material
respect its agreements set forth therein required to be performed
or observed by such party on or before the Closing Date.
BCB may terminate the Agreement in the event that
during a 30-day trading period ended five trading days prior to
the Effective Date the average of the mean between the closing
high bid and low asked prices for Heritage Common Stock for any
consecutive ten-day period declines 40% or more from an index
value of $20.875, the Heritage Index Value (as defined below).
Heritage may terminate the Agreement in the event that
during a 30-day trading period ended five trading days prior to
the Effective Date the average of the mean between the closing
high bid and low asked prices for BCB Common Stock for any
consecutive ten-day period declines 30% or more from an index
value of $25.00, the BCB Index Value (as defined below).
The Index Value for each of BCB and Heritage was
determined based upon the average of the mean between the closing
high bid and low asked prices for BCB Common Stock or Heritage
Common Stock, as the case may be, as reported by the Nasdaq Stock
Market National Market System, for the three consecutive trading
days beginning November 21, 1997.
The Agreement may be terminated by either the Board of
Directors of BCB or the Board of Directors of Heritage if the
Board of Directors of the other party shall have exercised its
rights under the Agreement regarding an Acquisition Transaction
(as defined in the Agreement) with a third party or shall have
otherwise withdrawn, modified or changed in a manner adverse to
the terminating party its approval or recommendation of this
Agreement and the transactions contemplated thereby.
The Agreement may be terminated by either the Board of
Directors of BCB or the Board of Directors of Heritage if their
shareholders shall have not approved this Agreement by the
requisite vote; provided, however, that neither BCB nor Heritage
will have the right to terminate the Agreement if prior to such
shareholder vote the Board of Directors of the party whose
shareholders failed to approve the Agreement shall have
recommended or endorsed an Acquisition Transaction with a third
party or shall have otherwise withdrawn, modified or changed in a
manner adverse to the other party its approval or recommendation
of the Agreement and the transactions contemplated thereby.
See "THE CONSOLIDATION -- Termination; Effect of
Termination."
Comparison of Shareholder Rights
BCB and Heritage are each Pennsylvania corporations
subject to the provisions of the BCL. Upon completion of the
Consolidation, shareholders of BCB and Heritage will become
shareholders of the Holding Company, and their rights as such
will continue to be governed by the BCL and also by the Holding
Company's Articles of Incorporation and Bylaws. The rights of
shareholders of the Holding Company are different in certain
respects from the rights of shareholders of BCB and Heritage.
The most significant of these differences include certain
provisions of the Holding Company's Articles of Incorporation
designed to deter a nonnegotiated attempt to obtain control of
the Holding Company. See "DESCRIPTION OF THE HOLDING COMPANY --
Comparison of the Rights of Shareholders of BCB and the Holding
Company" and "--Comparison of the Rights of Shareholders of
Heritage and the Holding Company."
Management and Operations of the Holding Company after
the Consolidation
The initial Board of Directors of the Holding Company
will consist of 13 members. Seven members have been designated
by the Board of Directors of BCB and six members have been
designated by the Board of Directors of Heritage. For
information concerning the persons who have been designated to be
members of the Board of Directors of the Holding Company, See
"DESCRIPTION OF THE HOLDING COMPANY -- Board and Management."
Nelson R. Oswald, the Chairman of the Board, President and Chief
Executive Officer of BCB, will be the Chairman of the Board of
Directors of the Holding Company and Albert L. Evans, Jr., the
Chairman of Heritage, will be the Vice Chairman of the Board of
Directors of the Holding Company.
On the Effective Date, the executive officers of the
Holding Company will be as follows:
Nelson R. Oswald - Chairman and Chief Executive
Officer
Allen E. Kiefer - President and Chief Operating
Officer
Robert D. McHugh, Jr. - Executive Vice President and
Chief Financial Officer
Richard A. Ketner - Executive Vice President and
Chief Administrative Officer
The Board of Directors and executive officers of Berks
County Bank in office immediately prior to completion of the
Consolidation will remain as Berks County Bank's Board of
Directors and executive officers, except that, upon completion of
the Consolidation, (i) Allen E. Kiefer will be appointed an
officer and member of the Board of Directors of Berks County Bank
with the title of Vice Chairman and (ii) Richard A. Ketner will
be appointed Executive Vice President of Berks County Bank.
The Board of Directors and executive officers of
Heritage National Bank in office immediately prior to completion
of the Consolidation will remain as Heritage National Bank's
Board of Directors and executive officers, except that
(i) Nelson R. Oswald will be appointed as an officer and member
of the Board of Directors of Heritage National Bank with the
title of Vice Chairman and (ii) Robert D. McHugh will be
appointed Executive Vice President and Chief Financial Officer of
Heritage National Bank.
See "THE CONSOLIDATION -- Operation of Banks,"
"-- Management and Operations after the Consolidation" and
"-- Employee Benefits and Severance."
Exchange of Certificates
After the Effective Date, the Holding Company will send
to BCB and Heritage shareholders transmittal materials for use in
effecting the exchange of their certificates representing whole
shares of BCB Common Stock and Heritage Common Stock for
certificates representing shares of Holding Company Common Stock.
The Holding Company will pay holders of BCB Common Stock and
Heritage Common Stock cash in lieu of issuing fractional shares
of Holding Company Common Stock. See "THE CONSOLIDATION --
Exchange of BCB and Heritage Stock Certificates."
Certain Related Transactions
As a condition to BCB entering into the Agreement,
Heritage granted BCB an option (the "BCB Option") under certain
circumstances to purchase up to 947,041 shares of Heritage Common
Stock at a purchase price of $22.875 per share pursuant to a
Stock Option Agreement dated November 18, 1997 (the "BCB Option
Agreement"), a copy of which is included as Annex B to this Proxy
Statement/Prospectus. The BCB Option may be exercised by BCB
only upon the occurrence of specified events that have the
potential for a third party to effect an acquisition of control
of Heritage prior to the termination of the Agreement. None of
such triggering events has occurred as of the date hereof.
Acquisitions of shares of Heritage Common Stock pursuant to an
exercise of the BCB Option would be subject to prior regulatory
approval under certain circumstances.
The BCB Option Agreement provides that BCB may require,
under certain circumstances, Heritage to repurchase the BCB
Option and all shares of Heritage Common Stock purchased by BCB
pursuant to the BCB Option on the terms and conditions set forth
in the BCB Option Agreement. Heritage's repurchase of the BCB
Option or Heritage's repurchase of any of the shares of Heritage
Common Stock purchased by BCB pursuant to the BCB Option may have
the effect of precluding a potential acquiror of Heritage from
accounting for the acquisition of Heritage as a pooling of
interests for financial accounting purposes for a certain period
of time. See "CERTAIN RELATED TRANSACTIONS -- Stock Option
Agreements."
As a condition to Heritage entering into the Agreement,
BCB granted Heritage an option (the "Heritage Option") under
certain circumstances to purchase up to 690,516 shares of BCB
Common Stock at a purchase price of $22.375 per share pursuant to
a Stock Option Agreement dated November 18, 1997 (the "Heritage
Option Agreement"), a copy of which is included as Annex C to
this Proxy Statement/Prospectus. The Heritage Option may be
exercised by Heritage only upon the occurrence of specified
events that have the potential for a third party to effect an
acquisition of control of BCB prior to the termination of the
Agreement. None of such triggering events has occurred as of the
date hereof. Acquisitions of shares of BCB Common Stock pursuant
to an exercise of the Heritage Option would be subject to prior
regulatory approval under certain circumstances.
The Heritage Option Agreement provides that Heritage
may require, under certain circumstances, BCB to repurchase the
Heritage Option and all shares of BCB Common Stock purchased by
Heritage pursuant to the Heritage Option on the terms and
conditions set forth in the Heritage Option Agreement. BCB's
repurchase of the Heritage Option or BCB's repurchase of any of
the shares of BCB Common Stock purchased by Heritage pursuant to
the Heritage Option may have the effect of precluding a potential
acquiror of BCB from accounting for the acquisition of BCB as a
pooling of interests for financial accounting purposes for a
certain period of time. See "CERTAIN RELATED TRANSACTIONS --
Stock Option Agreements."
The directors and executive officers of BCB, the
directors of Heritage who voted in favor of the Agreement and
each of the executive officers of Heritage have agreed to vote
their respective shares of BCB Common Stock and Heritage Common
Stock in favor of the Agreement. All the directors and executive
officers of BCB and Heritage have agreed to certain restrictions
with respect to their BCB Common Stock and Heritage Common Stock
which are intended to ensure compliance with applicable
securities laws and that the Consolidation will be accounted for
as a pooling of interests. See "THE CONSOLIDATION -- Matters to
be Considered at the Meetings." A copy of the form of letter
agreement executed by the directors and executive officers of
Heritage and BCB are included as Exhibits 1-A and 1-B,
respectively, to the Agreement attached hereto as Annex A.
The BCB and Heritage Stock Option Agreements and the
agreements of BCB's and Heritage's directors and executive
officers to vote in favor of the Consolidation are intended to
increase the likelihood that the Consolidation will be
consummated in accordance with the terms of the Agreement and may
have the effect of discouraging competing offers to the
Consolidation. See "CERTAIN RELATED TRANSACTIONS -- Stock Option
Agreements."
Interests of Certain Persons in the Consolidation
Certain directors and executive officers of BCB are
the holders of stock options to acquire BCB Common Stock, which
will be converted into options to acquire Holding Company Common
Stock. Certain directors and executive officers of Heritage are
the holders of stock options to acquire Heritage Common Stock,
which will be converted into options to acquire Holding Company
Common Stock. The value of Holding Company options, if any, will
be dependent on the value of Holding Company Common Stock which
cannot be predicted at this time.
The Agreement provides that the Holding Company will
expressly assume each employment agreement, change in control
agreement, or any nonqualified retirement, deferred compensation,
"top hat," excess benefit or supplemental pension plans to which
either BCB or Heritage is a party.
The Agreement provides that on or before the
Effective Date, BCB and Berks County Bank will use their best
efforts to amend the employment agreements of Nelson R. Oswald,
and Robert D. McHugh, Jr. and Heritage and Heritage National Bank
will use their best efforts to amend the employment agreements of
Allen E. Kiefer and Richard A. Ketner so that such agreements
will contain customary change in control provisions, will provide
salaries and benefits comparable to salaries and benefits payable
to executive officers at companies that will be peer companies of
the Holding Company and otherwise will be substantially identical
in form. As of the date hereof no amendments to the employment
agreements of Messrs. Oswald, Kiefer, McHugh and Ketner have been
executed. However, based on aggregate compensation paid by peer
companies, BCB and Heritage estimate that the aggregate range of
compensation for each of the four named individuals will be as
follows. Mr. Oswald - $______ to $______; Mr. Kiefer - $______
to $______; Mr. McHugh - $_______ to $_______; and Mr. Ketner -
$______ to $______. See "INTERESTS OF CERTAIN PERSONS IN THE
CONSOLIDATION - Employment Agreements."
The Agreement further provides that on or
before the Effective Date, Heritage and Heritage National Bank,
and BCB and Berks County Bank, as applicable, will use their best
efforts to amend the existing employment or change in control
agreement, or enter into a new change in control agreement, with
the following individuals: Sherelyn A. Ammon, Steven A. Ehrlich,
Norman E. Heilenman, Donna L. Rickert, Dorothy I. Krick, David L.
Scott, David L. Snyder, Marie M. Umbriac and Mary Jo Wright.
Such change in control agreements will be substantially identical
in form. Although no new change of control agreements have been
executed, BCB and Heritage anticipate that such agreements will
provide for salary continuation of up to [one] year in the event
an employee is terminated or leaves for "good reason" (as
defined) after a change in control of the Holding Company. See
"INTERESTS OF CERTAIN PERSONS IN THE CONSOLIDATION - Employment
Agreements."
The Agreement provides that BCB and Heritage will
establish a transition committee consisting of not less than four
or more than six members, including Messrs. Oswald, Kiefer,
McHugh and Ketner and up to one director from each of BCB and
Heritage. The function of such committee will be to determine
the name for the Holding Company, approve the form of employment
and change in control agreements to be provided to certain
executive officers and employees and to address such other
transitional matters as the Boards of Directors of Heritage and
BCB may direct.
The Agreement provides that the Holding Company will
indemnify and insure after the Effective Date, persons who served
as directors and officers of BCB and Heritage or their respective
subsidiaries. BCB and Heritage anticipate that Holding Company
directors will receive an annual retainer of $2,000, a $600 fee
per meeting attended and a $300 fee per committee meeting
attended. See "THE CONSOLIDATION -- Management and Operations of
the Holding Company" and "INTERESTS OF CERTAIN PERSONS IN THE
CONSOLIDATION."
Comparative Per Common Share Data
The following table sets forth certain unaudited
comparative per share data relating to book value per common
share, cash dividends declared per common share and earnings per
share (i) on an historical basis for BCB and Heritage, (ii) on a
pro forma basis per share of BCB Common Stock to reflect
completion of the Consolidation, assuming the Consolidation was
effective for the periods presented, and (iii) on a pro forma
basis per share of Heritage Common Stock to reflect completion of
the Consolidation, assuming the Consolidation was effective for
the periods presented. The pro forma information has been
prepared giving effect to the Consolidation using the pooling of
interests accounting method, assuming the Consolidation was
effective for the periods presented. For a description of the
effect of pooling of interests accounting, see "THE
CONSOLIDATION -- Accounting Treatment." The following pro forma
per share data assume a BCB Exchange Ratio of 1.3335 shares of
Holding Company Common Stock for each share of BCB Common Stock
and a Heritage Exchange Ratio of 1.05 shares of Holding Company
Common Stock for each share of Heritage Common Stock. This
information should be read in conjunction with the consolidated
financial statements of BCB and Heritage, including the notes
thereto, appearing elsewhere in this Proxy Statement/Prospectus
or incorporated by reference herein, and the other financial data
appearing elsewhere in this Proxy Statement/Prospectus. See
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE," "FINANCIAL
STATEMENTS OF BCB," "SELECTED FINANCIAL DATA" and "PRO FORMA
COMBINED FINANCIAL DATA."
The following information is not necessarily
indicative of the results of operations of future periods or
future combined financial position of the Holding Company.
<PAGE>
<TABLE>
<CAPTION>
At December 31, 1997
Book Value Per Common Share:
<S> <C>
Historical:
BCB . . . . . . . . . . . . . . . . . $ 12.71
Heritage . . . . . . . . . . . . . . . 9.35
Pro Forma:
BCB and Heritage Combined . . . . . . 9.05
BCB(1) . . . . . . . . . . . . . . . 12.07
Heritage(2). . . . . . . . . . . . . 9.50
<CAPTION>
For the year ended December 31,
1997 1996 1995
Cash Dividends Declared Per Common Share:
<S> <C> <C> <C>
Historical:
BCB . . . . . . . . . . . . . . . . . $ 0.30 $ 0.21 $ 0.16
Heritage. . . . . . . . . . . . . . . 0.51 0.43 0.36
Pro Forma:
BCB(3). . . . . . . . . . . . . . . . 0.40 0.28 0.21
Heritage(4) . . . . . . . . . . . . . 0.54 0.45 0.38
Earnings Per Share(7):
Historical:
BCB . . . . . . . . . . . . . . . . .
Basic . . . . . . . . . . . . . . . $ 1.23 $ 0.92 $ 0.44
Diluted . . . . . . . . . . . . . . 1.20 0.91 0.43
Heritage. . . . . . . . . . . . . . .
Basic . . . . . . . . . . . . . . . 1.26 1.04 0.69
Diluted . . . . . . . . . . . . . . 1.26 1.04 0.69
Pro Forma:
BCB and Heritage combined . . . . . .
Basic . . . . . . . . . . . . . . . 1.09 0.88 0.54
Diluted . . . . . . . . . . . . . . 1.07 0.88 0.54
BCB(5). . . . . . . . . . . . . . .
Basic . . . . . . . . . . . . . . 1.45 1.17 0.72
Diluted . . . . . . . . . . . . . 1.43 1.17 0.72
Heritage(6) . . . . . . . . . . . .
Basic . . . . . . . . . . . . . . 1.14 0.92 0.57
Diluted . . . . . . . . . . . . . 1.12 0.92 0.57
</TABLE>
__________________
(1) Pro forma book value per share of BCB Common Stock was
calculated by dividing total pro forma combined
shareholders' equity amounts as of December 31, 1997 by
9,639,808 shares, multiplied by the BCB Exchange Ratio
of 1.3335 shares of Holding Company Common Stock for
each share of BCB Common Stock.
(2) Pro forma book value per share of Heritage Common Stock
was calculated by dividing total pro forma combined
shareholders' equity amounts as of December 31, 1997 by
9,639,808 shares multiplied by the Heritage Exchange
Ratio of 1.05 shares of Holding Company Common Stock
for each share of Heritage Common Stock.
(3) BCB pro forma dividends per share represent historical
dividends paid by BCB multiplied by the BCB Exchange
Ratio of 1.3335.
(4) Heritage pro forma dividends per share represent
historical dividends paid by Heritage multiplied by the
Heritage Exchange Ratio of 1.05.
(5) BCB pro forma earnings per share represents historical
net income for BCB and Heritage combined on the
assumption that BCB and Heritage had been combined for
the periods presented on a pooling of interests basis,
divided by the pro forma weighted average number of
shares of Holding Company Common Stock which would have
been outstanding following completion of the
Consolidation multiplied by the BCB Exchange Ratio of
1.3335.
(6) Heritage pro forma earnings per share represents
historical net income for BCB and Heritage combined on
the assumption that BCB and Heritage had been combined
for the periods presented on a pooling of interests
basis, divided by the pro forma weighted average number
of shares of Holding Company Common Stock which would
have been outstanding following completion of the
Consolidation multiplied by the Heritage Exchange Ratio
of 1.05.
( accordance with the provisions of FASB Statement
No. 128, Earnings Per Share.
<PAGE>
SELECTED FINANCIAL DATA
The following tables set forth (i) certain historical
consolidated summary financial data for BCB, (ii) certain
historical consolidated summary financial data for Heritage, and
(iii) certain unaudited pro forma combined selected financial
data giving effect to the Consolidation assuming that
shareholders of BCB and Heritage will receive 1.3335 and 1.05
shares, of Holding Company Common Stock for each share of BCB
Common Stock and Heritage Common Stock they own, respectively.
These data are derived from, and should be read in conjunction
with, among other things, the consolidated financial statements
of BCB and the consolidated financial statements of Heritage,
including the notes thereto, appearing elsewhere in this Proxy
Statement/Prospectus or incorporated by reference herein, and the
pro forma combined financial information, including the notes
thereto, appearing elsewhere in this Proxy Statement/Prospectus.
See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE," "FINANCIAL
STATEMENTS OF BCB," "PRO FORMA COMBINED FINANCIAL INFORMATION"
and "SUMMARY - Comparative per Common Share Data."
The unaudited pro forma selected financial data do
not give effect to any potential cost savings, potential revenue
enhancements, or any consolidation-related expenses that may be
realized or incurred as a result of the Consolidation.
<PAGE>
<TABLE>
<CAPTION>
BCB SELECTED FINANCIAL DATA
At or for the
Year Ended December 31,
1997 1996 1995 1994 1993
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Total interest income ........... $ 27,438 $ 17,943 $ 13,195 $ 10,703 $ 9,578
Total interest expense .......... 15,321 9,809 7,026 5,252 5,074
---------- ---------- ---------- ----------
Net interest income ............. 12,117 8,134 6,169 5,451 4,504
Provision for loan losses ....... 960 687 518 22 210
Other income .................... 2,090 1,345 1,010 860 1,597
Other expenses .................. 9,078 6,456 5,423 4,387 3,997
Federal income taxes ............ 868 433 336 536 577
------- ---------- ---------- ---------- ----------
Net income ...................... $ 3,301 $ 1,903 $ 902 $ 1,366 $ 1,317
======= ========== ========== ========== ==========
Per Share Data:
Earnings per share(1)(2)
Basic ......................... $ 1.23 $ 0.92 $ 0.44 $ 0.78 $ 0.85
Diluted ....................... 1.20 0.91 0.43 0.78 0.85
Cash dividends declared
per share(2) .................. .30 0.21 0.16 0.12 0.04
Book value per share(2)(3)(4)(5). 12.71 9.52 8.91 8.41 7.82
Average shares out-
standing(2)(4)(5) ............. 2,682,281 2,069,251 2,069,560 1,741,850 1,540,710
Balance Sheet Data:
Total assets .................... $ 447,594 $ 324,522 $ 206,673 $ 154,698 $ 144,990
Total loans, net ................ 246,207 192,148 146,291 125,534 109,053
Total securities ................ 169,240 88,554 29,566 15,765 15,706
Total deposits .................. 360,552 264,323 179,938 124,272 109,704
FHLB advances -- long term ...... 10,000 22,000 4,000 11,000 21,000
Redeemable common stock(5) ...... -- -- 130 382 717
Total stockholders' equity ...... $ 44,101 $ 19,704 $ 18,295 $ 16,987 $ 11,397
Performance Ratios:
Return on average assets ........ 0.87% 0.77% 0.51% 0.93% 1.00%
Return on average stockholders'
equity ........................ 11.24% 10.16% 5.14% 9.65% 12.39%
Return on average stockholders'
equity and redeemable common
stock ......................... 11.24% 10.15% 5.05% 9.23% 11.62%
Net interest margin(6) .......... 3.59% 3.72% 3.84% 3.97% 3.71%
Total other expenses as a per-
centage of average assets ..... 2.39% 2.61% 3.09% 2.97% 3.03%
Asset Quality Ratios:
Allowance for loan losses as a
percentage of loans, net ...... 1.05% 1.03% 1.13% 1.13% 1.31%
Allowance for loan losses as a
percentage of non-performing
loans(7) ...................... 67.58% 69.75% 94.10% 47.50% 74.90%
Non-performing loans as a per-
centage of total loans, net(7). 1.55% 1.48% 1.20% 2.38% 1.75%
Non-performing assets as a per-
centage of total assets(7) .... 0.90% 1.12% 1.50% 1.96% 1.85%
Net charge-offs as a percentage
of average loans, net ......... 0.16% 0.21% 0.21% 0.03% 0.69%
Liquidity and Capital Ratios:
Equity to assets(8)(9) .......... 7.73% 7.57% 9.99% 9.65% 8.07%
Tier 1 capital to risk-weighted
assets(8)(10) ................. 17.01% 10.39% 12.43% 15.69% 11.32%
Leverage ratio(8)(10)(11) ........ 9.87% 6.82% 9.30% 11.93% 8.65%
Total capital to risk-weighted
assets(8)(10) .................. 18.03% 11.44% 13.58% 16.95% 12.59%
Dividend payout ratio ........... 25.62% 22.86% 36.81% 15.37% 5.32%
________________
</TABLE>
(1) Earnings per share amounts have been computed in
accordance with the provisions of FASB Statement
No. 128, Earnings Per Share.
(2) Per common share data are adjusted for all stock
dividends and stock splits effected through
December 31, 1997.
(3) Based upon total shares issued and outstanding at the
end of each respective period, including Rescission
Shares (see footnote 5 herein) classified as redeemable
common stock for each of the years in the three year
period ended December 31, 1995.
(4) Including Rescission Shares (see footnote 5 herein) for
each of the years in the three year period ended
December 31, 1995.
(5) In conjunction with the Company's initial public
offering in 1994, the Company completed a rescission
offer (the "Rescission Offer") for shares of Common
Stock sold by the Company between October 1990 and June
1993 in transactions that were not registered under the
Securities Act (the "Rescission Shares"). The
Rescission Shares were classified as redeemable common
stock, which was stated at the amount of the redemption
value of the remaining Rescission Shares outstanding.
Shares outstanding and average shares outstanding
include Rescission Shares for each of the years in the
three year period ended December 31, 1995. At
December 31, 1996 and thereafter, no Rescission Shares
were required to be classified as redeemable common
stock because of the expiration of the rescission
period.
(6) Represents net interest income as a percentage of
average total interest-earning assets, calculated on a
tax-equivalent basis.
(7) Non-performing loans are comprised of (i) loans which
are on a nonaccrual basis, (ii) accruing loans that are
90 days or more past due which are insured for credit
loss, and (iii) restructured loans. Non-performing
assets are comprised of non-performing loans and
foreclosed real estate (assets acquired in
foreclosure).
(8) Rescission Shares have been classified as redeemable
common stock for each of the years in the three year
period ended December 31, 1995, and the Rescission
Shares have been excluded from this computation for
such periods.
(9) Based upon average daily balances for the respective
periods.
(10) Based on Federal Reserve Board risk-based capital
guidelines, as applicable to BCB. Berks County Bank is
subject to similar requirements imposed by the Federal
Reserve Board.
(11) The leverage ratio is defined as the ratio of Tier 1 capital
to average total assets.
<PAGE>
<TABLE>
<CAPTION>
HERITAGE SELECTED FINANCIAL DATA
At or for the Year Ended December 31,
--------------------------------------------------------------
1997 1996 1995 1994 1993
----------- ---------- ---------- ---------- ----------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Interest income ................ $ 26,944 $ 23,928 $ 23,230 $ 21,158 $ 20,829
Interest expense ............... 10,657 8,845 8,777 7,267 7,401
-------- ---------- ---------- --------- ---------
Net interest income ............ 16,287 15,083 14,453 13,891 13,428
Provision for loan losses ...... 180 180 310 622 764
Other income ................... 2,496 2,123 1,747 1,864 1,669
Other expenses ................. 10,126 10,051 10,927(1) 9,944 9,489
-------- ---------- ---------- --------- ---------
Income before
income taxes................ 8,477 6,975 4,963 5,189 4,844
Income taxes ................... 2,449 1,995 1,554 1,477 1,255
--------- ---------- ---------- --------- ---------
Net income ................... $ 6,028 $ 4,980 $ 3,409 $ 3,712 $ 3,589
========== ========== ========== ========= =========
Per Share Data(2):
Net income (basic and diluted)(3) $ 1.26 $ 1.04 $ .69 $ .75 $ .73
Cash dividends ............... .51 0.43 0.36 0.34 0.31
Book value ................... 9.35 8.35 7.82 7.17 7.05
Market price ................. 20.38 11.13 10.10 10.10 8.48
Cash dividends ................. $ 2,431 $ 2,060 $ 1,766 $ 1,572 $ 1,447
Total assets ................... $ 366,269 $ 341,954 $ 303,243 $ 313,489 $ 301,103
Total deposits ................. $ 266,256 $ 254,244 $ 253,050 $ 257,565 $ 252,891
Total equity ................... $ 44,619 $ 40,081 $ 38,016 $ 35,578 $ 34,495
Key ratios:
Return on average assets (ROA) 1.72% 1.58% 1.13% 1.21% 1.22%
Return on average stockholders'
equity (ROE) ............... 14.51 12.98 9.29 10.47 10.70
Dividend payout .............. 40.33 41.37 51.80 42.35 40.32
Average equity to average
assets ..................... 11.85 12.15 12.12 11.57 11.36
- ----------------------------------
</TABLE>
(1) Included in other expenses for 1995 is $1,078,000 in
merger and restructuring expenses related to the
business combination with Bankers. Net income, ROA,
ROE and earnings per share were $4,231,000, 1.40%,
11.53% and $0.86 per share, respectively, excluding the
net after tax effect of merger and restructuring
expenses. The Bankers merger was accounted for as a
pooling of interests and, accordingly, all prior
financial statements have been restated to include
Bankers.
(2) Per share information has been restated to reflect
stock splits and stock dividends issued through
December 31, 1997.
(3) Earnings per share amounts have been computed in
accordance with the provisions of FASB Statement
No. 128, Earnings Per Share.
<PAGE>
PRO FORMA COMBINED SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
At or for the Year Ended December 31,
1997 1996 1995 1994 1993
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Total assets $ 813,564 $ 666,476 $ 509,917 $ 468,187 $ 446,093
Loans receivable, net 477,838 397,790 318,449 305,356 283,975
Securities 280,020 203,236 138,388 125,796 121,098
Deposits 626,808 518,567 432,988 381,837 362,595
Borrowings 84,710 81,120 16,275 28,776 30,800
Stockholders' equity 87,220 59,785 56,311 52,565 45,892
Interest income $ 54,382 $ 41,871 $ 36,425 $ 31,861 $ 30,407
Interest expense 25,978 18,654 15,803 12,519 12,475
Net interest income 28,404 23,217 20,622 19,342 17,932
Provision for loan losses 1,140 867 828 644 974
Net interest income after
provision for loan losses 27,264 22,350 19,794 18,698 16,958
Other income 4,586 3,468 2,757 2,724 3,266
Other expenses 19,204 16,507 16,350 14,331 13,486
Income before income taxes 12,646 9,311 6,201 7,091 6,738
Income Taxes 3,317 2,428 1,890 2,013 1,832
Net Income $ 9,329 $ 6,883 $ 4,311 $ 5,078 $ 4,906
========= ======== ======== ========= ========
Basic earnings per share $ 1.09 $ 0.88 $ 0.54 $ 0.68 $ 0.68
Diluted earnings per share $ 1.07 $ 0.88 $ 0.54 $ 0.67 $ 0.68
========= ======== ======== ========= ========
</TABLE>
___________________________________
<PAGE>
PRO FORMA COMBINED FINANCIAL INFORMATION
The following tables set forth selected unaudited pro
forma financial data reflecting the Consolidation.
The pro forma information has been prepared assuming
that shareholders of BCB and Heritage will receive in the
Consolidation 1.3335 and 1.05 shares of Holding Company Common
Stock for each share of BCB Common Stock and Heritage Common
Stock they own, respectively. See "THE CONSOLIDATION -- Terms of
the Consolidation."
The pro forma financial information included in this
Proxy Statement/Prospectus is presented for illustrative purposes
only. Such pro forma financial information does not necessarily
reflect what the actual results of the Holding Company would be
following completion of the Consolidation.
The following pro forma information does not give
effect to any potential cost savings or potential revenue
enhancements that may be realized or incurred as a result of the
Consolidation. See "THE CONSOLIDATION -- Management and
Operations of the Holding Company After the Consolidation."
Pro Forma Unaudited Combined Condensed Balance Sheet as of
December 31, 1997
The following unaudited pro forma combined condensed
balance sheet information reflects (i) the historical
consolidated balance sheets of BCB and Heritage as of
December 31, 1997 and (ii) the pro forma combined condensed
balance sheet of the Holding Company as of such date, after
giving effect to the Consolidation. The Consolidation has been
reflected as a pooling of interests effective as of December 31,
1997 and reflects an expected one-time after-tax charge of
approximately $1.5 million relating to consolidation expenses
which will be incurred upon completion of the consolidation. Of
this amount, $299,000 was incurred and included in other assets
at December 31, 1997. The unaudited information should be read
in conjunction with the historical consolidated financial
statements of BCB and Heritage, including the notes thereto,
appearing elsewhere in, or incorporated by reference into, this
Proxy Statement/Prospectus. See "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE" and "FINANCIAL STATEMENTS OF BCB."
<PAGE>
PRO FORMA UNAUDITED COMBINED CONDENSED BALANCE SHEET
AS OF DECEMBER 31, 1997
(In thousands)
<TABLE>
<CAPTION>
Pro Holding
Forma Company
BCB Heritage Adjustments Combined
<S> <C> <C> <C> <C>
Cash and due from banks $ 13,093 $ 11,850 $ - $ 24,943
Securities 169,240 110,780 - 280,020
Loans receivable 248,810 234,766 - 483,576
Allowance for loan losses (2,603) (3,135) - (5,738)
Other assets 19,054 12,008 (299)(1) 30,763
Total assets $ 447,594 $ 366,269 $ (299) $ 813,564
========= ========= ======== =========
Deposits $ 360,552 $ 266,256 $ - $ 626,808
Short term borrowings 22,056 8,204 - 30,260
Long term borrowings 10,000 44,450 - 54,450
Other liabilities 10,885 2,740 1,201(1) 14,826
Total liabilities 403,493 321,650 1,201 726,344
Common stock 8,678 25,011 (24,049) 9,640
Treasury stock - (2,405) 2,405 -
Surplus 27,550 791 21,644 49,985
Retained earnings 7,156 19,565 (1,500)(1) 25,221
Net unrealized appreciation
on securities available for
sale, net of taxes 717 1,657 - 2,374
Total stockholders'
equity 44,101 44,619 (1,500) 87,220
Total liabilities and
stockholders' equity $ 447,594 $ 366,269 (299) $ 813,564
========== ========= ========= =========
____________________________
</TABLE>
(1) Reflects the pro forma effect of the expected one-time
after tax charge of approximately $1.5 million relating
to Consolidation expenses. Such expenses will be
incurred principally as a result of fees to
professionals, as well as salaries and benefits,
including payments pursuant to employment and change in
control agreements and other severance payments,
occupancy and equipment expense and other operating
expenses which are required to be accrued in accordance
with generally accepted accounting principles. A total
of $299,000 of such expenses were incurred by BCB and
Heritage at December 31, 1997.
<PAGE>
Pro Forma Unaudited Combined Condensed Statements of Income
for the Years Ended December 31, 1997, 1996 and 1995
The following unaudited pro forma combined condensed
statements of income reflect the historical consolidated
statements of income of BCB and Heritage, as indicated below, for
each period presented and the pro forma combined condensed
statements of income of the Holding Company, after giving effect
to the Consolidation. The Consolidation has been reflected as a
pooling of interests. See "THE CONSOLIDATION -- Accounting
Treatment." The pro forma combined condensed statements of
income do not give effect to any potential cost savings, revenue
enhancements or the expected one-time after-tax charge of
approximately $1.5 million relating to Consolidation expenses
which will be incurred upon completion of the Consolidation. The
pro forma combined condensed statements of income for the years
ended December 31, 1997, 1996 and 1995 were prepared on the
assumption that the consolidation had been completed as of the
beginning of the applicable period. The unaudited information
should be read in conjunction with the historical consolidated
financial statements of BCB and Heritage, including the notes
thereto, appearing elsewhere in, or incorporated by reference
into, this Proxy Statement/Prospectus. See "INCORPORATION OF
CERTAIN DOCUMENTS BY REFERENCE" and "FINANCIAL STATEMENTS OF
BCB."
<PAGE>
PRO FORMA UNAUDITED COMBINED CONDENSED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1997
(In thousands, except per share data)
Holding
Company
BCB Heritage Combined
Interest income ............ $27,438 $26,944 $54,382
Interest expense ........... 15,321 10,657 25,978
Net interest income ........ 12,117 16,287 28,404
Provision for loan losses .. 960 180 1,140
Net interest income after
provision for loan losses 11,157 16,107 27,264
Other income ............... 2,090 2,496 4,586
Other expenses ............. 9,078 10,126 19,204
Income before income taxes . 4,169 8,477 12,646
Income taxes ............... 868 2,449 3,317
Net income ................. $ 3,301 $ 6,028 $ 9,329
======= ======= =======
Basic earnings per share $ 1.23 $ 1.26 $ 1.09
======= ======= =======
Diluted earnings per share $ 1.20 $ 1.26 $ 1.07
======= ======= =======
<PAGE>
PRO FORMA UNAUDITED COMBINED CONDENSED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1996
(In thousands, except per share data)
Holding
Company
BCB Heritage Combined
Interest income ............ $17,943 $23,928 $41,871
Interest expense ........... 9,809 8,845 18,654
Net interest income ........ 8,134 15,083 23,217
Provision for loan losses .. 687 180 867
Net interest income after
provision for loan losses. 7,447 14,903 22,350
Other income ............... 1,345 2,123 3,468
Other expenses ............. 6,456 10,051 16,507
Income before income taxes . 2,336 6,975 9,311
Income taxes ............... 433 1,995 2,428
Net income ................. $ 1,903 $ 4,980 $ 6,883
======= ======= =======
Basic earnings per share.... $ 0.92 $ 1.04 $ 0.88
======= ======= =======
Diluted earnings per share.. $ 0.91 $ 1.04 $ 0.88
======= ======= =======
<PAGE>
PRO FORMA UNAUDITED COMBINED CONDENSED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1995
(In thousands, except per share data)
Holding
Company
BCB Heritage Combined
Interest income ............ $13,195 $23,230 $36,425
Interest expense ........... 7,026 8,777 15,803
Net interest income ........ 6,169 14,453 20,622
Provision for possible
loan losses .............. 518 310 828
Net interest income after
provision for loan losses 5,651 14,143 19,794
Other income ............... 1,010 1,747 2,757
Other expenses ............. 5,423 10,927 16,350
Income before income taxes . 1,238 4,963 6,201
Income taxes ............... 336 1,554 1,890
Net income ................. $ 902 $ 3,409 $ 4,311
======= ======= =======
Basic earnings per share.... $ 0.44 $ 0.69 $ 0.54
======= ======= =======
Diluted earnings per share.. $ 0.43 $ 0.69 $ 0.54
======= ======= =======
<PAGE>
THE MEETINGS
Date, Time and Place
BCB. The BCB Special Meeting will be held at
Stokesay Castle, located at Hill Road and Spook Lane, Reading,
Pennsylvania, at 3:00 p.m., local time on April 29, 1998.
Heritage. The Heritage Special Meeting will be held
at The River Inn, located in Pottsville, Pennsylvania, at 9:00
a.m. local time, on Wednesday, April 29, 1998.
Matters To Be Considered at the Special Meetings
BCB. At the BCB Special Meeting, holders of BCB Common
Stock will be asked to consider and vote upon the approval and
adoption of the Agreement and the approval of the BCB Adjournment
Proposal. Shareholders may also consider and vote upon such
other matters as may properly be brought before the BCB Special
Meeting.
The Board of Directors of BCB has approved the
Agreement and recommends a vote FOR approval and adoption of the
Agreement. The Board of Directors has also approved, and
recommends a vote FOR approval of, the BCB Adjournment Proposal.
Heritage. At the Heritage Special Meeting, holders of
Heritage Common Stock will be asked to consider and vote upon the
approval and adoption of the Agreement and the approval of the
Heritage Adjournment Proposal. Shareholders may also consider
such other matters as may properly be brought before the Heritage
Special Meeting.
The Board of Directors of Heritage has approved the
Agreement and recommends a vote FOR approval and adoption of the
Agreement. The Board of Directors has also approved, and
recommends a vote FOR approval of, the Heritage Adjournment
Proposal.
Votes Required
BCB. Shareholders entitled to cast at least a
majority of the votes which all shareholders are entitled to cast
on the BCB Record Date must be represented in person or by proxy
at the BCB Special Meeting for a quorum to be present for
purposes of voting on the Agreement, the BCB Adjournment Proposal
and any other matter to be considered at the BCB Special Meeting.
The approval and adoption of the Agreement will require the
affirmative vote, in person or by proxy, of the holders of at
least 75% of the outstanding shares of BCB Common Stock. The
approval of the BCB Adjournment Proposal will require the
affirmative vote, in person or by proxy, of a majority of votes
which all shareholders are entitled to cast at the BCB Special
Meeting. Each holder of shares of BCB Common Stock outstanding
on the BCB Record Date will be entitled to one vote for each
share held of record at the BCB Special Meeting. The directors
and executive officers of BCB have agreed to vote all shares of
BCB Common Stock that they own on the BCB Record Date in favor of
the approval and adoption of the Agreement. On the BCB Record
Date, directors and executive officers of BCB owned approximately
511,643 shares of BCB Common Stock, or approximately 14.74% of
the then outstanding shares of BCB Common Stock. Management of
BCB is not aware of any other person or entity owning 5% or more
of BCB Common Stock.
Heritage. Shareholders entitled to cast at least a
majority of the votes which all shareholders are entitled to cast
on the Heritage Record Date must be represented in person or by
proxy at the Heritage Special Meeting for a quorum to be present
for purposes of voting on the Agreement, the Heritage Adjournment
Proposal and any other matter to be considered at the Heritage
Special Meeting. The approval and adoption of the Agreement will
require the affirmative vote of the holders of at least 75% of
the votes cast, in person or by proxy, at the Heritage Special
Meeting. The approval of the Heritage Adjournment Proposal will
require the affirmative vote of a majority of votes cast, in
person or by proxy, at the Heritage Special Meeting. Each holder
of shares of Heritage Common Stock outstanding on the Heritage
Record Date will be entitled to one vote for each share held of
record at the Heritage Special Meeting. Ten of thirteen
directors and each of the executive officers of Heritage have
agreed to vote all shares of Heritage Common Stock that they own
on the Heritage Record Date in favor of the approval and adoption
of the Agreement. On the Heritage Record Date, directors and
executive officers of Heritage owned approximately 261,105 shares
of Heritage Common Stock, or approximately 5.5% of the then
outstanding shares of Heritage Common Stock.
Management of Heritage is not aware of any person or
entity owning 5% or more of the outstanding shares of Heritage
Common Stock, except for 396,700 shares of Heritage Common Stock
(approximately 8.3% of outstanding shares) held, either directly
or indirectly, by Heritage National Bank in its trust department
as fiduciary for certain trusts, estates and agency accounts
which beneficially own such shares. Of these shares, Heritage
National Bank had sole voting and investment power with respect
to 243,370 shares, and shared voting and investment power with
respect to 34,213 shares. Pursuant to provisions of the
applicable governing instruments and/or in accordance with
applicable principles of fiduciary law, Heritage National Bank,
as fiduciary, has the right and power, exercisable either alone
or in conjunction with a co-fiduciary, to vote the shares in
which it has sole or shared voting power, either in person or by
proxy, for the Agreement and the Heritage Adjournment Proposal,
so long as such votes are in the best interest of any such trust,
estate or agency account and the beneficiaries or principals
thereof. It is currently anticipated that Heritage National Bank
will vote such shares in favor of the Agreement and the Heritage
Adjournment Proposal.
Voting of Proxies
Shares represented by all properly executed proxies
received in time for the Meetings will be voted at such Meetings
in the manner specified therein by the holders thereof. In the
case of BCB, properly executed proxies that do not contain voting
instructions will be voted in favor of the Agreement and in favor
of the BCB Adjournment Proposal. In the case of Heritage,
properly executed proxies that do not contain voting instructions
will be voted in favor of the Agreement and in favor of the
Heritage Adjournment Proposal.
BCB and Heritage each intend to count shares of BCB
Common Stock or Heritage Common Stock, as the case may be,
present in person at the Meetings but not voting, and shares of
BCB Common Stock or Heritage Common Stock, as the case may be,
for which they have received proxies but with respect to which
holders of shares have abstained on any matter, as present at the
Meetings for purposes of determining the presence or absence of a
quorum for the transaction of business.
The abstention from voting with respect to any proposal
by any shareholder who is present in person or by proxy at the
BCB Special Meeting or the Heritage Special Meeting will not
constitute or be counted as a "vote" cast for purposes of the BCB
Special Meeting or the Heritage Special Meeting, respectively.
Because the approval of the Agreement at the BCB Special Meeting
will require the affirmative vote, in person or by proxy, of the
holders of at least 75% of the outstanding shares of BCB Common
Stock and approval of the BCB Adjournment Proposal at the BCB
Special Meeting will require the affirmative vote, in person or
by proxy, of a majority of the outstanding shares of BCB Common
Stock, an abstention with respect to either the Agreement or the
BCB Adjournment Proposal will have the same effect as a vote
against such matter. Because the approval of the Agreement at
the Heritage Special Meeting will require the affirmative vote of
at least 75% of the votes cast, in person or by proxy, at the
Heritage Special Meeting and approval of the Heritage Adjournment
Proposal at the Heritage Special Meeting requires the affirmative
vote of a majority of all votes cast by the shareholders of
Heritage entitled to vote thereon, an abstention will not have
the same effect as a vote against such proposal at the Meeting.
Under the applicable rules of the New York Stock
Exchange and the National Association of Securities Dealers, Inc.
("NASD"), brokers and/or members, as the case may be, who hold
shares in street name for customers who are the beneficial owners
of such shares are prohibited from giving a proxy to vote such
customers' shares with respect to the approval and adoption of
the Agreement or the respective Adjournment Proposals in the
absence of specific instructions from such customers ("broker
non-votes"). Broker non-votes also will not constitute or be
counted as "votes" cast for purposes of the BCB Special Meeting
or the Heritage Special Meeting. Therefore, a broker non-vote
will have the same effect as a vote against the Agreement and the
BCB Adjournment Proposal at the BCB Special Meeting. A broker
non-vote will not have the same effect as a vote against the
Agreement or the Heritage Adjournment Proposal at the Heritage
Special Meeting.
It is not expected that any matter other than those
referred to herein will be brought before either of the Meetings.
If, however, other matters are properly presented for a vote, the
persons named as proxies will vote in accordance with their
judgment with respect to such matters.
Revocability of Proxies
The grant of a proxy on the enclosed BCB or Heritage
form does not preclude a BCB shareholder or a Heritage
shareholder from voting in person. A BCB shareholder or a
Heritage shareholder may revoke a proxy at any time prior to its
exercise by filing with the Secretary of BCB (in the case of a
BCB shareholder) or the Secretary of Heritage (in the case of a
Heritage shareholder) a duly executed revocation of proxy, by
submitting a duly executed proxy bearing a later date or by
appearing at the applicable Meeting and voting in person at such
Meeting. Attendance at the applicable Meeting will not, in and
of itself, constitute revocation of a proxy.
Record Date; Stock Entitled to Vote; Quorum
BCB. Only holders of record of BCB Common Stock on
the BCB Record Date will be entitled to notice of, and to vote
at, the BCB Special Meeting. On the BCB Record Date, 3,472,029
shares of BCB Common Stock were issued and outstanding and held
by approximately 3,627 holders of record.
Shareholders entitled to cast at least a majority of
the votes which all shareholders are entitled to cast on the BCB
Record Date must be represented in person or by proxy at the BCB
Special Meeting in order for a quorum to be present for purposes
of voting on approval of the Agreement and the BCB Adjournment
Proposal.
Heritage. Only holders of record of Heritage Common
Stock on the Heritage Record Date will be entitled to notice of,
and to vote at, the Heritage Special Meeting. On the Heritage
Record Date, 4,773,467 shares of Heritage Common Stock were
issued and outstanding and held by approximately 1,273 holders of
record.
Shareholders entitled to cast at least a majority of
the votes which all shareholders are entitled to cast on the
Heritage Record Date must be represented in person or by proxy at
the Heritage Special Meeting in order for a quorum to be present
for purposes of voting on approval of the Agreement and the
Heritage Adjournment Proposal.
Solicitation of Proxies
Each of BCB and Heritage will bear the cost of the
solicitation of proxies from its own shareholders, except that
BCB and Heritage will share equally the cost of printing and
mailing this Proxy Statement/Prospectus. In addition to
solicitation by mail, the directors, officers and employees of
each of BCB and Heritage and their subsidiaries may solicit
proxies from shareholders of such company by telephone or
telegram or in person without compensation other than
reimbursement for their actual expenses. Arrangements will also
be made with brokerage houses and other custodians, nominees and
fiduciaries for the forwarding of solicitation material to the
beneficial owners of stock held of record by such persons, and
BCB and Heritage will reimburse such custodians, nominees and
fiduciaries for their reasonable out-of-pocket expenses in
connection therewith.
Regan and Associates, Inc., a proxy solicitation firm,
will assist in the solicitation of proxies by BCB and Heritage
for a fee of $8,750, plus reasonable out-of-pocket expenses.
BCB AND HERITAGE SHAREHOLDERS SHOULD NOT SEND STOCK
CERTIFICATES WITH THEIR PROXY CARDS. AS DESCRIBED BELOW UNDER
THE CAPTION "THE CONSOLIDATION -- EXCHANGE OF BCB COMMON STOCK
AND HERITAGE COMMON STOCK CERTIFICATES," EACH BCB AND HERITAGE
SHAREHOLDER WILL BE PROVIDED WITH MATERIALS FOR EXCHANGING SHARES
OF BCB COMMON STOCK AND HERITAGE COMMON STOCK AS PROMPTLY AS
PRACTICABLE AFTER THE EFFECTIVE DATE.<PAGE>
THE CONSOLIDATION
Background of and Reasons for the Consolidation; Recommendations
of the Boards of Directors
Background of the Consolidation
For many years, the Heritage Board's strategy was to
increase profitability on an annual basis as a means of building
long-term value for Heritage shareholders. Implicit in this
profitability strategy was the continuation of Heritage as an
independent institution with the ability to compete effectively
in the increasingly competitive market for financial services and
products. In the past several years, Heritage has been able to
fulfill this strategy of profitability by expanding through the
acquisition of Bankers' Financial Services Corporation in 1995,
as well as through steady internal growth in its own marketplace
and the effective management of its net interest margin. This
strategy of profitability, however, was adopted and followed with
the recognition that Heritage's ability to continue to increase
shareholder value depended on, among other things, the ability to
accelerate its loan and deposit growth outside of its traditional
Schuylkill County market area and the ability to selectively
pursue other acquisitions.
The Heritage Board has long recognized that in order
for Heritage to achieve the requisite scale and scope of
operations necessary for Heritage to remain an effective
competitor in the dramatically changing market for banking and
financial services, either a strategy of branching into new
markets to the south and southeast of Schuylkill County or a
strategic combination with another bank holding company already
situated in these markets would likely be necessary. While
Heritage has maintained a strong market share of both deposits
and loans in Schuylkill County, the Board also realized that the
ability to grow deposits and loans in a meaningful fashion
without subsequent acquisitions would require the Board to incur
substantial capital expenditures required to build or acquire
branches in higher growth adjoining markets such as Lehigh County
and Berks County. In addition to growth by branch banking,
increased capital expenditures would be required by Heritage in
order to invest in the technologies required to remain
competitive. From time to time over the past two years, Heritage
has explored potential strategic combinations with other bank
holding companies. None of such discussions resulted in an
agreement as to the terms of a potential combination until the
recent commencement of discussions with BCB leading to the
execution of the Agreement.
Heritage has reviewed its strategic plan and
independence strategy on an annual basis for several years. That
annual process commenced again in 1997 during the month of June.
In July 1997, the Executive Committee of the Heritage Board
adopted a resolution to recommend to the full Board that the
Executive Committee be authorized to explore strategic
opportunities for Heritage including: (1) continuance of the
independence strategy, (2) a merger of equals transaction, or
(3) the sale of Heritage to a larger financial institution. Also
in July 1997, the full Board of Heritage ratified the
recommendation of its Executive Committee and authorized Allen E.
Kiefer, President and CEO of Heritage, and a representative of
McConnell, Budd & Downes, Inc. ("MB&D"), the financial advisor to
Heritage, to explore all options available to Heritage as part of
a strategic planning process, including a strategy of
independence, and the solicitation by Heritage of expressions of
interest from other financial institutions as to a merger of
equals transaction or a sale of Heritage.
On August 7, 1997, the Executive Committee of the
Heritage Board implemented the July Board Resolution by selecting
three financial institutions which would be approached and
requested to meet with the Heritage Executive Committee to
present an outline of an expression of interest as to either a
merger of equals transaction or a sale of Heritage. Two of the
three institutions contacted by Heritage made presentations to
the Heritage Executive Committee on August 25, 1997. Both
presentations were conceptual in nature and non-specific as to
structure, price or social issues. Following the presentations,
the Executive Committee determined to continue the discussion
process with the two presenters and to request that each
institution provide more specific information in the form of a
written expression of interest for review by the full Heritage
Board of Directors at its Annual Directors Retreat scheduled for
September 15, 1997. The Executive Committee requested that each
institution respond by way of a non-binding expression of
interest as to a potential merger of equals transaction with
Heritage. The Executive Committee also directed management to
update its strategic plan and make a presentation at the Retreat
as to the pros and cons of maintaining the Heritage independent
growth strategy, the external risks to sustainable growth in
earnings and required capital expenditures to sustain the
projected rates of growth and profitability. In preparation for
the Heritage Directors Retreat, the senior management of Heritage
met on several occasions with Heritage's financial and legal
advisors to determine the potential structure of a transaction,
and the business, cultural and social implications of a merger of
equals.
At the Heritage Directors Retreat on September 15,
1997, senior management presented its strategic plan and
independence strategy, including the pros and cons and risks
associated with that strategy. In addition, the expressions of
interest received from the two potential merger of equals
candidates were reviewed in detail by the Heritage Board and each
merger of equals candidate made a detailed presentation
concerning its expression of interest. At the conclusion of the
Retreat, the Heritage Board tabled further consideration or
action until the Heritage regularly scheduled Board Meeting on
September 30, 1997. At the Board Meeting on September 30, the
Heritage senior management presented additional information
regarding the expressions of interest submitted by each merger of
equals candidate and financial and other factors that might
affect the determination as to whether Heritage should remain
independent or seek a merger of equals. At the meeting, MB&D
presented information regarding the competitive environment for
financial services and presented a general range of value for
Heritage on a stand-alone independent basis, and as part of an
upstream sale to a larger bank holding company, and as part of a
merger of equals transaction with each company which had provided
an expression of interest. In addition, legal counsel to
Heritage made a presentation concerning the fiduciary duties of
the directors and executive officers of Heritage under current
law. As had been requested by the Executive Committee, the
expressions of interest contained additional detail regarding
pricing, structure, control of the combined institution and other
social issues. At this meeting, MB&D presented its preliminary
views of the economic fairness of the proposals that had been
received, and made its recommendation in favor of a merger of
equals transaction with BCB. At the conclusion of the meeting,
the Heritage Board authorized management to continue the process
to explore a possible merger of equals combination with BCB and
to advise the other institution which had provided an expression
of interest that Heritage was not interested in pursuing the
expression of interest further. No decision was made at the
September 30 meeting as to whether Heritage would remain
independent or would enter into a merger of equals transaction
with BCB.
On October 10, 1997, the Heritage Board, at a special
meeting, authorized senior management, together with legal
counsel and Heritage's financial advisor, to enter into detailed
negotiations with BCB as to a merger of equals transaction and to
conduct due diligence with regard to BCB and to permit BCB to
conduct due diligence with regard to Heritage.
Following the October 10, 1997 meeting of the
Heritage Board, the senior managements (including the Heritage
Chairman of the Board), together with counsel and investment
advisors for Heritage and BCB entered into detailed negotiations
regarding structure, pricing and social issues associated with a
merger of equals transaction. During this period, which included
two face-to-face negotiating sessions between representatives of
Heritage and BCB, the exchange ratios for the combination as well
as the structure of the transaction and social issues, including
the fact that Heritage National Bank and Berks County Bank would
continue as wholly-owned independent banking institutions
following the combination, were determined on the basis of
arms-length negotiation between the parties. Other important
elements of the negotiations included employee benefits for the
combined company, dividends, local autonomy, including loan
approval authorities, executive management and control of the
Holding Company Board of Directors. The negotiations also
included discussions as to potential cost savings associated with
the proposed merger of equals transaction. This negotiation
process resulted in the Agreement and the Heritage and BCB Stock
Option Agreements which are attached hereto as Annexes A, B and
C, respectively.
On November 18, 1997, following the completion of
its due diligence review, the Heritage Board met to further
consider the matters discussed at its meeting of October 10.
MB&D presented its oral opinion as to the fairness of the
consideration provided to Heritage shareholders in connection
with the merger of equals transaction with BCB and reaffirmed its
recommendation in favor of a transaction with BCB. Legal counsel
to Heritage also conducted a detailed review of the Agreement and
the Heritage Stock Option Agreement. After consideration, the
Heritage Board approved the Agreement and the Heritage Stock
Option Agreement and the transactions contemplated thereby as
being in the best interests of Heritage, its shareholders and
other constituencies by a vote of 10 in favor and 3 opposed. The
Agreement and Heritage Stock Option Agreement were executed
immediately following the meeting. The reasons given by the
three Heritage Board members who voted against approval of the
Consolidation can be summarized as follows: Two of the Directors
indicated that Heritage should continue to pursue its strategy of
independence and not enter into the Consolidation with BCB or
pursue a sale of Heritage to any other financial institution; the
other dissenting member of the Heritage Board indicated that
notwithstanding the perceived benefits to Heritage by virtue of
the Consolidation, the Consolidation nonetheless amounted to a
sale of Heritage because the Heritage charter would not survive
the Consolidation and therefore, if Heritage was to be sold, as
opposed to pursue an independence strategy, Heritage should be
sold for the highest possible price to a larger financial
institution. See "THE CONSOLIDATION -- Heritage's Reasons for
the Consolidation" and "Recommendation of the Heritage Board of
Directors."
Prior to being contacted by MB&D in August 1997
regarding a possible merger of equals transaction with Heritage,
BCB had not been seeking a business combination and had no
substantial discussions with any other parties during 1997 with
respect to any business combination. Instead, BCB had been
pursuing its own growth strategy predicated on de novo branch
expansion in Berks and Montgomery Counties and the establishment
of loan production offices in other contiguous counties with a
view to possible future branch expansion in these counties.
Because a combination with Heritage represented a natural
geographic market extension and for the other reasons described
herein (see "BCB's Reasons for the Consolidation") management
responded favorably to their initial discussion with MB&D and
agreed to make a presentation to the Heritage Board on August 25,
1997. At the request of the Heritage Board, and at the direction
of the BCB Board of Directors received at a meeting held on
August 26, 1997, BCB delivered a written indication of interest
to the Heritage Board and made a further presentation to that
Board on September 15, 1997. After the October 10, 1997 Heritage
Board meeting, detailed negotiations began. At meetings held on
September 10, 1997 and October 28, 1997, BCB management apprised
the BCB Board of Directors of the status of their discussions
with Heritage and at each such meeting the BCB Board authorized
senior management of BCB to continue discussions with
Heritage.
Also on November 18, 1997, the BCB Board met and
unanimously approved the Agreement and the BCB Stock Option
Agreement. See "THE CONSOLIDATION -- BCB's Reasons for the
Consolidation" and "Recommendation of the BCB Board of
Directors."
Reasons for the Consolidation
BCB's Reasons for the Consolidation
In determining whether to enter into the Agreement, BCB's Board
of Directors considered a number of factors, including the
following: (i) the financial condition, operating results and
future prospects of BCB and Heritage, (ii) historical pro forma
financial information on the Consolidation, including, among
other things, pro forma book value and earnings per share
information, dilution analysis and capital ratio impact
information, (iii) a comparison of the Consolidation to other
comparable financial institution mergers, based on, among other
things, multiples of book value and earnings, (iv) the historical
trading prices for Heritage Common Stock and BCB Common Stock,
(v) the opinion of JMS as to the fairness of the BCB Exchange
Ratio to BCB from a financial point of view, and (vi) the natural
geographic market extension represented by the Heritage
franchise.
In approving the Consolidation, the BCB Board did
not specifically identify any one factor or group of factors as
being more significant than any other factor in the decision
making process, although individual directors may have given one
or more factors more weight than other factors. The emphasis of
the BCB Board's discussion in considering the transaction,
however, was on the financial aspects of the transaction,
particularly (i) the strategic fit and enhanced franchise value
market, (ii) perceived opportunities to enhance Holding Company
revenues and reduce Holding Company operating expenses following
the Consolidation (the parties presently estimate such operating
synergies and expense reductions at 4.0% to 7.5% of BCB's and
Heritage's aggregate recurring operating expenses, or between
approximately $750,000 and $1.5 million), (iii) the immediate pro
forma earnings per share accretion to BCB shareholders and the
potential for further accretion in light of potential revenue
enhancements and cost savings resulting from the Consolidation,
(iv) the significant increase in dividends per share to BCB
shareholders based on an assumed quarterly dividend rate of $0.14
per share after the Consolidation, (v) the ability to increase
BCB's capital base, thereby increasing operating flexibility,
(vi) Heritage's lower cost of funds and high core deposit base,
(vii) Heritage's asset quality, (viii) the significant increase
in capital resulting from the Consolidation that is offset by a
small initial negative effect on tangible book value, (ix) the
fact that the Holding Company will be headquartered in Reading,
Pennsylvania, and (x) the fact that Nelson R. Oswald, the current
Chairman, President and Chief Executive Officer of BCB, will be
the Chairman and Chief Executive Officer of the Holding Company
and that Robert D. McHugh, Jr., the current Senior Vice President
and Treasurer of BCB, will be the Executive Vice President and
Chief Financial Officer of the Holding Company.
Heritage's Reasons for the Consolidation
The Consolidation will create a dynamic banking
franchise with an important presence stretching from Schuylkill
County in northeastern Pennsylvania through and including
Dauphin, Lehigh, Berks, Montgomery, Bucks and Chester Counties in
south central and southeastern Pennsylvania. By combining the
strengths of two high-performing institutions, the Consolidation
is expected to create an institution with the scale and
capabilities to meet the challenges of the ever-changing market
for financial products and services. The Consolidation will
combine Heritage's profitability and credit skills with BCB's
broader customer base and attractive high growth geographic
markets. The Consolidation will permit each company to diversify
beyond its current businesses and its current strengths in
specialty financial products and services by expanding the
marketing of its products and services to the customers now
served by the other, and will enable the combined company to
continue to provide a broad array of innovative financial
services and products to the customers and communities currently
served by each. Of particular significance is the fact that
Heritage National Bank has an active and well established trust
department, while Berks County Bank does not have trust powers.
The Consolidation will provide Heritage National Bank with an
opportunity to offer the services of its trust department to the
markets served by Berks County Bank.
In reaching its decision to approve the Agreement and
the Heritage Stock Option Agreement, the Heritage Board
considered that the Consolidation would represent a strategic
alliance between Heritage and BCB and that the Heritage
shareholders would realize the expected benefits of such
alliance, including, but not limited to, the future stock value
and earnings per share of the combined company, the combined
company's financial strength and its consequent enhanced ability
to invest in its existing businesses as well as develop new
products and services, the cost savings to be realized through
consolidation of operations, the potential for cross-marketing
services to customers of the two companies, the opportunity to
diversify earnings, the business synergies that might be
realized, and the potential effect of the Consolidation on the
perception of the combined company's businesses by the financial
markets.
The Heritage Board determined that the Consolidation
would significantly enhance the combined company's ability to
compete effectively and to meet the ever-changing credit and
product needs of its customers and communities by combining two
financially sound institutions with complementary businesses and
business strategies, thereby creating a stronger combined company
with greater size, flexibility, breadth of services, efficiency,
capital strength, profitability and potential for growth than
either Heritage or BCB would possess on a stand-alone basis. The
Heritage Board believes that each institution is well-managed and
possesses management philosophies and strategic focus compatible
with those of the other, and that the strong capitalization of
the combined company following the Consolidation will allow it to
take advantage of future opportunities for growth, including
appropriate acquisitions and investments in products and
technology. Although there can be no assurances, the Heritage
Board also believes that the Consolidation will allow the
combined company to compete effectively in the rapidly changing
marketplace for banking and financial services and to take
advantage of opportunities for growth and diversification that
may not be available to either institution on its own. In
evaluating the Consolidation, the Heritage Board and its
management discussed the critical importance of successfully
integrating, and building on the strengths of, the management
teams and cultures of both companies, and considered the
uncertainties inherent in any such combination of two significant
companies.
In reaching its conclusion to approve the Agreement and
the Heritage Stock Option Agreement, the Heritage Board consulted
with Heritage management, as well as with its financial and legal
advisors, and considered the factors described above under
"General" and a number of additional factors including the
following:
(i) The Heritage Board considered the
effectiveness of the Consolidation in
implementing and accelerating a long-term
external growth strategy for Heritage.
(ii) The Heritage Board analyzed the
financial condition, businesses and prospects
of Heritage, and BCB, including, but not
limited to, information with respect to their
respective recent and historic stock and
earnings performance and their respective
relatively strong credit position and access
to the capital markets. The Heritage Board
considered the detailed financial analyses,
pro forma and other information with respect
to Heritage and BCB prepared and discussed by
MB&D, as well as the Heritage Board's own
knowledge of BCB and its business. In making
its determination, the Heritage Board took
into account the results of Heritage's due
diligence review of BCB's business. The
Heritage Board also considered the likelihood
that the Consolidation, on a pro forma basis,
would be accretive to the combined company's
1998 earnings per share, based on expected
cost savings from the Consolidation.
(iii) The Heritage Board considered the
oral opinion of MB&D, subsequently confirmed
in writing, that, as of the date of this
Proxy Statement/Prospectus, the Heritage
Exchange Ratio was fair to holders of
Heritage Common Stock from a financial point
of view. See "THE CONSOLIDATION -- Opinion
of Heritage's Financial Advisor."
(iv) The Heritage Board considered the
terms of the Agreement and the Heritage and
BCB Stock Option Agreements, which were
reciprocal in nature. The Heritage Board
also considered certain other information
regarding the Consolidation, including the
terms and structure of the Consolidation, the
proposed arrangements with respect to the
board of directors and management structure
of the Holding Company following the
Consolidation, and that the corporate
headquarters of the Holding Company would be
located in Reading, with Heritage National
Bank maintaining its headquarters in
Pottsville. See "THE CONSOLIDATION --
Management and Operations of the Holding
Company After the Consolidation" and
"INTERESTS OF CERTAIN PERSONS IN THE
CONSOLIDATION.
(v) The Heritage Board considered the
effect on Heritage's shareholders' value of
Heritage continuing as a stand-alone entity
compared to the effect of Heritage combining
with BCB in light of the factors summarized
above with respect to the financial condition
and prospects of the two companies on a
stand-alone basis and of the combined
company, and the current economic and
financial environment.
(vi) The Heritage Board also considered
the likelihood of the Consolidation being
approved by the shareholders of Heritage and
BCB and by the appropriate regulatory
authorities. See "THE CONSOLIDATION --
Conditions to the Consolidation" and
"Regulatory Approvals."
(vii) The Heritage Board considered
the anticipated cost savings and operating
efficiencies available to the combined
company from the Consolidation. (The parties
presently estimate such operating synergies
and expense reductions at 4.0% to 7.5% of
BCB's and Heritage's aggregate recurring
operating expenses, or between approximately
$750,000 and $1.5 million.) See "THE
CONSOLIDATION -- Management and Operations of
the Holding Company After the
Consolidation."
(viii) The Heritage Board considered
that the Consolidation is expected to be
tax-free to Heritage shareholders (other than
with respect to cash paid in lieu of
fractional shares).
(ix) The Heritage Board considered that
(a) Albert L. Evans, currently Chairman of
the Board of Heritage, would be elected or
appointed as a director of the Holding
Company and as Vice Chairman of the Board of
the Holding Company, (b) Allen E. Kiefer,
currently President and Chief Executive
Officer of Heritage, would be elected or
appointed as a director and President and
Chief Operating Officer of the Holding
Company, (c) four additional directors of
Heritage to be designated by Heritage would
be elected or appointed to the Holding
Company Board of Directors, (d) Richard A.
Ketner, currently Executive Vice President
and Secretary of Heritage, would be appointed
Executive Vice President and Chief
Administrative Officer of the Holding
Company, (e) the Agreement was conditioned on
the Holding Company entering into an
employment agreement with Mr. Kiefer and
Mr. Ketner as described elsewhere herein (see
"INTERESTS OF CERTAIN PERSONS IN THE
CONSOLIDATION"), and (f) the consummation of
the Consolidation would constitute a "change
in control" under certain Change in Control
Agreements that Heritage had previously
entered into with various executive officers
with the approval of the Board, such that the
officers would be entitled to certain
severance payments in the event that their
employment is terminated within three years
following the Consolidation. See "INTERESTS
OF CERTAIN PERSONS IN THE CONSOLIDATION."
The Heritage Board believed that the strong
commitment of Heritage and BCB to the
continued role of senior management and the
Heritage Board following the Consolidation
would facilitate a successful combination as
well as enable the Heritage Board and
management to have input concerning the
future course of the combined company, job
impact, and the effects of future decisions
on Heritage employees and customers and the
communities served by Heritage.
(x) In considering all of the foregoing
factors, the Heritage Board considered the
alternative of Heritage continuing as an
independent institution or combining with
other potential merger partners, compared to
the effect of Heritage combining with BCB
pursuant to the Agreement, and determined
that the combination with BCB presented the
best opportunity for maximizing long-term
shareholder value and achieving Heritage's
other strategic goals.
The foregoing discussion of the information and
factors considered by the Heritage Board is not intended to be
exhaustive but is believed to include all material factors
considered by the Heritage Board. In reaching its determination
to approve and recommend the Consolidation, the Heritage Board
did not assign any relative or specific weights to the foregoing
factors, and individual directors may have given differing
weights to different factors. After deliberating with respect to
the Consolidation and the other transactions contemplated by the
Agreement, considering, among other things, the matters discussed
above and the opinions of MB&D referred to above, the Heritage
Board (with 13 directors present and no directors absent)
approved and adopted the Agreement and the transactions
contemplated thereby, including Heritage Stock Option Agreement,
by a vote of 10 in favor and 3 opposed, as being in the best
interests of Heritage and its shareholders. The reasons given by
the three Heritage Board members who voted against approval of
the Consolidation can be summarized as follows: Two of the
Directors indicated that Heritage should continue to pursue its
strategy of independence and not enter into the Consolidation
with BCB or pursue a sale of Heritage to any other financial
institution; the other dissenting member of the Heritage Board
indicated that notwithstanding the perceived benefits to Heritage
by virtue of the Consolidation, the Consolidation nonetheless
amounted to a sale of Heritage because the Heritage charter would
not survive the Consolidation and therefore, if Heritage was to
be sold, as opposed to pursue an independence strategy, Heritage
should be sold for the highest possible price to a larger
financial institution.
Recommendation of the BCB Board of Directors
The Board of Directors of BCB believes that the terms
of the Consolidation are fair to, and in the best interests of,
BCB and its shareholders and has approved the Agreement. The
Board of Directors of BCB unanimously recommends that the
shareholders of BCB approve the Agreement.
Recommendation of the Heritage Board of Directors
The Board of Directors of Heritage believes that the
terms of the Consolidation are fair to, and in the best interests
of, Heritage and its shareholders and has approved the Agreement.
The Board of Directors of Heritage recommends that the
shareholders of Heritage approve the Agreement. See
"-- Background of and reasons for the Consolidation;
Recommendations of the Board of Directors -- Background of the
Consolidation" for information concerning the approval of the
Agreement and recommendation by the Heritage Board of Directors.
Terms of the Consolidation
Upon completion of the Consolidation, the separate
legal existence of each of BCB and Heritage will cease. All
property, rights, powers, duties, obligations, debts and
liabilities of BCB and Heritage will automatically be taken and
deemed to be transferred to and vested in the Holding Company, in
accordance with Pennsylvania law. The Holding Company, as the
surviving corporation, will be governed by the Articles of
Incorporation and Bylaws of the Holding Company. The Articles of
Incorporation and Bylaws of the Holding Company are set forth as
Exhibits A and B, respectively, to the Articles of Consolidation
which will be filed with the PDS on the Effective Date and which
are set forth as Exhibit 4 to the Agreement attached as Annex A
to this Proxy Statement/Prospectus. For a description of the
differences between BCB's Articles of Incorporation and Bylaws
and the Holding Company's Articles of Incorporation and Bylaws,
and between Heritage's Articles of Incorporation and Bylaws and
the Holding Company's Articles of Incorporation and Bylaws, see
"COMPARISON OF SHAREHOLDER RIGHTS."
At the Effective Date of the Consolidation, each
outstanding share of BCB Common Stock (other than any Dissenting
Shares and Excluded Shares) will be automatically converted into,
and become a right to receive, 1.3335 shares of Holding Company
Common Stock (the "BCB Exchange Ratio") and each outstanding
share of Heritage Common Stock (other than any Dissenting Shares
and Excluded Shares) will be automatically converted into, and
become a right to receive, 1.05 shares of Holding Company Common
Stock (the "Heritage Exchange Ratio").
The BCB Exchange Ratio and the Heritage Exchange Ratio
will be subject to adjustment to prevent dilution in the event of
additional stock splits, reclassifications or other similar
events.
The Holding Company will in all events pay cash to BCB
and Heritage shareholders in lieu of issuing fractional shares of
Holding Company Common Stock.
As of the BCB Record Date, directors and executive
officers of BCB and/or Berks County Bank held options to purchase
an aggregate of 136,843 shares of BCB Common Stock which had been
granted pursuant to BCB's stock option plans (the "BCB Options").
As of the Heritage Record Date, directors and executive officers
of Heritage and/or Heritage National Bank held options to
purchase an aggregate of 134,552 shares of Heritage Common Stock
which had been granted pursuant to Heritage's stock option plans
(the "Heritage Options"). On the Effective Date, each BCB Option
and Heritage Option which is then outstanding, whether or not
exercisable, shall cease to represent a right to acquire shares
of BCB Common Stock or Heritage Common Stock, as the case may be,
and shall be converted automatically into an option to purchase
shares of Holding Company Common Stock, and the Holding Company
shall assume each BCB Option and Heritage Option, in accordance
with the terms of the applicable BCB and Heritage stock option
plan and stock option agreement by which it is evidenced, except
that from and after the Effective Date, (i) the Holding Company
and its Board of Directors or a duly authorized committee thereof
shall be substituted for BCB, Heritage and their respective
Boards of Directors or duly authorized committees thereof
administering such BCB or Heritage stock option plan, as the case
may be, (ii) each BCB Option and Heritage Option assumed by the
Holding Company may be exercised solely for shares of Holding
Company Common Stock, (iii) the number of shares of Holding
Company Common Stock subject to any BCB Option or Heritage Option
shall be equal to the number of shares of BCB Common Stock or
Heritage Common Stock subject to such BCB Option or Heritage
Option, as the case may be, immediately prior to the Effective
Date multiplied by the BCB Exchange Ratio or the Heritage
Exchange Ratio, as the case may be, provided that any fractional
shares of Holding Company Common Stock resulting from such
multiplication shall be rounded down to the nearest share, and
(iv) the per share exercise price under each such BCB Option or
Heritage Option, as the case may be, shall be adjusted by
dividing the per share exercise price under each such Option by
the BCB Exchange Ratio or the Heritage Exchange Ratio, as the
case may be, provided that such exercise price shall be rounded
up to the nearest cent. Notwithstanding clauses (iii) and (iv)
of the preceding sentence, each BCB Option and Heritage Option
which is an "incentive stock option" shall be adjusted as
required by Section 424 of the Internal Revenue Code of 1986, as
amended (the "Code").
The Holding Company Common Stock and cash to be
received by the holders of BCB Common Stock and Heritage Common
Stock in lieu of fractional interests in Holding Company Common
Stock (including the holders of BCB Options and Heritage Options
to acquire BCB Common Stock and Heritage Common Stock,
respectively) in exchange for each share (other than any
Dissenting Shares and Excluded Shares) of BCB Common Stock and
Heritage Common Stock (including shares subject to options) are
referred to herein as the "Consideration."
Opinions of Financial Advisors
Opinion of BCB's Financial Advisor
Pursuant to a letter agreement dated September 3,
1997, BCB retained Janney Montgomery Scott Inc. ("JMS") to render
a fairness opinion in connection with the Consolidation. JMS has
rendered opinions that, based upon and subject to the various
considerations set forth therein, as of November 18, 1997, and as
of the date of this Proxy Statement/Prospectus, the BCB Exchange
Ratio is fair, from a financial point of view, to the holders of
BCB Common Stock.
JMS was selected to render its opinions based upon its
qualifications, expertise and experience. JMS has knowledge of,
and experience with, Pennsylvania banking markets and banking
organizations operating in those markets and was selected by BCB
because of its knowledge of, experience with, and reputation in
the financial services industry. In addition, JMS lead-managed a
common stock offering for BCB in July 1997.
On November 18, 1997, the BCB Board of Directors
approved the Agreement and JMS delivered an oral opinion (the
"Preliminary Opinion") to the BCB Board of Directors stating
that, as of such date, the BCB Exchange Ratio (which was
determined by the Board of Directors at arm's-length negotiations
with Heritage) was fair to the holders of BCB Common Stock from a
financial point of view. JMS reached the same opinion as of the
date of this Proxy Statement/Prospectus.
The full text of the opinion of JMS dated as of the
date of this Proxy Statement/Prospectus, which sets forth
assumptions made, matters considered and limits on the review
undertaken (the "Proxy Opinion"), is attached as Annex D to this
Proxy Statement/Prospectus. BCB's shareholders are urged to read
the Proxy Opinion in its entirety. The Proxy Opinion of JMS is
directed only to the BCB Exchange Ratio and does not constitute a
recommendation to any holder of BCB Common Stock as to how such
shareholder should vote at the Special Meeting. No limitations
were imposed by the Board of Directors upon JMS with respect to
the investigations made or procedures followed by JMS rendering
the Preliminary Opinion or the Proxy Opinion.
In connection with rendering its Proxy Opinion, JMS,
among other things: (i) reviewed the historical financial
performances, current financial positions and general prospects
of BCB and Heritage, (ii) reviewed the Agreement, (iii) reviewed
the Registration Statement on Form S-4, (iv) reviewed and
analyzed historical market prices and trading activity of BCB and
Heritage, (v) reviewed publicly-available information such as
annual reports, SEC filings and research reports; (vi) considered
the terms and conditions of the proposed Consolidation between
BCB and Heritage as compared with the terms and conditions of
comparable bank mergers and acquisitions, (vii) discussed with
certain members of BCB's and Heritage's senior management the
strategic aspects of the Consolidation, including estimated cost
savings; (viii) compared the respective results of operations for
BCB and Heritage with those of certain publicly-traded companies
which were deemed relevant to BCB and Heritage; (ix) considered
the pro forma effects of the Consolidation on BCB's earnings per
share, book value per share, tangible book value per share, cash
dividends per share and certain other balance sheet and
profitability ratios of BCB; and (x) conducted such other
financial analyses, studies and investigations as we deemed
appropriate for purposes of this opinion.
JMS relied without independent verification upon the
accuracy and completeness of the financial and other information
reviewed by and discussed with it for purposes of its opinions.
With respect to BCB's and Heritage's financial forecasts reviewed
by JMS in rendering its opinion, JMS assumed that such financial
forecasts were reasonably prepared on bases reflecting the best
currently available estimates and judgments of the managements of
BCB and Heritage as to the future financial performance of BCB
and Heritage. JMS did not make an independent evaluation or
appraisal of the assets (including loans) or liabilities of BCB
or Heritage nor was it furnished with any such appraisal. JMS
also did not independently verify and has relied on and assumed
that all allowances for loan losses set forth in the balance
sheets of BCB and Heritage were adequate and complied fully with
applicable law, regulatory policy and sound banking practice as
of the date of such financial statements.
The Preliminary Opinion from JMS was rendered just
prior to the signing of the definitive agreement at which time
JMS determined the BCB Exchange Ratio was fair to the holders of
BCB Common Stock. The Proxy Opinion has been issued based on the
analyses and considerations described herein and has been dated
the date of this Proxy Statement/Prospectus. Should the ability
to terminate the Consolidation arise as a result of a decline in
the value of the common stock of Heritage compared to the
Heritage Index Value, JMS would meet with the Board of BCB to
determine a course of action that could include rendering a new
fairness opinion.
The following is a summary of all material analyses
prepared and analyzed by JMS in connection with its Preliminary
and Proxy Opinions but does not purport to be a complete
description of the analyses undertaken by JMS. The preparation
of a fairness opinion is a complex process involving subjective
judgments and is not necessarily susceptible to a partial
analysis or summary description. JMS believes that its analyses
must be considered as a whole and that selecting portions of such
analyses and the factors considered therein, without considering
all factors and analyses, could create an incomplete view of the
analyses and processes underlying the Preliminary and Proxy
Opinions. In performing its analyses, JMS made numerous
assumptions with respect to industry performance, business and
economic conditions and various other matters, many of which
cannot be predicted and are beyond the control of BCB, Heritage
and JMS. Any estimates contained in JMS' analyses are not
necessarily indicative of future results or values, which may be
significantly more or less favorable than such estimates.
Estimates on the values of companies do not purport to be
appraisals or necessarily reflect the prices at which companies
or their securities may actually be sold. Because such estimates
are inherently subject to uncertainty, neither BCB or JMS assumes
responsibility if future results or actual values are materially
different from these estimates.
Contribution Analysis. JMS analyzed the relative
contributions by the two companies to the Consolidation in
relation to the proportionate interests in the Holding Company
that will be held by shareholders of the respective companies
following the Consolidation. JMS estimated the holders of BCB
Common Stock would receive approximately 48.1% of the outstanding
shares of the Holding Company and holders of Heritage Common
Stock would hold approximately 51.9% after the Consolidation.
JMS presented a contribution analysis to the BCB Board
of Directors that compared total assets, total deposits,
shareholders' equity, loans (net of the loan loss allowance) and
net income by BCB and Heritage to the Holding Company based on
the twelve months as of and for the period ended December 31,
1996, the nine months as of and for the period ended September
30, 1997 and the twelve months as of and for the period ended
December 31, 1998 as estimated by the respective managements.
The analysis indicated a potential range of pro forma ownership
for BCB of 47.8% to 48.1%.
JMS also presented comparisons of various historical
measures of earnings, performance ratios and financial condition
for the period from December 31, 1992 through September 30, 1997.
The comparisons included return on average assets, return on
average equity, nonperforming loans as a percentage of loans,
nonperforming assets plus loans 90 days past due as a percentage
of assets, loan loss reserves as a percentage of nonperforming
loans, loan loss reserve as a percentage of nonperforming assets
plus loans 90 days past due, net interest margin, efficiency
ratio, dividend payout ratio and net charge offs as a percentage
of average loans.
Comparable Company Analysis. JMS compared selected
financial and operating data for BCB and Heritage with those of a
peer group of selected banks and bank holding companies located
in Pennsylvania and New Jersey with assets between $250 and $500
million (the "Peer Group"). The analysis compared price per
share as a multiple of latest twelve month earnings per share,
price per share as a percentage of estimated 1997 earnings per
share, price per share as a percentage of book value per share,
equity as a percentage of assets, nonperforming assets plus loans
90 days past due as a percentage of assets, loan loss reserve as
a percentage of nonperforming assets plus loans 90 days past due,
return on average assets, return on average equity and efficiency
ratios. The analysis also compared the compound annual growth
rates of assets, loans, deposits and earnings per share. Based
on the foregoing comparison, JMS concluded that both BCB and
Heritage compared favorably to the Peer Group.
In addition, JMS also compared selected financial
and operating data for the Holding Company as if the combination
had been completed by September 30, 1997 with those of a peer
group of selected bank and bank holding companies located in
Pennsylvania and New Jersey with assets between $500 million and
$2.0 billion (the "Combined Company Peer Group"). The analysis
compared price per share as a multiple of latest twelve month
earnings per share, price per share as a percentage of estimated
1997 earnings per share, price per share as a percentage of book
value per share, equity as a percentage of assets, nonperforming
assets plus loans 90 days past due as a percentage of assets,
loan loss reserve as a percentage of nonperforming assets plus
loans 90 days past due, return on average assets, return on
average equity and efficiency ratios. Based on the foregoing
comparison, JMS concluded the Holding Company would compare
favorably to the Combined Company Peer Group.
Analysis of County Deposit Market Share. JMS examined
the deposit market shares at June 30, 1996 (the most recent
period for which such data was publicly available) for both BCB
and Heritage in the counties where either or both maintain
deposit-taking facilities. JMS reviewed total county market
share and compared them to other insured deposit-taking
institutions in such counties. JMS also reviewed deposit growth
rates for the past one and two year periods for both BCB and
Heritage and compared them to other insured deposit-taking
institutions in such counties.
At June 30, 1996, which was the most recent period
that such data was available, BCB had 4.03% of the deposits in
Berks County and had a two-year compound growth rate of 19.8%.
In Montgomery County, BCB had 0.38% of the county deposits and
had a one-year growth rate of 309.1%. Heritage, by comparison,
had 13.09% of the deposits in Schuylkill County and a two-year
compound growth rate of 2.3%. In Dauphin County, Heritage had
0.45% of the county deposits and had a two-year compound growth
rate of (1.8%).
Analysis of Stock Price and Volume. JMS compared
the stock price per share performance for the last 52 week
period for both BCB and Heritage and the daily trading volume for
the same period. For BCB, the stock price and volume graph
showed the price of the common stock increased approximately 77%
over the 52 weeks prior to the announcement of the Consolidation
and that the daily average trading volume was approximately
10,000 shares. For Heritage, the stock price and volume graph
showed the price of the common stock increased approximately 93%
over the 52 weeks prior to the announcement of the Consolidation
and that the daily average trading volume was approximately
4,100 shares.
Comparison of Projected Five Year Returns. JMS
estimated the potential growth in earnings per share and
dividends per share for both BCB and the Holding Company and
imputed an estimated value per share that might be achieved if
the assumed growth rates were achieved and the assumed price to
earnings multiple were valid. Estimated results for December 31,
1998 were used as the initial starting point. In the BCB stand
alone scenario, earnings per share and dividends per share were
both assumed to grow 20% per year and a price to earnings
multiple of 16 times earnings was applied to the final year
earnings per share. In the Holding Company scenario, the Holding
Company earnings per share and dividends per share were
multiplied by the BCB Exchange Ratio. Earnings per share and
dividends per share were then both assumed to grow 15% per year
and a price to earnings multiple of 17 times was applied to the
final year earnings per share. The analysis indicates the
compound annual return based on the Holding Company is higher
than it would be for BCB in the stand-alone scenario.
Pro Forma Merger Analysis. JMS analyzed, using
projections provided by BCB and Heritage, certain pro forma
effects resulting from the Consolidation based on the proposed
Exchange Ratios. JMS examined the Consolidation at three
separate points in time (including estimated relevant cost
savings): as if the transaction closed on September 30, 1997, as
if the transaction closed on December 31, 1997 and as if the
transaction closed on December 31, 1998. The principal
conclusions were that the Consolidation would have a
significantly positive impact on the earnings per share and
dividend per share of BCB and have a negative impact on the book
value per share.
In reaching its opinion as to fairness, none of the
analyses performed by JMS was assigned a greater significance by
JMS than any other. As a result of its consideration of the
aggregate of all factors present and analyses performed, JMS
reached the conclusion, and opined, that the BCB Exchange Ratio,
as set forth in the Agreement is fair from a financial point of
view to holders of BCB Common Stock.
In connection with delivering its Proxy Opinion, JMS
updated certain analyses described above to reflect current
market conditions and events occurring since the date of the
Agreement. Such reviews and updates led JMS to conclude that it
was not necessary to change the conclusions it had reached in
connection with rendering the Preliminary Opinion.
JMS, as part of its investment banking business, is
regularly engaged in the valuation of assets, securities and
companies in connection with various types of asset and security
transactions, including mergers, acquisitions, private
placements, and valuation for various other purposes and in the
determination of adequate consideration in such transactions.
The Proxy Opinion of JMS was based solely upon the
information available to it and the economic, market and other
circumstances as they existed as of the date hereof; events
occurring after the date hereof could materially affect the
assumptions used in preparing its Proxy Opinion. JMS has not
undertaken to reaffirm and revise its Proxy Opinion or otherwise
comment upon any events occurring after the date hereof.
In delivering its Preliminary Opinion and Proxy
Opinion, JMS assumed that in the course of obtaining the
necessary regulatory and governmental approvals for the
Consolidation, no restrictions will be imposed on the Holding
Company that would have a material adverse effect on the
contemplated benefits of the Consolidation. JMS also assumed
that there would not occur any change in applicable law or
regulation that would cause a material adverse change in the
prospects or operations of BCB and Heritage after the
Consolidation.
Pursuant to the terms of the engagement letter date
September 3, 1997, BCB paid JMS $25,000 upon the signing of the
Agreement. In addition, BCB has also agreed to pay JMS $100,000
upon the closing of the transaction and to reimburse JMS for its
reasonable out-of-pocket expenses. Whether or not the
Consolidation is completed, BCB has agreed to indemnify JMS and
certain related persons against certain liabilities relating to
or arising out of its engagement.
Opinion of Heritage's Financial Advisor
Heritage. On November 18, 1997, MB&D delivered its oral
opinion ("Opinion") to the Board of Directors of Heritage, that
as of that date, the Heritage Exchange Ratio at which shares of
Holding Company Common Stock will be prospectively exchanged for
shares of Heritage Common Stock on a 1.05 for 1.00 basis was
fair, from a financial point of view to Heritage shareholders in
a transaction in which shares of Holding Company Common Stock
will simultaneously be exchanged for shares of BCB Common Stock
on a 1.3335 for 1.00 basis. The relative exchange ratios were
negotiated based on consideration of a number of factors
including an analysis of the historical and projected future
contributions of recurring earnings, assets, loans, deposits,
equity capital and market capitalization as well as other
factors, including intangible factors, by the two participating
institutions to this hypothetical business combination. Based on
unaudited reported financial data for Heritage and BCB as of
September 30, 1997, for example, BCB would have contributed more
than 50% of assets, loans, deposits and tangible equity capital
to a hypothetical combination of the two companies on such date;
while Heritage would have contributed more than 50% of recurring
earnings for the nine month period ended September 30, 1997.
Based on the fully converted shares outstanding for the two
companies as of September 30, 1997 and the negotiated pair of
exchange ratios, Heritage shareholders will own 51.93% of the
pro-forma shares outstanding of the Holding Company while BCB
shareholders will own 48.07%. MB&D has subsequently delivered to
the Board of Directors of Heritage its written Opinion, as of the
date of this Joint Proxy Statement/Prospectus that the Heritage
Exchange Ratio is fair, from a financial point of view to
Heritage's shareholders.
MB&D has acted as a general financial advisor to Heritage on
a non-exclusive contractual basis since March of 1992 in
connection with Heritage's development of its strategic plan and
has assisted Heritage in the evaluation of a number of
hypothetical affiliation opportunities since that date. During
1994 and 1995, MB&D represented Heritage (then Miners National
Bancorp, Inc.) in connection with its acquisition of Bankers'
Financial Services Corporation. With respect to the pending
transaction involving BCB, MB&D advised Heritage during the
evaluation and negotiation process leading up to the execution of
the Agreement and provided Heritage with a number of analyses as
to the range of financially feasible exchange ratio pairs that
might be agreed to in a hypothetical transaction.
Representatives of MB&D met with the executive management and
Board of Directors of Heritage or designated committees thereof
on twelve separate occasions during the period from June to
November of 1997, in connection with the analysis of Heritage's
options. The determination of the applicable Heritage Exchange
Ratio was arrived at in an arms length negotiation between BCB
and Heritage in a process in which MB&D advised Heritage.
MB&D was retained based on its qualifications and experience
in the financial analysis of banking and thrift institutions
generally, its knowledge of the Pennsylvania banking market in
particular and of the Eastern United States banking markets in
general as well as its experience with merger and acquisition
transactions involving banking institutions. As a part of its
investment banking business, MB&D is continually engaged in the
valuation of financial institutions and their securities in
connection with mergers and acquisitions. Members of the
Corporate Finance Advisory Group of MB&D have extensive
experience in advising financial institution clients on mergers
or acquisitions. In the ordinary course of its business as a
broker-dealer, MB&D may, from time to time purchase securities
from and sell securities to Heritage or BCB and as a market maker
in securities, MB&D may from time to time have a long or short
position in, and buy or sell debt or equity securities of
Heritage or BCB for its own account or for the accounts of its
customers.
The full text of the Opinion of MB&D, which sets forth
assumptions made, matters considered and limits on the review
undertaken by MB&D, is attached hereto as a part of Annex E.
Heritage's shareholders are urged to read the Opinion in its
entirety as well as the Joint Proxy Statement/Prospectus. MB&D's
Opinion is directed only to the Heritage Exchange Ratio in which
shares of Holding Company Common Stock will be exchanged for
shares of Heritage Common Stock which must be interpreted in
conjunction with the corresponding exchange ratio for BCB
shareholders. MB&D's Opinion does not constitute a
recommendation to any holder of Heritage Common Stock as to how
such holder should vote at the Heritage Special Meeting. The
summary of the Opinion of MB&D set forth in this Joint Proxy
Statement/Prospectus is qualified in its entirety by reference to
the full text of the Opinion itself. MB&D's Opinion is
necessarily based upon conditions as of the date of the Opinion
and upon information made available to MB&D through the date
thereof. No limitations were imposed by the Heritage Board upon
MB&D with respect to the investigations made, matters considered
or procedures followed by MB&D in the course of rendering its
opinions.
In arriving at its Opinion, MB&D (i) reviewed the
Agreement, reviewed this Joint Proxy Statement/Prospectus in
substantially the form to be sent to Heritage shareholders; (ii)
reviewed publicly available business and financial information
through December 31, 1997 with respect to Heritage and BCB as
well as certain internal financial information and financial
projections prepared by the respective management of Heritage and
BCB; (iii) held discussions with members of the senior management
and Board of Heritage concerning the past and current results of
operations of Heritage, its current financial condition and
management's opinion of its future prospects; (iv) reviewed the
historical reported price and record of trading volume for both
Heritage and BCB Common Stock; (v) held discussions with the
senior management of BCB concerning the current and past results
of operations of BCB, its current financial condition and
management's opinion of its future prospects; (vi) considered the
current state of and future prospects for the economy of
Pennsylvania generally and the relevant market areas for Heritage
and BCB in particular; (vii) reviewed the specific merger
analysis models employed by MB&D to evaluate potential business
combinations of financial institutions; (viii) reviewed the
reported financial terms of certain recent business combinations
in the banking industry; and (ix) performed such other studies
and analyses as MB&D considered appropriate under the
circumstances associated with this particular transaction.
MB&D's Opinion takes into account its assessment of general
economic, market and financial conditions and its experience in
other transactions, as well as its experience in securities
valuation and its knowledge of the banking industry generally.
For purposes of reaching its Opinion, MB&D has assumed and relied
upon the accuracy and completeness of the information provided to
it by Heritage and BCB and does not assume any responsibility for
the independent verification of such information. In the course
of rendering its Opinion, MB&D has not completed any independent
valuation or appraisal of any of the assets or liabilities of
either Heritage or BCB and has not been provided with such
valuations or appraisals from any other source. With respect to
the financial projections reviewed by MB&D in the course of
rendering its Opinion, MB&D has assumed without independent
verification that such projections have been reasonably prepared
to reflect the best currently available estimates and judgment of
the management of each of Heritage and BCB as to the most likely
future performance of their respective companies.
The following is a summary of all the material analyses
employed by MB&D in connection with rendering its written
Opinion. Given that it is a summary, it does not purport to be a
complete and comprehensive description of all the analyses
performed, or an enumeration of all the matters considered by
MB&D in arriving at its Opinion. The preparation of a fairness
Opinion is a complicated process, involving a determination as to
the most appropriate and relevant methods of financial analysis
and the application of those methods to the particular
circumstances. Therefore, such an Opinion is not readily
susceptible to a summary description. In arriving at its
fairness Opinion, MB&D did not attribute any particular weight to
any one specific analysis or factor considered by it and made
qualitative as well as quantitative judgments as to the
significance of each analysis and factor. Therefore, MB&D
believes that its analyses must be considered as a whole and
feels that attributing undue weight to any single analysis or
factor considered could create a misleading or incomplete view of
the process leading to the formation of its Opinion. In its
analyses, MB&D has made certain assumptions with respect to
banking industry performance, general business and economic
conditions and other factors, many of which are beyond the
control of management of Heritage or BCB. Estimates which are
referred to in MB&D's analyses are not necessarily indicative of
actual values or predictive of future results or values, which
may vary significantly from those set forth.
Analysis of the Anticipated Consolidation and the Applicable
Exchange Ratio in Relation to Heritage: Pursuant to the terms of
the Agreement, the anticipated consideration to be exchanged in
the transaction for each outstanding share of Heritage Common
Stock is an exchange ratio of 1.05 shares of Holding Company
Common Stock in exchange for each share of Heritage Common Stock.
At the same time, the anticipated consideration to be exchanged
in the transaction for each outstanding share of BCB Common Stock
is an exchange ratio of 1.3335 shares of Holding Company Common
Stock. Neither of these two exchange ratios can be considered in
isolation since both apply to the pending transaction. Because
Holding Company Common Stock will be created through this
transaction and because the Holding Company has no prior
operating record or historical market value, the value of the
consideration to be received by Heritage (or BCB) shareholders
cannot be specified in the usual manner.
Projected Transaction Value: Based upon the exchange ratio
pair of 1.05 for 1, in the case of Heritage shareholders, and
1.3335 for 1, in the case of BCB shareholders, it is possible to
project a range of possible market values for a single share of
Holding Company Common Stock based on market earnings estimates
and the price earnings ratios for a peer group consisting of
Pennsylvania banking companies. Thereafter, employing the
applicable exchange ratios, one can compare a range of possible
market values of the consideration to be received to the reported
closing market price for Heritage as of November 17, 1997. Based
on the sum of the mean market estimates(1) for earnings for
Heritage and BCB for 1997 of $9,868,800 and estimated proforma
shares outstanding of Holding Company of approximately 9,618,090,
the projected proforma EPS (excluding consideration of non-
recurring costs, anticipated cost savings and anticipated revenue
enhancements) for calendar year 1997 would be $1.03 per share(2).
Applying a range of possible price earnings ratios from 15 times
to 19 times, a possible trading range for Holding Company Common
Stock of $15.45 to $19.57 results. Multiplying this range by the
applicable exchange ratio for Heritage shareholders of 1.05
yields values ranging from $16.22 to $ 20.55. The same exercise
employing market estimates for 1998 yields a projected EPS for
the Holding Company in 1998 of $1.17 per share and a value range
which runs from $18.43 to $23.34 for each exchanged share of
Heritage Common Stock. Based on the mid-point between the
highest and lowest projected possible values based on (forward
looking) 1998 estimates, a theoretical value of $20.88 results,
which corresponds to a price earnings ratio of 17 times 1998
estimated earnings (excluding consideration of anticipated cost
savings and revenue enhancements)(3). This projected value
results in a theoretical valuation slightly in excess of $98
million for the part of the Consolidation relating to Heritage
shareholders based on an estimated 4,994,850 shares of Holding
Company Common Stock to be issued to Heritage shareholders. It
should be noted that cost savings and revenue enhancements are
anticipated by the designated management team to result from the
contemplated transaction. If realized, such cost savings and
revenue enhancements may result in higher earnings per share
values than those used in this exercise. It should also be
recognized that future trading price earnings ratios for the
common stocks of financial institutions may be higher or lower
than the range of multiples used in this example. The use of
median Pennsylvania bank peer group price earnings multiples and
forecast earnings for both Heritage and BCB to attempt to
estimate a probable trading value for a share of Holding Company
Common Stock is by definition a forward looking theoretical
exercise. It should be understood that the actual trading value
of a share of Holding Company Common Stock in the future is
subject to a large number of variables including significant
factors which are beyond the control of the management of either
Heritage or BCB.
___________________
(1) Estimates reported by Bloomberg Financial Markets.
(2) Determined by adding the product of the mean 1998 earnings
estimate for Heritage and its fully converted shares
outstanding as of 9-30-97 to the product of the mean 1998
earnings estimate for BCB and its fully converted shares
outstanding as of 9-30-97.
(3) The median price earnings ratio based on estimates for 1998
for the 40 Pennsylvania Banks followed by the MB&D research
department was 17.47 times estimated 1998 EPS at the close
of business on January 9, 1998.
Multiple of earnings for Heritage Common Stock: The cited
theoretical value of $20.88 represents a multiple of 20.08 times
reported earnings (restated to reflect a stock split) per share
for 1996 which was $1.04. This multiple can be compared to the
median price earnings multiple for trailing twelve months
earnings for 40 publicly traded Pennsylvania commercial banks
which was 17.76 times as of November 18, 1997. The $20.88 value
cited is the equivalent of 17.40 times the consensus estimated
stand-alone earnings per share for 1997 of $1.20. The $20.88
cited value also represents a multiple of 15.82 times the
consensus estimated stand-alone earnings for 1998 for Heritage of
$1.32.(1) As of November 18, 1997 the median price earnings
multiple of forecast 1998 earnings per share for the same
40 publicly traded Pennsylvania commercial banks was 15.78 times.
The cited theoretical value consequently slightly exceeds the
Pennsylvania peer group with respect to multiples of forecast
1998 earnings.
______________
(1) Estimates reported by Bloomberg Financial Markets.
Multiple of Book Value of Heritage Common Stock: The cited
theoretical value of $20.88 represents a multiple of 2.31 times
Heritage's reported $9.03 book value per share as of
September 30, 1997. As of November 18, 1997 the median trading
multiple of reported stated book value as of September 30, 1998
for this same group of 40 publicly traded Pennsylvania commercial
banks was 2.16 times. The cited theoretical value consequently
exceeds such median. Given that the subject transaction, a
"merger of equals," is one in which control of two publicly
traded financial institutions is shared on a basis in which
neither shareholder group receives a material premium, the fact
that the cited theoretical value and the actual trading values
are relatively similar to the median values for the cited peer
group is an expected and desirable outcome.
Percentage of Market Value of Heritage Common Stock:
Based upon the cited theoretical value of $20.88 which is less
than the last reported trade of Heritage Common Stock as of the
day prior to the announcement of the Consolidation, the cited
theoretical value represents 89% of the last reported trade for
Heritage Common Stock which was $23.50 on November 17, 1997. The
cited theoretical value consequently represents an 11% discount
from the last reported trade for Heritage Common Stock. As of
March __, 1998 (the trading date most proximate to the mailing of
this document to shareholders), the last reported trade for
Heritage Common Stock was $______. Consequently, the difference
between the cited theoretical value and the actual trading value
as of such date was $__________ or ____% which is less than such
difference as of the announcement of the pending transaction.
Differences between the pre-announcement trading value for
Heritage Common Stock and the cited theoretical value may be
reflective of an unfulfilled expectation by the market that
Heritage was to be acquired in a premium transaction.
Specific Acquisition Analysis. MB&D employs a number of
proprietary analysis models to examine hypothetical transactions
involving banking and/or thrift companies. The models use
forecast earnings data, selected current period balance sheet and
income statement data, current market and trading information and
a number of assumptions as to interest rates for borrowed funds,
the opportunity costs of funds, discount rates, dividend streams,
effective tax rates and transaction structures (the alternative
or combined uses of common equity, cash, debt or other
securities, to fund a transaction). The models distinguish
between purchase and pooling accounting treatments and inquire
into the likely economic feasibility of a given hypothetical
transaction at a given price level or specified exchange rate
while employing a specified transaction structure. The models
also permit evaluation of various levels of potential non-
interest expense savings which might be achieved and various
potential implementation time tables for such savings as well as
the possibility of revenue enhancement opportunities which may
arise in a given hypothetical transaction. The models also
permit an examination of pro forma capital adequacy.
In this transaction, a "merger of equals" which is, by
definition, a transaction in which no material premium is
received by either shareholder group, MB&D evaluated a pair of
exchange ratios of 1.05:1 for Heritage and 1.3335:1 for BCB in a
transaction which is expected to be accounted for as a pooling of
interests. We believe that the proposed transaction viewed from
the vantage point of a Heritage shareholder will be feasible from
an earnings per share dilution perspective, generating a modest
amount of expected dilution to expected earnings for 1998 which
can be eliminated by a reduction of less than 10% of the combined
annualized run rate for non-interest expense. We believe that
such an objective is achievable for the participants and that the
transaction can consequently become accretive to earnings per
share from the vantage point of a Heritage shareholder on a cost
savings basis alone. We also anticipate that revenue
enhancements may be achieved as Holding Company, for example,
offers the services of the Heritage National Bank trust
department in its markets. We are also satisfied that the
proforma capitalization of Holding Company will be adequate after
the completion of the transaction.
Discounted Cash Flow Analysis. MB&D reviewed a discounted cash
flow analysis to permit the conceptual examination of the present
discounted values of potential future results employing selected
assumptions and discount rates.
In the discounted cash flow analysis, MB&D reviewed a cash
flow model prepared by MB&D with the management and Board of
Heritage that employed a projection of hypothetical earnings for
Heritage on an independent stand-alone basis for calendar years
1997 through 2001. A similar exercise was completed for the
hypothetical combination of Heritage and BCB for the same
periods. As part of each exercise, a hypothetical dividend pay-
out ratio assumption which depicted average annual pay-outs as a
percentage of earnings was used to project dividend streams which
would be available to shareholders. MB&D employed a range of
possible future market trading price earnings ratios ranging from
a minimum of 13 times earnings to a maximum of 18 times earnings
in order to project possible future trading values for a share of
either Heritage Common Stock on an independent basis or an
equivalent amount of Holding Company Common Stock reflecting the
negotiated exchange ratios. Given the model time horizon and a
discount rate of 12.0%, these assumptions resulted in a range of
present discounted values for a share of Heritage Common Stock on
a independent basis. Such values ranged from $16.57 to $22.37
and include consideration of the present discounted value of the
stream of cash dividends which might be received by a shareholder
during the cited period. The same exercise completed for the
hypothetical Holding Company generated a range of present
discounted values (also using a 12% discount rate) which ranged
from $21.45 to 28.84. This latter projection was repeated
employing a 14% discount rate which resulted in a range of values
of from $20.03 to $26.92. These values represent the discounted
present values of the sum of the future possible trading values
of the equivalent of one share of Heritage common stock plus the
discounted value of the stream of cash dividends which are
projected to have been received between the present and the
future valuation date at the end of 2001. The discount rates
employed represent the sum of a factor of 7% for the time value
of money and a 5% factor as a pure risk premium. In the 14%
discount rate example, the risk premium factor was arbitrarily
increased to 7% . In each case reviewed, the full range of
present discounted values for the hypothetical combination of
Heritage and BCB exceeded the full range of present discounted
values for Heritage on a stand-alone basis.
It is important to note that the discount factors employed
embody both the concept of a time value of money and risk factors
that reflect the uncertainty of the forecast cash flows and
terminal price/earnings multiples. Use of higher discount rates
would result in lower discounted present values. Conversely, use
of lower discount rates would result in higher discounted present
values. MB&D advised the Heritage board of directors that
although discounted cash flow analysis is a frequently used
valuation methodology, it relies on numerous assumptions,
including discount rates, terminal values, future earnings
performance and asset growth rates, as well as dividend payout
ratios. The accurate specification of such assumptions for time
periods more than one year in the future is a very difficult
process and contains the possibility of error. Consequently, any
or all of these assumptions may vary from actual future
performance and results. Any errors made in the selection of
assumptions for such an exercise can compound on one another and
can lead to conclusions which may demonstrate little resemblance
to actual events.
Other Factors given consideration: MB&D has given
consideration to a number of factors associated with the pending
Consolidation which it believes are favorable from the point of
view of a Heritage shareholder. Completion of this Consolidation
will give Heritage access to markets which display demographics
which are generally superior to the market demographics
associated with markets currently served by Heritage. The degree
to which the demographics of markets served by BCB are superior
to those served by Heritage can perhaps be most clearly
understood by considering the differential between the recent
historical growth rates of assets of the two companies where a
clear advantage has been enjoyed by BCB. MB&D believes that the
exchange ratios negotiated reflect a reasonable share of
ownership for Heritage shareholders based on a contribution
analysis. Key members of Heritage management will have
meaningful defined roles in the management of the proforma entity
and the former Heritage shareholders will be initially
represented by six of thirteen directors on the Board of
Directors of the Holding Company. MB&D believes that the
proforma entity will be a more visible financial institution in
the financial markets and may attract increased research coverage
and generate greater liquidity from a shares traded perspective
than is the case for Heritage on a stand-alone basis. MB&D also
believes that Heritage shareholders receiving Holding Company
Common Stock will maintain and possibly increase their prospect
for annual cash dividends based upon current and projected
earnings streams and growth expectations of the combined
entities.
Analysis of Other Comparable Transactions. MB&D is
reluctant to place excessive emphasis on "comparables analysis"
as a valuation methodology due to what it considers to be
inherent limitations of the application of the results to
specific cases. It has observed that such analysis as employed
by some industry observers and financial advisors fails to
adequately take into consideration such factors as material
differences in the underlying capitalization of the comparable
institutions which are being acquired; differences in the
historic earnings (or loss) patterns recorded by the compared
institutions which can depict a very different trend than might
be implied by examining only recent financial results; failure to
exclude non-recurring profit or loss items from the last twelve
months' earnings streams of target companies which can distort
apparent earnings multiples; material differences in the form or
forms of consideration used to complete the transaction;
differences between the planned method of accounting for the
completed transaction; and such less accessible factors as the
relative population, business and economic demographics of the
acquired entities markets as compared or contrasted to such
factors for the markets in which comparables are doing business.
Comparables analysis also rarely seems to take into consideration
the degree of facilities overlap between the acquirer's market
and that of the target or the absence of such overlap and the
resulting cost savings differentials between otherwise apparently
comparable transactions. MB&D consequently believes that
comparables analysis has inherent limitations and should not be
relied upon to any material extent by members of management, the
Board of Directors or the shareholders in considering the
presumed merits of a pending transaction. In the case of this
transaction which is a merger of equals we believe that
comparables analysis, which is of marginal value even for an
ordinary premium transaction, is of virtually no utility.
Pursuant to a letter agreement with Heritage dated
November 18, 1997, MB&D will receive a fee equivalent to 0.55%
(55 basis points) of the fair market value of consideration to be
received by Heritage's shareholders. MB&D was paid $100,000
after the execution of the Agreement for the pending
Consolidation with BCB and will be paid a further $200,000 upon
issuance of its Opinion to be included as an exhibit to this
Proxy Statement/Prospectus. Payment of the balance of the fee
will be conditioned on the closing of the Consolidation and will
be based on 0.55% of a post closing measurement of the market
value of the Holding Company shares issued to Heritage
shareholders from which will be deducted the $300,000 already
paid to MB&D. Such fee however will be limited to a maximum fee
of $650,000 and a minimum of $300,000. The fee represents
compensation for services rendered in connection with the
analysis of the hypothetical transaction, support of the
negotiations and for the rendering of its Opinions. In addition,
Heritage has agreed to reimburse MB&D for its reasonable out-of-
pocket expenses incurred in connection with the transaction.
Heritage also has agreed to indemnify MB&D and its directors,
officers and employees against certain losses, claims, damages
and liabilities relating to or arising out of MB&D's engagement,
including liabilities under the federal securities laws
Effective Date of the Consolidation
Under the Agreement, the Effective Date will be the
date on which Articles of Consolidation are filed with the PDS
which will be the same date as the Closing Date. The Closing
Date will be the later of May 1, 1998 or the fifth business day
following satisfaction or waiver of the conditions to the
consummation of the Consolidation as specified in the Agreement
or such other date as BCB and Heritage may mutually agree. The
parties presently expect that the Effective Date will occur in
the second quarter 1998. See " -- Conditions to the
Consolidation" herein.
The Agreement may be terminated by either party if,
among other reasons, the Closing Date does not occur on or before
July 31, 1998, unless the failure of such occurrence shall be due
to the failure of the party seeking to terminate the Agreement to
perform or observe in any material respect its agreements
required to be performed or observed by such party on or before
the Closing Date. See " -- Termination; Effect of Termination."
Exchange of Stock Certificates
The conversion of BCB Common Stock and Heritage Common
Stock into Holding Company Common Stock will occur automatically
at the Effective Date. As soon as practicable after the
Effective Date, the Holding Company, or a transfer agent
designated by the Holding Company, in the capacity of exchange
agent (the "Exchange Agent"), will send a transmittal form to
each BCB and Heritage shareholder of record. The transmittal
form will contain instructions with respect to the surrender of
certificates representing BCB Common Stock and Heritage Common
Stock to be exchanged for Holding Company Common Stock. Under
the Agreement, certificates representing shares of Holding
Company Common Stock and checks for cash in lieu of fractional
interests in shares of Holding Company Common Stock must be
mailed to former shareholders of BCB and Heritage as soon as
reasonably possible but in no event later than 30 business days
following the receipt of certificates representing former shares
of BCB Common Stock and Heritage Common Stock duly endorsed.
BCB AND HERITAGE SHAREHOLDERS SHOULD NOT FORWARD BCB OR
HERITAGE STOCK CERTIFICATES TO THE EXCHANGE AGENT UNTIL THEY HAVE
RECEIVED TRANSMITTAL FORMS. BCB AND HERITAGE SHAREHOLDERS SHOULD
NOT RETURN STOCK CERTIFICATES WITH THE ENCLOSED PROXY CARD.
Until the certificates representing BCB Common Stock
and Heritage Common Stock are surrendered for exchange after
completion of the Consolidation, holders of such certificates
will not receive, and will not be paid dividends on, the Holding
Company Common Stock into which such shares have been converted.
When such certificates are surrendered, any unpaid dividends will
be paid without interest. For all other purposes, however, each
certificate which represents shares of BCB Common Stock or
Heritage Common Stock outstanding at the Effective Date (other
than any Dissenting Shares and Excluded Shares) will be deemed to
evidence ownership of and the right to receive the shares of
Holding Company Common Stock (and cash in lieu of fractional
shares) into which those shares have been converted by virtue of
the Consolidation. Neither BCB, Heritage nor the Holding Company
will be liable to any holder of shares of BCB Common Stock or
Heritage Common Stock for any amount paid in good faith to a
public official pursuant to any applicable abandoned property,
escheat or similar law.
All shares of Holding Company Common Stock issued upon
conversion of shares of BCB Common Stock and Heritage Common
Stock shall be deemed to have been issued in full satisfaction of
all rights pertaining to such shares of BCB Common Stock and
Heritage Common Stock, subject, however, to the Holding Company's
obligation to pay any dividends or make any other distributions
with a record date on or prior to the Effective Date, which may
have been declared or made by BCB or Heritage on such shares of
BCB Common Stock or Heritage Common Stock in accordance with the
Agreement and which remain unpaid at the Effective Date.
No fractional shares of Holding Company Common Stock
will be issued to any shareholder of BCB or Heritage upon
completion of the Consolidation. For each fractional share that
would otherwise be issued, the Holding Company will pay by check
an amount equal to the product obtained by multiplying the
fractional share interest to which such holder would otherwise be
entitled by the closing price of a share of Holding Company
Common Stock on the Nasdaq National Market System (the "Holding
Company Market Price") on the first day Holding Company Common
Stock is traded after the Effective Date.
Conditions to the Consolidation
The obligations of BCB and Heritage to effect the
Consolidation are subject to various conditions, which include
the following:
(a) all action required to be taken by, or on the
part of, BCB and Heritage to authorize the execution, delivery
and performance of the Agreement and the consummation of the
transactions contemplated by the Agreement, shall have been duly
and validly taken and BCB and Heritage shall have received
certified copies of the resolutions of the other party evidencing
such authorizations;
(b) the obligations and covenants of BCB and
Heritage required by the Agreement to be performed by BCB and
Heritage at or prior to the Closing Date shall have been duly
performed and complied with in all material respects;
(c) the representations and warranties of BCB and
Heritage set forth in the Agreement shall be true and correct, as
of the date of the Agreement, and as of the Closing Date as
though made on and as of the Closing Date, except as to any
representation or warranty (i) which specifically relates to an
earlier date or (ii) where the breach of the representation or
warranty would not, either individually or in the aggregate,
constitute a Material Adverse Effect (see "-- Representations and
Warranties");
(d) BCB and Heritage shall have received all
required approvals ("Regulatory Approvals") of regulatory
authorities of the Consolidation, without the imposition of any
term or condition that would have a Material Adverse Effect on
the Holding Company upon completion of the Consolidation and all
notice and waiting periods required thereunder shall have expired
or been terminated (see "-- Regulatory Approvals");
(e) there shall not be in effect any order,
decree or injunction of a court or agency of competent
jurisdiction which enjoins or prohibits consummation of the
transactions contemplated by the Agreement;
(f) BCB and Heritage shall each have received an
opinion of Stevens & Lee that, among other things, the
Consolidation will be treated for federal income tax purposes as
a "reorganization" within the meaning of Section 368(a) of the
Code (see "-- Certain Federal Income Tax Consequences");
(g) BCB and Heritage shall each have received a
letter dated as of the Closing Date to the effect that the
Consolidation shall be accounted for as a pooling of interests
for financial accounting purposes (see "-- Accounting
Treatment");
(h) the Agreement shall have been approved by the
shareholders of Heritage and BCB by such vote as is required
under the BCL, their respective Articles of Incorporation, Bylaws
and applicable Nasdaq requirements; and
(i) the Holding Company Common Stock shall be
approved for quotation on the Nasdaq Stock Market National Market
System.
In addition to the foregoing, the obligations of each
party to the Agreement are conditioned on other conditions which
are customary for transactions of the type contemplated by the
Agreement.
Except for the requirements of shareholder approval,
Regulatory Approvals and the absence of any order, decree, or
injunction preventing the transactions contemplated by the
Agreement, each of the conditions described above may be waived
in the manner and to the extent described in " -- Amendment;
Waivers" herein. Neither BCB nor Heritage, however, anticipates
waiving the conditions that it receive an opinion from its
independent auditors that the Consolidation will be treated as a
pooling of interests for financial accounting purposes and an
opinion of counsel that provides, among other things, that the
Consolidation will be treated as a "reorganization" within the
meaning of Section 368(a) of the Code. If for any reason, BCB
and Heritage cannot obtain an opinion of counsel that the
consolidation will be treated as a "reorganization" within the
meaning of Section 368(a) of the Code and BCB and Heritage waive
receipt of such an opinion as a condition of closing, then any
vote of the shareholders of BCB and Heritage approving the
Consolidation would be resolicited.
Regulatory Approvals
The Consolidation is subject to prior approval of
the Federal Reserve Board (the "FRB") under Section 3 of the Bank
Holding Company Act ("BHC") and regulations of the FRB
thereunder. An application for approval of the Consolidation was
filed with the FRB on or about January 29, 1998. In evaluating
an application under the BHC, the FRB shall take into
consideration the financial and managerial resources and future
prospects of the parties involved, and the resulting company and
the convenience and needs of the community to be served.
Consideration of the managerial resources of a company shall
include consideration of the competence, experience and integrity
of the directors, officers and principal shareholders of the
company. Before approving an application, the FRB shall request
from the U.S. Department of Justice and consider any report
rendered within 30 days on the competitive factors involved. The
FRB may not approve any proposed transaction (i) which would
result in a monopoly or which would be in furtherance of any
combination or conspiracy to monopolize the banking business in
any part of the United States, (ii) which in any section of the
country may have the effect of substantially lessening
competition or tending to create a monopoly or which in any other
manner would be in restraint of trade, unless the FRB finds that
the anticompetitive effects of the proposed transaction are
clearly outweighed in the public interest by the probable effect
of the proposed transaction in meeting the convenience and needs
of the community to be served.
In addition, the FRB has the responsibility by statute
and regulation to review the performance of all involved
institutions in meeting their responsibilities under the
Community Reinvestment Act ("CRA"), which includes the record of
performance of the existing institutions in meeting the credit
needs of the entire community including low- and moderate-income
neighborhoods. Berks County Bank and Heritage National Bank
received ratings of "satisfactory" in their last CRA
examinations.
BCB and Heritage anticipate receipt of the FRB
approval in March 1998. However, there can be no assurance that
the FRB will approve the Consolidation, and, if approved, there
can be no assurance as to the date of such approval. The
Consolidation may not be consummated until 30 days (15 days if
the Attorney General does not object) after the date of the FRB
approval, during which time the U.S. Department of Justice has
the opportunity to challenge the Consolidation on antitrust
grounds. The commencement of an antitrust action by the U.S.
Department of Justice would stay the effectiveness of FRB
approval unless a court specifically orders otherwise. In
reviewing the Consolidation, the U.S. Department of Justice could
analyze the Consolidation's effect on competition differently
than the FRB, and thus it is possible that the U.S. Department of
Justice could reach a different conclusion than the FRB regarding
the Consolidation's competitive effects.
The Consolidation also is subject to prior approval of
the Pennsylvania Department of Banking (the "Department") under
the Pennsylvania Banking Code of 1965 (the "Banking Code"). An
application for approval of the Consolidation was filed with the
Department on February 5, 1998. In evaluating an application
under the Banking Code, the Department applies criteria similar
to the criteria utilized by the FRB under the BHC. BCB and
Heritage anticipate receipt of Department approval in April 1998.
However, there can be no assurance that the Department will
approve the Consolidation, and, if approved there can be no
assurance as to the date of such approval.
Representations and Warranties
The Agreement contains customary representations and
warranties relating to, among other things, (a) the corporate
organization of BCB and its subsidiaries and Heritage and its
subsidiaries; (b) the capital structures of BCB and Heritage;
(c) the due authorization, execution, delivery, performance and
enforceability of the Agreement; (d) consents or approvals of
Regulatory Authorities or third parties necessary to complete the
Consolidation; (e) the consistency of financial statements with
generally accepted accounting principles and, where appropriate,
applicable regulatory accounting principles; (f) the absence of
material adverse changes, since September 30, 1997, in the
consolidated assets, business, financial condition or results of
operations of BCB or Heritage; (g) the filing of tax returns and
payment of taxes; (h) the absence of undisclosed material pending
or threatened litigation; (i) compliance with applicable laws and
regulations; (j) retirement and other employee plans and matters
relating to the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"); (k) the quality of title to assets and
properties; (l) the maintenance of adequate insurance; (m) the
absence of undisclosed brokers' or finders' fees; (n) the absence
of material environmental violations, actions or liabilities;
(o) the consistency of the allowance for loan losses with
generally accepted accounting principles and all applicable
regulatory criteria; (p) the accuracy of information supplied by
BCB and Heritage in connection with the Registration Statement on
Form S-4 filed with the Commission in connection with the
issuance of Holding Company Common Stock in the Consolidation,
this Proxy Statement/Prospectus and all applications filed with
regulatory authorities for approval of the Consolidation;
(q) documents filed with the Commission and the accuracy of
information contained therein; (r) the validity and binding
nature of loans reflected as assets in the financial statements
of Heritage and BCB; (s) the tax and accounting treatment of the
Consolidation; (t) transactions with affiliates; (u) the absence
of any undisclosed contract, agreement, plan or arrangement; and
(v) the accuracy of representations set forth in the Agreement.
Business Pending the Consolidation
Pursuant to the Agreement, BCB and Heritage have each
agreed to use their reasonable good faith efforts to preserve
their business organizations intact, to maintain good
relationships with employees and to preserve the goodwill of
customers and others with whom business relationships exist. In
addition, BCB and Heritage have each agreed in the Agreement to
conduct its business and to engage in transactions, including
extensions of credit, only in the ordinary course of business,
consistent with past practice, except as otherwise required by
the Agreement or with the written consent of the other party.
In addition, BCB and Heritage have each agreed in the
Agreement that prior to the Closing Date, except as otherwise
consented to or approved by the other party or as otherwise
permitted or required by the Agreement, it will not, and will not
permit any of its subsidiaries to, without the written consent of
the other party, among other things:
(a) amend or change any provision of its Articles
of Incorporation, Charter or Bylaws;
(b) change the number of authorized or
issued shares of its capital stock or issue any shares or issue
or grant any option or similar rights with respect to its
authorized or issued capital stock or any securities convertible
into shares of such stock, or split, combine or reclassify any
shares of capital stock, or declare, set aside or pay any
dividend or other distribution in respect of capital stock, or
redeem or otherwise acquire any shares of capital stock, except
that (A) Heritage may issue up to an aggregate of 93,052 shares
of Heritage Common Stock upon the valid exercise of Heritage
Options, (B) consistent with past practice, Heritage may grant in
1998 Heritage Options for up to an aggregate of 48,000 shares of
Heritage Common Stock and may issue shares upon the valid
exercise thereof (options to acquire 41,500 shares of Heritage
Common Stock were granted in February 1998), (C) Heritage may
issue or acquire shares of Heritage Common Stock in connection
with the Heritage ESOP consistent with past practice,
(D) Heritage may acquire shares of Heritage Common Stock in
connection with the payment of all or part of the exercise price
or tax withholdings of Heritage Options in connection with the
valid exercise thereof, (E) Heritage may issue shares of Heritage
Common Stock pursuant to the Heritage Dividend Reinvestment Plan
(the "Heritage DRIP") consistent with past practice, (F) Heritage
may issue shares of Heritage Common Stock pursuant to the BCB
Stock Option Agreement, (G) Heritage may pay a quarterly cash
dividend not to exceed $0.14 per share of Heritage Common Stock
outstanding, (H) BCB may issue up to an aggregate of 138,942
shares of BCB Common Stock upon the valid exercise of BCB
Options, (I) BCB may acquire shares of BCB Common Stock in
connection with the payment of all or part of the exercise price
or tax withholdings of BCB Options in connection with the valid
exercise thereof, (J) BCB may issue shares of BCB Common Stock
pursuant to the BCB Dividend Reinvestment Plan (the "BCB DRIP")
consistent with past practice, (K) BCB may issue shares of BCB
Common Stock pursuant to the Heritage Stock Option Agreement, and
(L) BCB may pay a quarterly cash dividend not to exceed $.08 per
share of BCB Common Stock outstanding;
(c) grant any severance or termination pay (other
than pursuant to written policies or written agreements in effect
on the date of the Agreement) to, or, except as expressly
contemplated by the Agreement, enter into any new or amend any
existing employment agreement with, or increase the compensation
of, any employee, officer or director except for routine periodic
increases, that individually and in the aggregate do not exceed
10% and that are otherwise in accordance with past practice;
(d) merge or consolidate any subsidiary with any
other corporation; sell or lease all or any substantial portion
of the assets or business; make any acquisition of all or any
substantial portion of the business or assets of any other
person, firm, association, corporation or business organization
other than in connection with the collection of any loan or
credit arrangement; enter into a purchase and assumption
transaction with respect to deposits and liabilities; permit the
revocation or surrender by any subsidiary of its certificate of
authority to maintain, or file an application for the relocation
of, any existing branch office;
(e) sell or otherwise dispose of the capital
stock or sell or otherwise dispose of any of its assets or the
assets of any subsidiary other than in the ordinary course of
business consistent with past practice; subject any of its assets
to a lien, pledge, security interest or other encumbrance (other
than in connection with government deposits, repurchase
agreements, bankers acceptances, "treasury tax and loan" accounts
established in the ordinary course of business and transactions
in Federal Home Loan Bank advances and "federal funds" and the
satisfaction of legal requirements in the exercise of trust
powers) other than in the ordinary course of business consistent
with past practice; incur any indebtedness for borrowed money (or
guarantee any indebtedness for borrowed money), except in the
ordinary course of business consistent with past practice;
(f) take any action which would result in any of
its representations and warranties set forth in the Agreement
becoming untrue as of any date after the date hereof except as
otherwise contemplated or permitted by the Agreement, or in any
of the conditions set forth in the Agreement not being satisfied,
except in each case as may be required by applicable law;
(g) change any method, practice or principle of
accounting, except as may be required from time to time by
generally accepted accounting principles (without regard to any
optional early adoption date) or any regulatory authority;
(h) waive, release, grant or transfer any rights
of value or modify or change in any material respect any existing
material agreement to which it or any subsidiary is a party,
other than in the ordinary course of business consistent with
past practice;
(i) implement any pension, retirement, profit
sharing, bonus, welfare benefit or similar plan or arrangement
that was not in effect on the date of the Agreement (except that
BCB and Heritage each may adopt its annual bonus plan in 1998
consistent with past practice), or, except as required by law and
except as otherwise set forth in the Agreement, materially amend
any existing plan or arrangement except to the extent such
amendments do not result in an increase in cost;
(j) purchase any security for its investment
portfolio not rated "AAA" or higher by Standard & Poor's
Corporation or "Aaa" by Moody's Investor Services, Inc.;
(k) amend or otherwise modify the underwriting
and other lending guidelines and policies in effect as of the
date hereof or otherwise fail to conduct its lending activities
in the ordinary course of business consistent with past practice;
(l) enter into, renew, extend or modify any other
transaction with any affiliate, other than deposit and loan
transactions in the ordinary course of business and which are in
compliance with the requirements of applicable laws and
regulations;
(m) enter into any interest rate swap, floor or
cap or similar commitment, agreement or arrangement;
(n) take any action that would give rise to a
right of payment to any individual under any employment
agreement;
(o) take any action that would preclude the
Consolidation from qualifying (A) for pooling of interests
accounting treatment under generally accepted accounting
principles or (B) as a reorganization within the meaning of
Section 368 of the Code; or
(p) agree to do any of the foregoing.
BCB and Heritage have each agreed in the Agreement,
among other things, (i) to permit the other party, if such party
elects to do so, at such party's own expense, to cause a "phase I
environmental audit" to be performed at any physical site owned
or occupied by it or any of its subsidiaries; (ii) if requested
by the other party and at the other party's expense, to cause its
independent certified public accountants to perform a review of
its unaudited consolidated financial statements as of the end of
any calendar quarter, in accordance with Statement of Auditing
Standards No. 71, and to issue their report on such financial
statements; (iii) if requested by the other party, to use its
reasonable best efforts to obtain an extension of any contract
with an outside service bureau or other vendor of services to it
or any on terms and conditions mutually acceptable to each party;
(vi) to provide to each other, on a monthly basis, a written list
of nonperforming assets; (v) to submit the Agreement to their
shareholders for approval at a meeting to be held as soon as
practicable; (vi) to confer, at the request of the other party,
on a monthly basis prior to the Effective Date regarding each
party's financial condition, operations and business matters
relating to the completion of the Consolidation; (vii) to provide
to each other copies of the minutes of any meeting of the Board
of Directors of such party and its subsidiaries, and of any of
their respective committees or of any senior management
committee; (viii) to prepare all applications for, and use their
reasonable best efforts to obtain, all required Regulatory
Approvals; (ix) subject to the terms of the Agreement, to take
all actions necessary to complete the transactions contemplated
by the Agreement; (x) to maintain, and cause their respective
subsidiaries to maintain, adequate insurance; (xi) to maintain
accurate books and records; (xii) to file all tax returns and pay
all taxes when due; (xiii) to agree upon the form and substance
of any press release or public disclosure related to the
Agreement and the Consolidation; and (xiv) to deliver to the
other copies of all securities documents when filed.
Dividends
The Agreement permits BCB and Heritage to pay a regular
quarterly cash dividend, not to exceed $.08 and $.14,
respectively, per share of BCB Common Stock and Heritage Common
Stock outstanding, respectively, with respect to each calendar
quarter prior to the Effective Date. BCB and Heritage agreed in
the Agreement to coordinate (on a mutually agreeable basis) the
declaration of dividends (and the record of payment dates
therefor) payable during the period preceding and including the
quarter in which the Effective Date occurs so that shareholders
of BCB and Heritage will receive fair dividends and in no event
will shareholders of either BCB or Heritage fail to receive a
fair dividend during any quarter up to and including the quarter
immediately following the Effective Date. The Agreement provides
that nothing contained therein will be construed to permit
shareholders of BCB or Heritage to receive two dividends in any
quarter or to deny or prohibit shareholders of BCB or Heritage
from receiving one dividend from BCB or Heritage in any quarter.
The Agreement provides that nothing contained therein shall be
deemed to effect the ability of any subsidiary of BCB or Heritage
to pay dividends on its capital stock subject to applicable
regulatory restrictions.
The Holding Company presently intends to pay an annual
dividend of $.56 per share of Holding Company Common Stock.
However, the timing and amount of future dividends, if any, will
depend upon earnings, capital levels, cash requirements, the
financial condition of the Holding Company, Berks County Bank and
Heritage National Bank, applicable government regulations and
policies and other factors deemed relevant by the Holding
Company's Board of Directors, including the amount of dividends
payable to the Holding Company by the Berks County Bank and
Heritage National Bank.
The principal source of income and cash flow of the
Holding Company, including cash flow to pay dividends on the
Holding Company Common Stock, is dividends from the Berks County
Bank and Heritage National Bank. Various federal and state laws,
regulations and policies limit the ability of the Berks County
Bank and Heritage National Bank to pay dividends to the Holding
Company. For certain limitations on the Berks County Bank's
ability to pay dividends to the Holding Company, see "DESCRIPTION
OF BCB - Business-Supervision and Regulation" and Note 17 to the
Financial Statements of BCB. For certain limitations on Heritage
National Bank's ability to pay dividends to the Holding Company,
see "Item 1. Business - Dividends" set forth in Heritage's
Annual Report on Form 10-K for the year ended December 31, 1997.
See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
No Solicitation of Transactions
The Agreement provides that BCB and Heritage shall not,
and shall not authorize or permit any of their respective
directors, officers, employees or agents, to directly or
indirectly (i) respond to, solicit, initiate or encourage any
inquiries relating to, or the making of any proposal which
relates to, an Acquisition Transaction (as defined below),
(ii) recommend or endorse an Acquisition Transaction,
(iii) participate in any discussions or negotiations regarding an
Acquisition Transaction, (iv) provide any third party (other than
the other party to the Agreement or an affiliate of such party)
with any nonpublic information in connection with any inquiry or
proposal relating to an Acquisition Transaction or (v) enter into
an agreement with any other party with respect to an Acquisition
Transaction. The Agreement provides that notwithstanding the
foregoing, (i) the Board of Directors of Heritage or BCB may
respond to unsolicited inquiries relating to an Acquisition
Transaction or (ii) the Board of Directors of Heritage or BCB may
recommend or endorse an Acquisition Transaction, in each case, if
it receives an unqualified written opinion of outside counsel
that the failure to do so would constitute a breach of their
fiduciary duty. Each party hereto has agreed to notify the other
party orally (within one day) and in writing (as promptly as
practicable) if any inquiries or proposals relating to an
Acquisition Transaction are received or any such negotiations or
discussions are sought to be initiated or continued.
"Acquisition Transaction" means one of the following transactions
with a party other than BCB or Heritage: (i) a merger or
consolidation, or any similar transaction, (ii) a purchase, lease
or other acquisition of all or a substantial portion of the
assets or liabilities of BCB or Heritage or (iii) a purchase or
other acquisition (including by way of share exchange, tender
offer, exchange offer or otherwise) of a substantial interest in
any class or series of BCB's or Heritage's equity securities
(other than as permitted under the Agreement) or their
subsidiaries.
Amendment; Extension and Waivers
Subject to applicable law, at any time prior to the
consummation of the transactions contemplated by the Agreement,
BCB and Heritage may (a) amend the Agreement, (b) extend the time
for the performance of any of the obligations or other acts of
BCB and Heritage required in the Agreement, (c) waive any
inaccuracies in the representations and warranties contained in
the Agreement or in any document delivered pursuant to the
Agreement, or (d) waive compliance with any of the agreements or
conditions contained in the Agreement, except for the
requirements of shareholder approval, Regulatory Approvals and
the absence of any order, decree, or injunction preventing the
transactions contemplated by the Agreement; provided, however,
that any amendment, extension or waiver granted or executed after
shareholders of Heritage and BCB have approved the Agreement
shall not modify either the amount or the form of consideration
to be provided to holders of BCB Common Stock or Heritage Common
Stock upon completion of the Consolidation, change any terms of
the Articles of Incorporation of the Holding Company, or
otherwise materially adversely affect the shareholders of BCB or
Heritage without the approval of such shareholders. In
particular, if for any reason, BCB and Heritage cannot obtain an
opinion of counsel that the consolidation will be treated as a
"reorganization" within the meaning of Section 368(a) of the Code
and BCB and Heritage waive receipt of such an opinion as a
condition of closing, then any vote of the shareholders of BCB
and Heritage approving the Consolidation would be
resolicited.
Termination; Effect of Termination
The Agreement may be terminated at any time prior to
the Effective Date by mutual consent of BCB and Heritage or by
either party if (i) the other party, in any material respect,
breaches any representation, warranty, covenant or understanding
contained in the Agreement which would have a Material Adverse
Effect (as defined in the Agreement) on the breaching party, and
such breach has not been cured by the earlier of thirty days from
the date written notice of such breach was given to such party
committing the breach or the Effective Date unless on the
Effective Date such breach no longer causes a Material Adverse
Effect, (ii) the Closing Date of the Consolidation shall not have
occurred by on or before July 31, 1998, unless the failure of
such occurrence shall be due to the failure of the party seeking
to terminate the Agreement to perform or observe in any material
respect its agreements required to be performed or observed by
such party on or before the Closing Date or (iii) either party
has received a final unappealable administrative order from a
regulatory authority whose approval or consent has been requested
that such approval or consent will not be granted or will not be
granted absent the imposition of terms and conditions which would
have a Material Adverse Effect on the Holding Company, unless
such occurrence shall be due to the failure of the party seeking
to terminate the Agreement or perform or observe in any material
respect its agreements set forth therein required to be performed
or observed by such party on or before the Closing Date.
BCB may terminate the Agreement in the event that
during a 30-day trading period ended five trading days prior to
the Effective Date the average of the mean between the closing
high bid and low asked prices for Heritage Common Stock for any
consecutive ten-day period declines 40% or more from an index
value of $20.875 (the "Heritage Index Value").
Heritage may terminate the Agreement in the event that
during a 30-day trading period ended five trading days prior to
the Effective Date the average of the mean between the closing
high bid and low asked prices for BCB Common Stock for any
consecutive ten-day period declines 30% or more from an index
value of $25.00 (the "BCB Index Value").
The Index Value for each of BCB and Heritage was
determined by calculating the average of the mean between the
closing high bid and low asked prices for BCB Common Stock or
Heritage Common Stock, as the case may be, as reported by the
Nasdaq Stock Market National Market System, for the three
consecutive trading days beginning November 21, 1997.
The Agreement may be terminated by either the Board of
Directors of BCB or the Board of Directors of Heritage if the
Board of Directors of the other party shall have exercised its
rights under the Agreement regarding an Acquisition Transaction
with a third party or shall have otherwise withdrawn, modified or
changed in a manner adverse to the terminating party its approval
or recommendation of this Agreement and the transactions
contemplated thereby.
The Agreement may be terminated by either the Board of
Directors of BCB or the Board of Directors of Heritage if their
shareholders shall have not approved this Agreement by the
requisite vote; provided, however, that neither BCB nor Heritage
will have a right to terminate the Agreement if prior to such
shareholder vote the Board of Directors of the party whose
shareholders failed to approve the Agreement shall have
recommended or endorsed an Acquisition Transaction with a third
party or shall have otherwise withdrawn, modified or changed in a
manner adverse to the other party its approval or recommendation
of the Agreement and the transactions contemplated thereby.
In the event of termination of the Agreement by either
BCB or Heritage, the Agreement will be void, except as otherwise
provided in the Agreement and there will be no liability on the
part of BCB or Heritage other than (i) the liability arising out
of any uncured willful breach of any covenant or other agreement
contained in the Agreement, any fraudulent breach of a
representation or warranty contained in the Agreement, or
(ii) any obligation or liability arising under the BCB Stock
Option Agreement or the Heritage Stock Option Agreement.
Management and Operations of the Holding Company after the
Consolidation
Directors and Executive Officers
The initial Board of Directors of the Holding Company
will consist of 13 members. Seven members will be designated by
the Board of Directors of BCB and six members will be designated
by the Board of Directors of Heritage. For information
concerning the persons who have been designated to be members of
the Board of Directors of the Holding Company, see "DESCRIPTION
OF THE HOLDING COMPANY -- Board and Management." Nelson R.
Oswald will be the Chairman of the Board of Directors of the
Holding Company and Albert L. Evans, Jr., Chairman of Heritage,
will be the Vice Chairman of the Board of Directors of the
Holding Company.
On the Effective Date, the executive officers of the
Holding Company will be as follows:
Nelson R. Oswald - Chairman and Chief Executive
Officer
Allen E. Kiefer - President and Chief Operating
Officer
Robert D. McHugh, Jr. - Executive Vice President and
Chief Financial Officer
Richard A. Ketner - Executive Vice President and
Chief Administrative Officer
The Board of Directors and executive officers of Berks
County Bank in office immediately prior to completion of the
Consolidation will remain as Berks County Bank's Board of
Directors and executive officers, except that, upon completion of
the Consolidation, (i) Allen E. Kiefer will be appointed an
officer and member of the Board of Directors of Berks County Bank
with the title of Vice Chairman and (ii) Richard A. Ketner will
be appointed Executive Vice President of Berks County Bank.
The Board of Directors and executive officers of
Heritage National Bank in office immediately prior to completion
of the Consolidation will remain as Heritage National Bank's
Board of Directors and executive officers, except that
(i) Nelson R. Oswald will be appointed as an officer and member
of the Board of Directors of Heritage National Bank with the
title of Vice Chairman and (ii) Robert D. McHugh will be
appointed Executive Vice President and Chief Financial Officer of
Heritage National Bank.
Holding Company
BCB and Heritage expect the Holding Company to achieve
certain cost savings and operating synergies as a result of the
Consolidation. These costs savings and operating synergies are
anticipated to aggregate approximately 4.0% to 7.5% of BCB's and
Heritage's aggregate recurring operating expenses, and are
expected to be substantially realized within 18 months following
the Effective Date. BCB and Heritage expect the cost savings and
operating synergies will be realized primarily as the result of
the elimination of duplicative administrative and back office
functions. Because of the uncertainties inherent in
consolidating two financial institutions, changes in the
regulatory environment and changes in economic conditions, no
assurances can be given that any particular level of cost savings
will be realized, that any such cost savings will be realized
over the time period currently anticipated or that such cost
savings will not be offset to some degree by increases in other
expenses, including expenses relating to consolidating the two
companies.
Any such expected cost savings or synergies do not give
effect to an expected one-time after-tax charge of approximately
$1.0 million to $1.5 million, relating to Consolidation expenses,
which will be incurred upon completion of the Consolidation.
Such expenses will be incurred principally as a result of fees to
professionals, as well as salaries and benefits, including
payments pursuant to employment and change in control agreements
and other severance payments, occupancy and equipment expense,
and other operating expenses which are required to be accrued in
accordance with generally accepted accounting principles.
Employee Benefits
On or after the Effective Date, the employee pension
and welfare benefit plans of BCB and Heritage (as well as any
other plan of Heritage providing for benefits not subject to the
Employee Retirement Income Security Act of 1974, as amended
("ERISA")), may, at the Holding Company's election and subject to
the requirements of the Code and other applicable laws, continue
to be maintained separately or consolidated, except as set forth
below. The Agreement provides that in connection with
implementation of the foregoing, the following provisions and
guidelines shall apply: (i) the Agreement provides that, subject
to consummation of the Consolidation, Heritage will cause the
Code Section 4975 portion of the Heritage ESOP to be terminated
as of the Effective Date and, as of the date of termination, each
participant in the Code Section 4975 portion of the Heritage ESOP
not fully vested will, in accordance with the terms of the
Heritage ESOP, become fully vested in his or her Code
Section 4975 Heritage ESOP account; (ii) prior to the Effective
Date, subject to consummation of the Consolidation, Heritage
shall take action to cease accrual of benefits under the Heritage
Pension Plan as of the Effective Date, amend the Heritage Pension
Plan to provide for the allocation of excess assets, if any, to
active Plan participants and proceed with the termination of the
Plan; (iii) the BCB 401(k) Plan shall be amended no later than
the Effective Date to provide for the participation of Heritage
employees; (iv) as of the Effective Date, employees of Heritage
shall be eligible to participate in the BCB 401(k) Plan in
accordance with its terms (each such employee shall receive, for
purposes of participation and vesting only, prior service credit
with Heritage); (v) as soon as practicable after the consummation
of the Consolidation, the Holding Company and Heritage will take
appropriate action to effectuate a merger of the Code
Section 401(k) portion of the Heritage ESOP and the BCB 401(k)
Plan; (vi) effective for the 1998 plan year, beginning after
January 1, 1998, a 75 percent employer matching contribution up
to 6 percent of an employee's Code Section 401(k) elective
deferrals shall be provided under the BCB 401(k) Plan for a
period of at least 5 plan years; (vii) as of the Effective Date,
the BCB 401(k) Plan shall be amended to provide for 100 percent
immediate vesting in all employer matching contributions;
(viii) as of the Effective Date, employees of Heritage and BCB
shall be eligible to participate in a money purchase pension plan
to be established by the Holding Company subject to the
successful consummation of the Consolidation; (ix) the money
purchase pension plan shall provide for an employer fixed
contribution of 3 percent of an eligible employee's compensation,
provide for prior service credit for employees of Heritage and
BCB and shall establish a vesting schedule providing for 20
percent vesting for each year of service with complete vesting
upon completion of 5 years of service; (x) following the
Consolidation, the Holding Company will adopt the Heritage Blue
Cross/Blue Shield Plan, the Heritage Short-Term and Long-Term
Disability Plans and the BCB Group Life Insurance Plan; (xi) the
Holding Company will adopt a flexible benefits plan under Code
Section 125 similar to the Heritage Flexible Benefits Plan which
existed as of the date of the Agreement; (xii) with respect to
any other welfare benefit plans of BCB and Heritage, the Holding
Company shall undertake a study, in consultation with appropriate
professional advisors, with a view toward the possible
combination of some or all such plans or the benefits provided
thereunder; (xiii) following such study, the Holding Company
shall take such action with respect to such plans (which may
include the implementation of new benefits, reduction or
elimination of some benefits, and/or the alteration of the
respective cost allocation between employer and employee) as it
deems appropriate under the circumstances; (xiv) Heritage and BCB
will continue to administer their respective bonus programs and
arrangements through the Effective Date; (xv) as of the date of
the Agreement, and through the Effective Date, neither Heritage
or BCB may grant further benefits or awards under any Heritage or
BCB plan to employees or directors, including, without
limitation, the granting of stock options, stock appreciation
rights, restricted stock, and performance shares except that,
consistent with past practice, Heritage may grant in 1998
Heritage Options for up to an aggregate of 48,000 shares of
Heritage Common Stock. In February 1998, Heritage did grant
options to acquire 41,500 shares of Heritage Common Stock. BCB
may make its annual grant of common stock to Nelson R. Oswald and
Robert D. McHugh, Jr.
Accounting Treatment
The Consolidation is intended to qualify as a pooling
of interests for accounting and financial reporting purposes.
Under this method of accounting, the recorded assets and
liabilities of BCB and Heritage will be carried forward to the
Holding Company at their recorded amounts; income of the Holding
Company will include income of both BCB and Heritage for the
entire fiscal year of BCB and Heritage in which the Consolidation
occurs; and the reported income of the separate corporations for
prior periods will be combined and restated as income of the
Holding Company.
It is a condition to completion of the Consolidation
that BCB and Heritage each receive an opinion from Beard &
Company, the independent accountant for both BCB and Heritage,
confirming that the Consolidation will qualify as a pooling of
interests for financial accounting purposes.
As of the date of this Proxy Statement/Prospectus,
neither BCB nor Heritage has any reason to believe that their
respective independent auditors will be unable to deliver an
opinion that the will qualify as a pooling of interests for
financial accounting purposes.
Certain Federal Income Tax Consequences
Completion of the Consolidation is conditioned upon
there being delivered to BCB and Heritage an opinion of Stevens &
Lee, P.C., counsel to BCB, that for federal income tax purposes,
under current law, assuming that the Consolidation and related
transactions will take place as described in the Agreement, among
other things, the Consolidation will constitute a reorganization
within the meaning of Section 368(a) of the Code, and BCB and
Heritage will each be a party to the reorganization within the
meaning of Section 368(b) of the Code.
In that case, in the opinion of Stevens & Lee, P.C.,
the following would be the material federal income tax
consequences of the Merger:
(i) no gain or loss will be recognized by BCB or
Heritage in the Consolidation;
(ii) no gain or loss will be recognized by
holders of shares of BCB Common Stock or Heritage Common Stock
upon their receipt of Holding Company Common Stock in exchange
for their BCB Common Stock and Heritage Common Stock, except that
shareholders who receive cash proceeds for fractional interests
in Holding Company Common Stock will recognize gain or loss equal
to the difference between such proceeds and the tax basis
allocated to their fractional share interests, and such gain or
loss will constitute capital gain or loss if their BCB Common
Stock or Heritage Common Stock is held as a capital asset at the
Effective Date;
(iii) the tax basis of the shares of Holding
Company Common Stock (including fractional share interests)
received by the shareholders of BCB and Heritage will be the same
as the tax basis of their respective shares of BCB Common Stock
and Heritage Common Stock exchanged therefor; and
(iv) the holding period of the Holding Company
Common Stock in the hands of the BCB and Heritage shareholders
will include the holding period of their BCB Common Stock and
Heritage Common Stock exchanged therefor, provided such BCB
Common Stock and Heritage Common Stock is held as a capital asset
at the Effective Date.
Under the Agreement, the condition that Stevens & Lee,
P.C. deliver the opinions described above can be waived by BCB
and Heritage, respectively. However, in the event that the
delivery of such opinions of counsel is waived, or such opinions
would otherwise set forth tax consequences materially different
to a shareholder than those described above, BCB and Heritage
intend to resolicit proxies.
THE DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION ONLY AND IS BASED ON CURRENTLY EXISTING PROVISIONS OF
THE CODE, EXISTING AND PROPOSED TREASURY REGULATIONS THEREUNDER,
AND CURRENT ADMINISTRATIVE RULINGS AND COURT DECISIONS. ALL OF
THE FOREGOING ARE SUBJECT TO CHANGE AND ANY SUCH CHANGE COULD
AFFECT THE CONTINUING VALIDITY OF THE DISCUSSION. THE DISCUSSION
IS NOT A COMPLETE DESCRIPTION OF ALL THE FEDERAL INCOME TAX
CONSEQUENCES OF THE CONSOLIDATION AND, IN PARTICULAR, DOES NOT
ADDRESS TAX CONSIDERATIONS THAT MAY AFFECT THE TREATMENT OF
SHAREHOLDERS WHO ACQUIRED THEIR BCB COMMON STOCK OR HERITAGE
COMMON STOCK PURSUANT TO THE EXERCISE OF EMPLOYEE STOCK OPTIONS
OR OTHERWISE AS COMPENSATION, OR SHAREHOLDERS WHICH ARE EXEMPT
ORGANIZATIONS OR WHO ARE NOT CITIZENS OR RESIDENTS OF THE UNITED
STATES. EACH SHAREHOLDER'S INDIVIDUAL CIRCUMSTANCES MAY AFFECT
THE TAX CONSEQUENCES OF THE CONSOLIDATION TO SUCH SHAREHOLDER.
IN ADDITION, NO INFORMATION IS PROVIDED HEREIN WITH RESPECT TO
THE TAX CONSEQUENCES OF THE CONSOLIDATION UNDER APPLICABLE STATE,
LOCAL, OR FOREIGN LAWS. ACCORDINGLY, EACH BCB AND HERITAGE
SHAREHOLDER IS ADVISED TO CONSULT A TAX ADVISOR AS TO THE
SPECIFIC TAX CONSEQUENCES OF THE CONSOLIDATION TO SUCH
SHAREHOLDER.
Expenses
BCB and Heritage will each pay all costs and expenses
incurred by it in connection with the transactions contemplated
by the Agreement, including fees and expenses of financial
consultants, accountants and legal counsel, except that the cost
of printing and mailing this Proxy Statement/Prospectus will be
shared equally by BCB and Heritage.
Resale of Holding Company Common Stock
The Holding Company Common Stock issued pursuant to the
Consolidation will be freely transferable under the Securities
Act except for shares issued to any shareholder of BCB or
Heritage who may be deemed to be an "affiliate" of BCB or
Heritage for purposes of Rule 145 under the Securities Act or an
affiliate of the Holding Company for purposes of Rule 144
promulgated under the Securities Act (each an "Affiliate").
Affiliates will include persons (generally executive officers,
directors and 10% shareholders) who control, are controlled by or
are under common control with (i) BCB or Heritage at the time of
the Meetings or (ii) the Holding Company at or after the
Effective Date.
Rules 144 and 145 will restrict the sale of Holding
Company Common Stock received in the Consolidation by Affiliates
and certain of their family members and related interests.
Generally, during the year following the Effective Date, those
persons who are Affiliates of BCB or Heritage at the time of the
Meetings, provided they are not Affiliates of the Holding Company
at or following the Effective Date, may publicly resell any
Holding Company Common Stock received by them in the
Consolidation, subject to certain limitations as to, among other
things, the amount of the Holding Company Common Stock sold by
them in any three-month period and as to the manner of sale.
After the year period, such Affiliates may resell their shares
without such restriction so long as there is adequate current
public information with respect to the Holding Company as
required by Rule 144. Persons who are Affiliates of the Holding
Company after the Effective Date may publicly resell the Holding
Company Common Stock received by them in the Consolidation
subject to similar limitations and subject to certain filing
requirements specified in Rule 144.
The ability of Affiliates to resell shares of Holding
Company Common Stock received in the Consolidation under Rule 144
or Rule 145 as summarized herein generally will be subject to the
Holding Company's having satisfied its Exchange Act reporting
requirements for specified periods prior to the time of sale.
Affiliates also would be permitted to resell Holding Company
Common Stock received in the Consolidation pursuant to an
effective registration statement under the Securities Act or
another available exemption from the Securities Act regulations
requirements. This Proxy Statement/Prospectus does not cover any
resales of Holding Company Common Stock received by persons who
may be deemed to be Affiliates.
Each director and executive officer of BCB and Heritage
has entered into an agreement with Heritage and BCB,
respectively, providing that, as an affiliate, he or she will not
transfer any Holding Company Common Stock received in the
Consolidation except in compliance with the Securities Act and
will make no dispositions of any BCB Common Stock, Heritage
Common Stock, or Holding Company Common Stock (or any interest
therein), as the case may be, during the period commencing 30
days prior to the Effective Date through the date on which
financial results covering at least 30 days of operations of the
Holding Company after the Consolidation have been made public.
Dissenters' Rights
Pursuant to the BCL, shareholders of BCB and Heritage
have the right to dissent from the Consolidation, and to obtain
payment of the "fair value" (as defined therein) of their BCB
Common Stock or Heritage Common Stock, as the case may be, if the
Consolidation is consummated. The term "fair value" means the
value of BCB Common Stock or Heritage Common Stock immediately
before completion of the Consolidation, taking into account all
relevant factors, but excluding any appreciation or depreciation
in anticipation of the Consolidation.
The following summary of the steps to be taken if the
right to dissent is to be exercised is qualified in its entirety
by the full text of Section 1930 and Subchapter D of Chapter 15
of the BCL, which are attached as Annex F to this Proxy
Statement/Prospectus. Each step must be taken in the indicated
order and in strict compliance with the applicable provisions of
the statute in order to perfect dissenters' rights. The failure
of any shareholder to comply with the aforesaid steps will result
in the shareholder receiving the consideration contemplated by
the Agreement. See "THE CONSOLIDATION -- Terms of the
Consolidation." Any shareholder of BCB or Heritage who
contemplates exercising the right to dissent is urged to read
carefully the provisions of Section 1930 and Subchapter D of
Chapter 15 of the BCL.
Any written notice or demand which is required in
connection with the exercise of dissenters' rights, whether
before or after the Effective Date, must be sent, in the case of
a BCB shareholder, to BCB, 400 Washington Street, Reading,
Pennsylvania 19601 (Attention: Patricia A. Yocum, Assistant
Secretary), and, in the case of a Heritage shareholder, 120 South
Centre Street, Pottsville, Pennsylvania (Attention: Richard A.
Ketner, Secretary).
A shareholder who wishes to dissent must file with BCB
or Heritage, as the case may be, prior to the vote of
shareholders on the Consolidation at the BCB Special Meeting or
the Heritage Special Meeting, as the case may be, a written
notice of intention to demand that he be paid the fair value for
his shares of BCB Common Stock or Heritage Common Stock, as the
case may be, if the Consolidation is effected, must effect no
change in the beneficial ownership of his BCB Common Stock or
Heritage Common Stock, as the case may be, from the date of such
filing through the Effective Date, and must refrain from voting
his BCB Common Stock or Heritage Common Stock, as the case may
be, to approve the Consolidation. Neither a proxy nor a vote
against approval of the Consolidation will constitute the
necessary written notice of intention to dissent. A beneficial
owner of BCB Common Stock or Heritage Common Stock whose shares
are held of record in "street name" by a brokerage firm or other
nominee must obtain the written consent of such record holder to
such beneficial owner's exercise of dissenters' rights and must
submit such consent to BCB or Heritage, as the case may be, no
later than the time of the filing of his notice of intention to
dissent.
If the Consolidation is approved by the required vote
of BCB's and Heritage's shareholders at the Meetings, BCB and
Heritage will mail a notice to all dissenters who gave due notice
of intention to demand payment and who refrained from voting in
favor of the Consolidation. The notice will state where and when
a demand for payment must be sent and certificates for BCB Common
Stock and Heritage Common Stock must be deposited in order to
obtain payment, and will include a form for demanding payment and
a copy of Subchapter D of Chapter 15 of the BCL. The time set
for receipt of the demand for payment and deposit of stock
certificates will not be less than 30 days from the date of
mailing of the notice.
A shareholder who fails to timely demand payment or
fails to timely deposit stock certificates, as required by BCB's
or Heritage's notice, as the case may be, will not have any right
to receive payment of the fair value of his BCB Common Stock or
Heritage Common Stock, as the case may be.
Promptly after completion of the Consolidation, or upon
timely receipt of demand for payment if the Consolidation already
has been completed, the Holding Company will either remit to
dissenters who have made demand and have deposited their stock
certificates the amount that the Holding Company, as successor to
BCB and Heritage, estimates to be the fair value of the BCB and
Heritage Common Stock or give written notice that no such
remittance is being made. The remittance or notice will be
accompanied by (i) a closing balance sheet and an income
statement of BCB or Heritage, as the case may be, for a fiscal
year ending not more than 16 months before the date of
remittance, together with the latest available interim financial
statements, (ii) a statement of the Holding Company's estimate of
the fair value of the BCB Common Stock or Heritage Common Stock,
as the case may be, and (iii) notice of the right of the
dissenter to demand payment or supplemental payment under the
BCL, as the case may be, accompanied by a copy of Subchapter D of
Chapter 15 of the BCL. If the Holding Company does not remit the
estimated fair value for shares with respect to which demand for
payment has been made and stock certificates have been deposited,
then the Holding Company will return any certificates that have
been deposited. Returned certificates, and any certificates
subsequently issued in exchange therefor, will be marked to
record the fact that demand for payment has been made.
Transferees of shares so marked shall not acquire any rights in
BCB, Heritage or the Holding Company other than those rights held
by the original dissenter after such dissenter demanded payment
of fair value.
If a dissenter believes that the amount stated or
remitted by the Holding Company is less than the fair value of
the BCB Common stock or Heritage Common Stock, he may send the
Holding Company his own estimate of the fair value of the BCB
Common Stock or Heritage Common Stock, as the case may be, which
shall be deemed to be a demand for payment of the amount of the
deficiency. If the Holding Company remits payment of its
estimated value of a dissenter's BCB Common Stock or Heritage
Common Stock, as the case may be, and the dissenter does not file
his own estimate within 30 days after the mailing by the Holding
Company of its remittance, the dissenter will be entitled to no
more than the amount remitted to him by the Holding Company.
Within 60 days after the latest to occur of completion
of the Consolidation, timely receipt by BCB, Heritage or the
Holding Company, as the case may be, of any demands for payment,
or timely receipt by BCB, Heritage or the Holding Company, as the
case may be, of any estimates by dissenters of fair value, if any
demands for payment remain unsettled, BCB, Heritage or the
Holding Company, as the case may be, may file, in the case of BCB
and the Holding Company, in the Court of Common Pleas of Berks
County or, in the case of Heritage, in the Court of Common Pleas
of Schuylkill County, an application requesting that the fair
value of the BCB Common Stock or Heritage Common Stock be
determined by the Court. In such case, all dissenters, wherever
residing, whose demands have not been settled shall be made
parties to the proceeding as in an action against their shares,
and a copy of the application shall be served on each such
dissenter.
If BCB, Heritage or the Holding Company, as the case
may be, were to fail to file such an application, then any
dissenter, on behalf of all dissenters who have made a demand and
who have not settled their claim against BCB, Heritage or the
Holding Company, as successor, may file an application in the
name of BCB, Heritage or the Holding Company, as successor, at
any time within the 30-day period after the expiration of the
60-day period and request that the fair value be determined by
the Court. The fair value determined by the Court may, but need
not, equal the dissenters' estimates of fair value. If no
dissenter files such an application, then each dissenter entitled
to do so shall be paid BCB's, Heritage's or the Holding
Company's, as the case may be, estimate of the fair value of the
BCB Common Stock or Heritage Common Stock, as the case may be,
and no more, and may bring an action to recover any amount not
previously remitted, plus interest at a rate the Court finds fair
and equitable.
BCB, Heritage and/or the Holding Company, as the case
may be, intend to negotiate in good faith with any dissenting
shareholder. If after negotiation, a claim cannot be settled,
then BCB, Heritage and/or the Holding Company, as successor,
intends to file an application requesting that the fair value of
the BCB Common Stock or Heritage Common Stock, as the case may
be, be determined by the Court.
INTERESTS OF CERTAIN PERSONS IN THE CONSOLIDATION
Certain members of the management and Boards of
Directors of BCB, Heritage and their respective subsidiaries may
be deemed to have interests in the Consolidation in addition to
their interests, if any, in BCB Common Stock or Heritage Common
Stock. The BCB and Heritage Boards of Directors were aware of
these factors and considered them, among other matters, in
approving the Agreement and the transactions contemplated
thereby.
Stock Options
As of the BCB Record Date, the directors and
executive officers of BCB beneficially own approximately 511,643
shares of BCB Common Stock and BCB Options to purchase 136,843
shares of BCB Common Stock. On the Effective Date, each BCB
Option, whether or not such BCB Option is exercisable on the
Effective Date, shall be converted on the Effective Date into and
become an option to acquire that number of shares of Holding
Company Common Stock equal to the number of shares of BCB Common
Stock covered by the BCB Option multiplied by the BCB Exchange
Ratio, at an exercise price equal to the present stated exercise
price of such option divided by the BCB Exchange Ratio. Shares
issuable upon the exercise of such options to acquire Holding
Company Common Stock shall be issuable in accordance with the
terms of the respective plans and grant agreements of BCB under
which they were issued.
As of the Heritage Record Date, the directors and
executive officers of Heritage beneficially own approximately
261,105 shares of Heritage Common Stock, including 4,811 shares
allocated on their behalf under Heritage's ESOP, and Heritage
Options to purchase 72,376 shares of Heritage Common Stock. On
the Effective Date, each Heritage Option, whether or not such
Heritage Option is exercisable on the Effective Date, shall be
converted on the Effective Date into and become an option to
acquire that number of shares of Holding Company Common Stock
equal to the number of shares of Heritage Common Stock covered by
the Heritage Option multiplied by the Heritage Exchange Ratio, at
an exercise price equal to the present stated exercise price of
such option divided by the Heritage Exchange Ratio. Shares
issuable upon the exercise of such options to acquire Holding
Company Common Stock shall be issuable in accordance with the
terms of the respective plans and grant agreements of Heritage
under which they were issued.
The value of the Holding Company options, if any,
will be dependent on the value of Holding Company Common Stock
which cannot be predicted at this time.
Indemnification; Directors and Officers Insurance
BCB and Heritage have agreed in the Agreement that, on
or after the Effective Date, the Holding Company shall indemnify,
defend and hold harmless all prior and then-existing directors,
officers and employees of BCB, Heritage and their respective
subsidiaries against (i) all losses, claims, damages, costs,
expenses, liabilities or judgments or amounts that are paid in
settlement (with the approval of the Holding Company) of or in
connection with any claim, action, suit, proceeding or
investigation based in whole or in part on or arising in whole or
in part out of the fact that such person is or was a director,
officer or employee of BCB, Heritage or their respective
subsidiaries, whether pertaining to any matter existing or
occurring at or prior to the Effective Date and whether asserted
or claimed prior to, or at or after, the Effective Date
("Indemnified Liabilities") and (ii) all Indemnified Liabilities
based in whole or in part on, or arising in whole or in part out
of, or pertaining to the Agreement or the transactions
contemplated by the Agreement, to the same extent as such
officer, director or employee would be indemnified by BCB,
Heritage or their respective subsidiaries as of November 18,
1997, including the right to advancement of expenses, provided,
however, that any such officer, director or employee may not be
indemnified by the Holding Company if such indemnification is
prohibited by applicable law.
BCB and Heritage have agreed in the Agreement that the
Holding Company will maintain a directors' and officers'
liability insurance policy providing coverage amounts not less
than the greater of coverage amounts provided under the BCB or
Heritage directors' and officers' liability insurance policy and
on terms generally no less favorable, including BCB's or
Heritage's existing policy if it meets the foregoing standard.
The Holding Company's directors' and officers' insurance policy
will cover for a period of at least six years after the Effective
Date persons who are currently covered by the BCB and Heritage
insurance policies.
Continued Employment
The initial Board of Directors of the Holding Company
will consist of 13 members. Seven members will be designated by
the Board of Directors of BCB and six members will be designated
by the Board of Directors of Heritage. For information
concerning the persons who have been designated to be members of
the Board of Directors of the Holding Company, see "DESCRIPTION
OF THE HOLDING COMPANY -- Board and Management." Nelson R.
Oswald will be the Chairman of the Board of Directors of the
Holding Company and Albert L. Evans, Jr., Chairman of Heritage,
will be the Vice Chairman of the Board of Directors of the
Holding Company.
On the Effective Date, the executive officers of the
Holding Company will be as follows:
Nelson R. Oswald - Chairman and Chief Executive
Officer
Allen E. Kiefer - President and Chief Operating
Officer
Robert D. McHugh, Jr. - Executive Vice President and
Chief Financial Officer
Richard A. Ketner - Executive Vice President and
Chief Administrative Officer
The Board of Directors and executive officers of Berks
County Bank in office immediately prior to completion of the
Consolidation will remain as Berks County Bank's Board of
Directors and executive officers, except that, upon completion of
the Consolidation, (i) Allen E. Kiefer will be appointed an
officer and member of the Board of Directors of Berks County Bank
with the title of Vice Chairman and (ii) Richard A. Ketner will
be appointed Executive Vice President of Berks County Bank.
The Board of Directors and executive officers of
Heritage National Bank in office immediately prior to completion
of the Consolidation will remain as Heritage National Bank's
Board of Directors and executive officers, except that
(i) Nelson R. Oswald will be appointed as an officer and member
of the Board of Directors of Heritage National Bank with the
title of Vice Chairman and (ii) Robert D. McHugh will be
appointed Executive Vice President and Chief Financial Officer of
Heritage National Bank.
Employment Agreements
The Agreement provides that on or before the
Effective Date, BCB and Berks County Bank will use their best
efforts to amend the employment agreements of Nelson R. Oswald
and Robert D. McHugh, Jr. and Heritage and Heritage National Bank
will use their best efforts to amend the employment agreements of
Allen E. Kiefer and Richard A. Ketner so that such agreements
contain customary change in control provisions, will provide
salaries and benefits comparable to salaries and benefits payable
to executive officers at companies that will be peer companies of
the Holding Company and otherwise will be substantially identical
in form. As of the date hereof no amendments to the employment
agreements of Messrs. Oswald, Kiefer, McHugh and Ketner have been
executed. However, based on aggregate compensation paid by peer
companies, BCB and Heritage estimate that the aggregate range of
compensation for each of the four named individuals will be as
follows. Mr. Oswald - $______ to $______; Mr. Kiefer - $______
to $______; Mr. McHugh - $_______ to $_______; and Mr. Ketner -
$______ to $______.
The Agreement provides that on or before the
Effective Date, Heritage and Heritage National Bank, and BCB and
Berks County Bank, as applicable, will use their best efforts to
amend the existing employment or change in control agreement, or
enter into a new change in control agreement, with the following
individuals: Sherelyn A. Ammon, Steven A. Ehrlich, Norman E.
Heilenman, Donna L. Rickert, Dorothy I. Krick, David L. Scott,
David L. Snyder, Marie M. Umbriac and Mary Jo Wright. The new
change in control agreements will be substantially identical in
form. Although no new change of control agreements have been
executed, BCB and Heritage anticipate that such agreements will
provide for salary continuation of up to [one] year in the event
an employee is terminated or leaves for "good reason" (as
defined) after a change in control of the Holding Company.
Change in Control Agreements
Heritage has entered into change in control agreements with
Messrs. Allen E. Kiefer, Richard A. Ketner, David L. Scott and
David L. Snyder. Under the terms of the agreements, in the event
an executive officer's employment terminates within three years
after a change in control and such termination constitutes
"Termination Pursuant to a Change in Control" (as defined in the
change in control agreements), the executive will be entitled to
receive, for three years following such termination, annual
compensation equal to the greater of the executive's base salary
in effect immediately prior to the Termination Pursuant to a
Change in Control or the base salary in effect prior to the
change in control, plus any cash bonuses or annual incentive cash
compensation earned by the executive in the calendar year
immediately preceding the Termination Pursuant to a Change in
Control. A change in control may occur in connection with,
among other things, the occurrence of, or execution of an
agreement providing for, a merger, consolidation, reorganization
or similar transaction involving Heritage or Heritage National
Bank. The execution of the Agreement will be deemed to be a
change in control under the change in control agreements. The
change in control agreements also require the continuation of
life, disability and accident and health insurance coverages
comparable to plan coverages in effect at the time of executive's
Termination Pursuant to a Change in Control for a period of three
years.
If (i) any payment or benefit received or receivable by an
executive under the change in control agreements would not be
deductible in whole or in part by the payor as a result of
Section 280G of the Code and (ii) a reduction in such payment or
benefit of no greater than 5% would result in full deductibility
of all payments and benefits, then such payment or benefit will
be reduced by the minimum amount, not exceeding 5%, necessary to
achieve full deductibility. If a 5% reduction is not sufficient
to achieve full deductibility, then no reduction will be made and
the provisions of the following paragraph will apply.
If the total of all payments made to an executive upon a
Termination Pursuant to a Change in Control, together with any
other payments which the executive has a right to receive, would
result in the imposition of an excise tax under Code Section 4999
(or any successor thereto), the executive will be entitled to an
additional "excise tax" adjustment payment in an amount such
that, after the payment of all federal and state income and
excise taxes, the executive will be in the same after-tax
position as if no excise tax had been imposed.
For a description of the rights of Messrs. Oswald and McHugh
in connection with a change in control of BCB or Berks County
Bank, see "DESCRIPTION OF BCB -- Executive Employment
Agreements."
Pension and ESOP Plans
In accordance with the terms of the Agreement, the
Code Section 4975 portion of the Heritage ESOP will be terminated
in connection with the Consolidation. Heritage ESOP participants
will automatically become 100% vested in all employer
contributions allocated to their accounts up through the
termination of the Heritage ESOP.
In accordance with the terms of the Agreement, Heritage
will be permitted to proceed with the benefit accrual freeze and
termination of the Heritage Pension Plan. As of December 31,
1997, the most recent valuation date, the Heritage Pension Plan
was not in an underfunded status. To the extent the Heritage
Pension Plan is overfunded on termination, excess assets will be
allocated among active plan participants in accordance with the
provisions of the amended plan document.
CERTAIN RELATED TRANSACTIONS
Reciprocal Stock Option Agreements
Concurrently with the execution and delivery of the
Agreement, and as a condition and inducement thereto, BCB and
Heritage entered into (i) the BCB Stock Option Agreement pursuant
to which Heritage granted BCB an option to purchase up to 947,041
shares of Heritage Common Stock (or such greater number of shares
of Heritage Common Stock as shall represent 19.9% of the then
outstanding Heritage Common Stock) at a price per share of
$22.875 and (ii) the Heritage Stock Option Agreement pursuant to
which BCB granted Heritage an option to purchase up to 690,516
shares of BCB Common Stock (or such greater number of shares of
BCB Common Stock as shall represent 19.9% of the then outstanding
BCB Common Stock) at a price per share of $22.375.
The following is a summary of the material provisions
of the BCB Stock Option Agreement and the Heritage Stock Option
Agreement, which are attached as Annexes B an C, respectively, to
this Proxy Statement/Prospectus and are incorporated herein by
reference. The following summary is qualified in its entirety by
reference to the Stock Option Agreements. The terms of the Stock
Option Agreements are identical in all material respects other
than with respect to the shares which may be purchased pursuant
thereto and the exercise prices.
The options are exercisable, in whole or in part, at
any time or one or more times, or from time to time upon the
occurrence of a Triggering Event (as defined below), provided
that (i) the grantee of the relevant option is not, on the date
of exercise, in material breach of the agreements or covenants
contained in the Agreement or the reciprocal Stock Option
Agreements, and (ii) no preliminary or permanent injunction or
other order against the delivery of shares covered by the
relevant option issued by any court of competent jurisdiction in
the United States shall be in effect on the date of exercise,
upon or after the occurrence of a Triggering Event.
The term "Triggering Event" means the occurrence of any
of the following events:
(i) a person or group (as such terms are defined
in the Exchange Act and the rules and regulations
thereunder), other than the relevant grantee or an affiliate
of relevant grantee, acquires beneficial ownership (within
the meaning of Rule 13d-3 under the Exchange Act) of 25% or
more of the then outstanding shares of the common stock of
the relevant grantor (excluding any shares eligible to be
reported on Schedule 13G of the Commission); or
(ii) a person or group, other than the relevant
grantee or an affiliate of the relevant grantee, enters into
an agreement or letter of intent or memorandum of
understanding with the relevant grantor or the relevant
grantor shall have authorized, recommended or publicly
proposed, or publicly announced an intention to authorize,
recommend or propose, such an agreement or letter of intent
or memorandum of understanding, pursuant to which such
person or group or any affiliate of such person or group
would (i) merge or consolidate, or enter into any similar
transaction, with the relevant grantor, (ii) acquire all or
substantially all of the assets or liabilities or the
relevant grantor or all or substantially all of the assets
or liabilities of the relevant grantor's bank subsidiary (or
any successor subsidiary), or (iii) acquire beneficial
ownership of securities representing, or the right to
acquire beneficial ownership or to vote securities
representing, 25% or more of the then outstanding shares of
the relevant grantor's common stock (excluding any shares
eligible to be reported on Schedule 13G of the Commission)
or the then outstanding shares of common stock of the
relevant grantor's bank subsidiary.
Each option shall terminate and be of no further force
and effect upon the earliest to occur of (A) the Effective Date,
(B) termination of the Agreement in accordance with the terms
thereof prior to the occurrence of a Triggering Event or a
Preliminary Triggering Event (as such term is hereinafter
defined), other than a termination of the Agreement due to an
uncured material breach of any material covenant, undertaking or
representation of warranty, contained in the Agreement which
would have a Material Adverse Effect, unless in the case of
termination by the relevant grantor due to such breach, the
termination is as a result of a willful breach of the Agreement
by the relevant grantee (a termination due to an uncured material
breach of any material covenant, undertaking or representation of
warranty, contained in the Agreement which would have a Material
Adverse Effect, except a termination by the relevant grantor as a
result of a willful breach by the relevant grantee, being
referred to herein as a "Default Termination"), (C) 18 months
after the termination of the Agreement by BCB or Heritage
pursuant to a Default Termination, or (D) 18 months after
termination of the Agreement (other than pursuant to a Default
Termination) following the occurrence of a Triggering Event or a
Preliminary Triggering Event; and provided, further, that any
purchase of shares upon exercise of the option shall be subject
to compliance with applicable securities and banking laws.
The term "Preliminary Triggering Event" means the
occurrence of any of the following events:
(i) a person or group (as such terms are
defined in the Exchange Act and the rules and regulations
thereunder), other than the relevant grantee or an affiliate
of the relevant grantee, acquires beneficial ownership
(within the meaning of Rule 13d-3 under the Exchange Act) of
10% or more of the then outstanding shares of common stock
of the relevant grantor (excluding any shares eligible to be
reported on Schedule 13G of the Commission);
(ii) a person or group, other than the
relevant grantee or an affiliate of the relevant grantee,
publicly announces a bona fide proposal (including a written
communication that is or becomes the subject of public
disclosure) for (i) any merger, consolidation or acquisition
of all or substantially all the assets or liabilities of the
relevant grantor or all or substantially all the assets or
liabilities of the relevant grantor or any other business
combination involving the relevant grantor or the relevant
grantor's bank subsidiary, or (ii) a transaction involving
the transfer of beneficial ownership of securities
representing, or the right to acquire beneficial ownership
or to vote securities representing, 10% or more of the then
outstanding shares of common stock or the then outstanding
shares of common stock of the relevant grantor's bank
subsidiary (collectively, a "Proposal"), and thereafter, if
such Proposal has not been Publicly Withdrawn (as such term
is hereinafter defined) at least 30 days prior to the
meeting of shareholders of the relevant grantor called to
vote on the Consolidation, the relevant grantor's
shareholders fail to approve the Consolidation by the vote
required by applicable law at the meeting of shareholders
called for such purpose or such meeting has been cancelled;
or
(iii) the Board of Directors of the relevant
grantor shall (A) exercise its right under the Agreement to
respond to unsolicited inquiries relating to an Acquisition
Transaction, (B) fail to recommend the Consolidation,
(C) recommend an Acquisition Transaction or (D) have
withdrawn or modified in a manner adverse to the relevant
grantee the recommendation of the Board of Directors of the
relevant grantor with respect to the Agreement and
thereafter the relevant grantor's shareholders fail to
approve the Consolidation by the vote required by law at the
meeting of shareholders called for such purpose or such
meeting is not scheduled or is cancelled without the written
consent of the relevant grantee; or
(iv) a person or group, other than the
relevant grantee or an affiliate of the relevant grantee,
makes a bona fide Proposal and thereafter, but before such
Proposal has been Publicly Withdrawn, the relevant grantor
shall have breached any representation, warranty, covenant
or obligation contained in the Agreement and such breach
would entitle the relevant grantee to terminate the
Agreement as a Default Termination (without regard to the
cure period provided for therein unless such cure is
promptly effected without jeopardizing consummation of the
Consolidation pursuant to the Agreement).
The term "Publicly Withdrawn" means an unconditional
bona fide withdrawal of the Proposal coupled with a public
announcement of no further interest in pursuing such Proposal or
in acquiring any controlling influence over the relevant grantor
or in soliciting or inducing any other person (other than BCB or
an affiliate of the relevant grantee) to do so.
The reciprocal Stock Option Agreements provide that the
relevant grantee may require, under certain circumstances, the
relevant grantee to repurchase the option and all shares of
Common Stock of the relevant grantor purchased by the relevant
grantee pursuant to the option on the terms and conditions set
forth in the Stock Option Agreement. The relevant grantor's
repurchase of the option or the relevant grantor's repurchase of
any of the shares of Common Stock of the relevant grantor
purchased by the relevant grantee pursuant to the option could
have the effect of precluding a potential acquiror of the
relevant grantor from accounting for the acquisition of the
relevant grantor as a pooling of interests for financial
accounting purposes.
In the event of any change in common stock of a
relevant grantee by reason of stock dividends, split-ups,
recapitalizations, combinations, conversions, divisions,
exchanges of shares or the like, the number and kind of shares
issuable pursuant to the applicable option will be adjusted
appropriately.
The reciprocal Stock Option Agreements provide for
certain registration rights with respect to shares of common
stock issuable upon exercise of the options.
The reciprocal Stock Option Agreements, together with
(i) BCB's and Heritage's mutual agreement to not solicit other
transactions relating to the acquisition of BCB and Heritage,
respectively, by a third party (see "THE CONSOLIDATION -- No
Solicitation of Transactions"), (ii) the agreement of BCB's
directors and executive officers to vote their shares of BCB
Common Stock in favor of the Agreement and (iii) the agreement of
directors of Heritage who voted in favor of the Agreement and
each of the executive officers of Heritage to vote their shares
of Heritage Common Stock in favor of the Agreement, are intended
to increase the likelihood that the Consolidation will be
completed in accordance with the terms of the Agreement and may
have the effect of discouraging competing offers to the
Consolidation.
DESCRIPTION OF THE HOLDING COMPANY
General
Upon the Effective Date of the Consolidation, the
Holding Company will succeed to all the business, properties and
assets, and become subject to all of the debts, obligations and
liabilities, of both BCB and Heritage. The Holding Company's
sole business will be to act as a holding company for the present
subsidiaries of BCB and Heritage, the principal two subsidiaries
being Berks County Bank and Heritage National Bank.
Board and Management
The business and affairs of the Holding Company will be
managed by a Board of Directors which will initially consist of
13 members. In accordance with the Agreement, seven of such
members have been designated by BCB, and six by Heritage. The
Board is divided into three classes. The term of office of each
director will be three years, except that (i) the term of office
of the initial Class I directors will expire at the first annual
meeting of shareholders after the Effective Date, (ii) the term
of office of the initial Class II directors will expire at the
second annual meeting of shareholders after the Effective Date,
and (iii) the term of office of the initial Class III directors
will expire at the third annual meeting of shareholders after the
Effective Date.
The 13 persons to serve as the initial directors of the
Holding Company, each of whom is presently a director of BCB or
Heritage, are listed below. Each such individual has indicated a
willingness to serve as a director of the Holding Company if the
Consolidation is effected. If, prior to the Effective Date, any
such individual is unable or unwilling to serve as a director of
the Holding Company, the Board of Directors of BCB, if such
person was designated by BCB, or of Heritage, if such person was
designated by Heritage, shall designate another person to serve
in such person's stead.
Corporation of Which a
Director and Year First
Class and Name Elected
Class I Richard D. Biever Heritage (1995)*
Richard T. Fenstermacher Heritage (1991)
Edward J. Edwards BCB (1987)
Ivan H. Gordon BCB (1987)
Class II Frederick A. Gosch Heritage (1995)*
Joseph Schlitzer Heritage (1995)
Alfred B. Mast BCB (1987)
Wesley R. Pace BCB (1987)
Floyd S. Weber BCB (1987)
Class III Nelson R. Oswald BCB (1987)
Albert L. Evans, Jr. Heritage (1995)*
Allen E. Kiefer Heritage (1983)
Jeffrey W. Hayes BCB (1988)
____________________
* Prior to March 1, 1995, named person served as a Director of
Bankers' Financial Services Corporation, which merged into
Miners National Bancorp, Inc. ("Miners") on March 1, 1995,
at which time Miners changed its name to Heritage Bancorp,
Inc.
If any person designated as a director of the Holding
Company by BCB or Heritage shall cease to be a director of the
Holding Company for any reason at any time within three years
after the Effective Date then the directors of the Holding
Company who were directors of BCB, if such person was designated
by BCB, or of Heritage, if such person was designated by
Heritage, shall designate another person to serve in such
person's stead.
The initial officers of the Holding Company have been
designated, and will serve at the pleasure of the Board of
Directors of the Holding Company. These persons, together with
their current positions and positions in the Holding Company, are
listed below. If, prior to the Effective Date of the
Consolidation, any such designated individual is unable or
unwilling to serve in such capacity, the Board of Directors of
the corporation for which such person served as an officer shall
designate another person to serve in such person's stead.
Name and Present Position Position with
The Holding Company
Nelson R. Oswald, Chairman and Chief
Chairman, President and Executive Officer
Chief Executive Officer of BCB
and Berks County Bank
Allen E. Kiefer, President and Chief
President and Chief Executive Operating Officer
Officer of Heritage and
Heritage National Bank
Robert D. McHugh, Jr., Executive Vice
Senior Vice President and President and Chief
Treasurer of BCB and Financial Officer
Berks County Bank
Richard A. Ketner, Executive Vice
Executive Vice President President and Chief
and Secretary of Heritage; Administrative
Executive Vice President Officer
Retail Services and Secretary
of Heritage National Bank
For additional information regarding the executive
officers of BCB and Heritage, see "DESCRIPTION OF BCB -
Management" and "DESCRIPTION OF HERITAGE - Management."
Renumeration of Directors and Officers
The total aggregate remuneration of the directors
and officers of the Holding Company in such capacities will be
approximately equivalent to the remuneration paid to directors
and executive officers at companies that will be peer companies
to the Holding Company. BCB and Heritage anticipate that Holding
Company directors will receive an annual retainer of $2,000, a
$600 fee per meeting and a $300 fee per committee meeting
attended. For information as to the remuneration of the
directors and officers of BCB and Heritage, see "DESCRIPTION OF
BCB - Executive Compensation" and "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE."
Directors and Management of Subsidiaries
Berks County Bank and Heritage National Bank, the
existing banking subsidiaries of BCB and Heritage, respectively,
will remain as separate and independent subsidiaries of the
Holding Company after the Effective Date. Berks County Bank and
Heritage National Bank will operated substantially as they are
presently operated, with substantially the same management,
except that the Consolidation will permit Berks County Bank and
Heritage National Bank to seek ways in which they each can
realize cost savings by consolidating functions.
The Board of Directors and officers of Heritage
National Bank will remain unchanged except that Nelson R. Oswald
will become an officer and member of the Board of Directors of
Heritage National Bank with the title of Vice Chairman and
Robert D. McHugh, Jr. will become the Executive Vice President
and Chief Financial Officer of Heritage National Bank.
Non-employee directors of Heritage National Bank will be paid an
annual retainer of $2,000 (unless such director receives a
retainer for service as a director of the Holding Company), a fee
of $600 per meeting attended and a fee of $300 per committee
meeting attended. The Board of Directors and officers of Berks
County Bank will remain unchanged except that Allen E. Kiefer
will become an officer and member of the Board of Directors of
Berks County Bank with the title of Vice Chairman and Richard A.
Ketner will become an Executive Vice President of Berks County
Bank. Non-employee directors of Berks County Bank will be paid
an annual retainer of $2,000 (unless such director receives a
retainer for service as a director of the Holding Company), a fee
of $600 per meeting attended and a fee of $300 per committee
meeting attended.
Authorized Capital Stock
The authorized capital stock of the Holding Company
will consist of 50,000,000 shares of common stock, par value
$1.00 per share, and 5,000,000 shares of preferred stock. Set
forth below is a brief outline of certain material information
concerning such authorized stock. This summary outline is
qualified by reference to the express terms of the Articles of
Incorporation of the Holding Company which are attached hereto as
Exhibit A to the Articles of Consolidation attached as Exhibit 4
to the Agreement which is attached as Annex A.
Preferred Stock
The preferred stock of the Holding Company may, in the
discretion of the Holding Company Board of Directors, be issued,
from time to time, as a class without series or, if so determined
by the Board of Directors, either in whole or in part, in one or
more series. The Board of Directors will have the power to
determine the par value, voting rights, designations, preferences
and other rights, and the qualifications, limitations and
restrictions thereof, of the preferred stock.
Common Stock
Each share of the Holding Company Common Stock will
have the same relative rights and will be identical in all
respects with every other share of the Holding Company Common
Stock. The holders of the Holding Company will possess exclusive
voting rights in the Holding Company, except to the extent that
shares of preferred stock issued in the future may have voting
rights, if any. Each holder of shares of the Holding Company
Common Stock will be entitled to one vote for each share held of
record on all matters submitted to a vote of holders of shares of
Holding Company Common Stock. Holders of Holding Company Common
Stock will not be entitled to cumulate their votes for election
of directors.
Dividends
The Holding Company may, from time to time, declare
dividends to the holders of Holding Company Common Stock, who
will be entitled to share equally in any such dividends.
Liquidation
In the event of a liquidation, dissolution or winding
up of the Holding Company, each holder of shares of Holding
Company Common Stock would be entitled to receive, after payment
of all debts and liabilities of the Holding Company, a pro rata
portion of all assets of the Holding Company available for
distribution to holders of Holding Company Common Stock. If any
preferred stock is issued, the holders thereof may have a
priority in liquidation or dissolution over the holders of the
Holding Company Common Stock.
Other Characteristics
Holders of the Holding Company Common Stock will not
have preemptive rights with respect to any additional shares of
Holding Company Common Stock that may be issued. The Holding
Company Common Stock is not subject to call for redemption, and
the outstanding shares of Holding Company stock, when issued and
upon receipt by the Holding Company of the full purchase price
therefor, will be fully paid and nonassessable.
For a description of a comparison of the rights of
shareholders of BCB and the Holding Company and of Heritage and
the Holding Company, see "- Comparison of Shareholder Rights of
BCB and the Holding Company" and "- Comparison of Shareholder
Rights of Heritage and the Holding Company."
Market for Holding Company Common Stock and Dividends
The Holding Company will not have issued any capital
stock prior to the Effective Date of the Consolidation.
Consequently, there is no established market for the Holding
Company Common Stock. The Holding Company Common Stock has been
approved for quotation on the Nasdaq Stock Market National Market
System under the symbol "____" upon completion of the
Consolidation.
Managements of both BCB and Heritage believe that those
firms which presently make and maintain a market in BCB Common
Stock and Heritage Common Stock will make and maintain a market
in Holding Company Common Stock after the Effective Date.
Because the Holding Company will be significantly larger and have
a significantly greater number of shares of common stock
outstanding than either BCB or Heritage on an individual basis,
the managements of BCB and Heritage believe that it is reasonable
to expect that an active and liquid market for Holding Company
Common Stock will develop and continue. The development of a
public market having the desirable characteristics of depth,
liquidity and orderliness, however, depends upon the presence in
the marketplace of a sufficient number of willing buyers and
sellers at any given time, over which neither the Holding Company
nor any market maker has any control. Accordingly, there can be
no assurance that an established and liquid market for Holding
Company Common Stock will develop, or if one develops, that it
will continue.
The Holding Company presently intends to pay an annual
dividend of $.56 per share of Holding Company Common Stock.
However, the timing and amount of future dividends, if any, will
depend upon earnings, capital levels, cash requirements, the
financial condition of the Holding Company, Berks County Bank and
Heritage National Bank, applicable government regulations and
policies and other factors deemed relevant by the Holding
Company's Board of Directors, including the amount of dividends
payable to the Holding Company by Berks County Bank and Heritage
National Bank.
The principal source of income and cash flow of the
Holding Company, including cash flow to pay dividends on the
Holding Company Common Stock, is dividends from Berks County Bank
and Heritage National Bank. Various federal and state laws,
regulations and policies limit the ability of Berks County Bank
and Heritage National Bank to pay dividends to the Holding
Company. For certain limitations on Berks County Bank's ability
to pay dividends to the Holding Company, see "DESCRIPTION OF
BCB - Business-Supervision and Regulation" and Note 17 to the
Financial Statements of BCB. For certain limitations on Heritage
National Bank's ability to pay dividends to the Holding Company,
see "Item 1. Business - Dividends" set forth in Heritage's
Annual Report on Form 10-K for the year ended December 31, 1997.
See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
Pennsylvania Anti-Takeover Provisions
The Holding Company will be subject to various
provisions of the BCL which are triggered, in general, if any
person or group acquires, or discloses an intent to acquire, 20%
or more of the voting power of a covered corporation, other than
pursuant to a registered firm commitment underwriting or, in
certain cases, pursuant to the approving vote of the Holding
Company's Board of Directors. The relevant provisions are
contained in Subchapters 25E-H of the BCL.
Subchapter 25E of the BCL (relating to control
transactions) provides that if any person or group acquires 20%
or more of the voting power of a covered corporation, the
remaining shareholders may demand from such person or group the
fair value of their shares, including a proportionate amount of
any control premium.
Subchapter 25F of the BCL (relating to business
combinations) delays for five years and imposes conditions upon
"business combinations" between an "interested shareholder" and
the corporation. The term "business combination" is defined
broadly to include various transactions utilizing a corporation's
assets for purchase price amortization or refinancing purposes.
For this purpose, an "interested shareholder" is defined
generally as the beneficial owner of at least 20% of a
corporation's voting shares.
Subchapter 25G of the BCL (relating to control share
acquisitions) prevents a person who has acquired 20% or more of
the voting power of a covered corporation from voting such shares
unless the "disinterested" shareholders approve such voting
rights. Failure to obtain such approval exposes the owner to the
risk of a forced sale of the shares to the issuer. Even if
shareholder approval is obtained, the corporation is also subject
to Subchapters 25I and J of the BCL. Subchapter 25I provides for
a minimum severance payment to certain employees terminated
within two years of the approval. Subchapter 25J prohibits the
abrogation of certain labor contracts prior to their stated date
of expiration.
Subchapter 25H of the BCL (relating to disgorgement)
applies in the event that (i) any person or group publicly
discloses that the person or group may acquire control of the
corporation or (ii) a person or group acquires (or publicly
discloses an offer or intent to acquire) 20% or more of the
voting power of the corporation and, in either case, sells shares
within 18 months thereafter. Any profits from sales of equity
securities of the corporation by the person or group during the
18-month period belong to the corporation if the securities that
were sold were acquired during the 18-month period or within
24 months prior thereto.
Subchapters 25E-H of the BCL contain a wide variety of
transactional and status exemptions, exclusions and safe harbors.
Upon completion of the Consolidation, the Holding Company will be
subject to the provisions of Subchapters 25E through J. Such
action can be reversed under certain circumstances.
In addition, the fiduciary duty standards applicable to
the Board of Directors of the Holding Company under the BCL and
certain provisions of the Holding Company's Articles of
Incorporation and Bylaws may have the effect of deterring or
discouraging, among other things, a nonnegotiated tender or
exchange offer for the Holding Company Common Stock, a proxy
contest for control of the Holding Company, the assumption of
control of the Holding Company by a holder of a large block of
the Holding Company's Common Stock and the removal of the Holding
Company's management. For a description of a comparison of the
rights of shareholder of BCB and the Holding Company and of
Heritage and the Holding Company, see "- Comparison of
Shareholder rights of BCB, Heritage and the Holding Company."
Comparison of Rights of Shareholders of BCB and The Holding
Company
At the Effective Date, shareholders of BCB and
Heritage automatically will become shareholders of the Holding
Company, and their rights as shareholders will be determined by
the BCL and by the Holding Company's Articles of Incorporation
and Bylaws. The following is a summary of material differences
between the rights of holders of Holding Company Common Stock and
the rights of holders of BCB Common Stock and Heritage Common
Stock. These differences arise from various provisions of the
Articles of Incorporation and Bylaws of the Holding Company and
the Articles of Incorporation and Bylaws of BCB and Heritage,
respectively.
This summary does not purport to be a complete
statement of the respective rights of BCB shareholders and
Heritage shareholders under the applicable Pennsylvania law,
their respective Articles of Incorporation or Bylaws or a
comprehensive comparison with the rights of the Holding Company's
shareholders under the applicable Pennsylvania law, the Holding
Company's Articles of Incorporation and the Holding Company's
Bylaws, or a complete description of the specific provisions
referred to herein. This summary is not meant to be relied upon
as an exhaustive list or a detailed description of the provisions
discussed and is qualified in its entirety by reference to the
BCL and the governing corporate instruments of BCB, Heritage and
the Holding Company. Copies of such governing corporate
instruments of BCB, Heritage and the Holding Company are
available, without charge, to any person, including any
beneficial owner to whom this Proxy Statement/Prospectus is
delivered, by following the instructions listed under
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE" and "AVAILABLE
INFORMATION."
Directors
Removal
Pursuant to the Holding Company's Articles of
Incorporation, the Holding Company's directors may be removed
from office by a vote of shareholders if the votes of
shareholders cast in favor of the resolution for the removal of
such director constitute at least a majority of the votes which
all shareholders would be entitled to cast at an annual election
of directors.
Under BCB's Articles of Incorporation, directors may be
removed from office without cause by the affirmative vote of the
holders of not less than seventy-five percent (75%) of the total
votes of all shares of BCB eligible to be cast by shareholders.
Heritage's Articles of Incorporation and Bylaws are
silent regarding shareholder rights to remove directors. The BCL
provides that the Board of Directors of the classified board may
be removed at any time only for cause by the vote of a majority
of the votes cast by shareholders entitled to vote thereon.
Nomination
Shareholders of both the Holding Company and BCB,
pursuant to their respective Bylaws, are required to submit to
their respective companies, in writing and in advance, any
nomination of a candidate for election as a director.
Additionally, both require the notification to include certain
background information regarding the proposed nominee.
The Holding Company's Bylaws provide that such
nominations generally must be submitted to the secretary of the
Holding Company in writing not later than the close of business
on the ninetieth (90th) day immediately preceding the date of the
annual meeting of shareholders.
BCB's Bylaws provide that its shareholders must submit
written nominations to the Secretary of BCB not less than sixty
(60) days prior to the date of any meeting of shareholders called
for the election of directors.
Heritage's Bylaws provide that its shareholders
elect a Board of Directors at the annual meeting of shareholders
and do not specify nomination procedures.
Election of Directors
The Articles of Incorporation of the Holding Company
provide that for a period of three (3) years after its formation,
its Board of Directors shall consist of at least 13 directors.
Seven (7) of the Directors shall have been directors of BCB or
chosen by directors of the Holding Company who were directors of
BCB and six (6) of the Directors shall have been directors of
Heritage or chosen by directors of the Holding Company who were
directors of Heritage. After the three (3) year period, the
Holding Company's Articles of Incorporation and Bylaws provide
that its Board of Directors shall be composed of not less than
five (5) nor more than twenty-five (25) directors, the number of
which may be determined by the Board of Directors. The Holding
Company Board of Directors is divided into three classes, each
serving three-year terms, so that approximately one-third of the
directors are elected at each annual meeting of shareholders;
however, the initial term of each class is less than three years
to provide staggered years for the election of each class of
directors. Unless waived by the Board of Directors, a person
must have been a shareholder of record of the Holding Company for
a period of time equal to the lesser of three (3) years or, the
time elapsed since the consolidation of BCB and Heritage into the
Holding Company in order to qualify for election as a director of
the Holding Company.
BCB's Bylaws provide that the Board of Directors of BCB
shall be composed of not less than five (5) nor more than
twenty-five (25) directors, which number may be increased or
decreased by resolution of the Board of Directors. Presently,
the Board of Directors is composed of ten (10) members. The
Board of Directors of BCB is divided into three (3) staggered
classes, each serving three (3)-year terms, so that approximately
one-third (1/3) of the directors are elected at each annual
meeting of shareholders.
Heritage's Bylaws provide that the Board of
Directors of Heritage shall be composed of not less than five (5)
nor more than twenty-five (25) directors. Presently, the Board
of Directors is composed of twelve (12) members. The Board of
Directors of Heritage is divided into three (3) staggered
classes, each serving three-year terms, so that approximately
one-third (1/3) of the directors are elected at each annual
meeting of shareholders. The directors need not be residents of
the Commonwealth of Pennsylvania or stockholders of Heritage.
Between meetings of the shareholders, and provided the total
number of directors is less than twenty-five (25), a majority of
all directors at a regular meeting of the board of directors may
increase the total number of directors, by not more than two (2)
in any one year, and may designate the class of any new
director.
Cumulative Voting
Neither the Holding Company's, BCB's nor Heritage's
shareholders are permitted to cumulate votes in the election of
directors.
Limited Liability
As permitted by the BCL, BCB's, Heritage's and the
Holding Company's Bylaws provide that directors are not
personally liable for any action taken or any failure to take any
action unless the director breached or failed to perform the
duties of his or her office as set forth under Pennsylvania law
and such breach or failure constitutes self-dealing, willful
misconduct or recklessness; provided, however, that there is no
such elimination of liability arising under any criminal statute
or with respect to the payment of taxes pursuant to local, state
or federal law. BCB's Articles of Incorporation also provide
that a director is liable for the breach of a fiduciary duty owed
to BCB.
Indemnification
The Bylaws of the Holding Company, BCB and Heritage
each provide for indemnification of current and former directors,
officers and agents for certain litigation-related liabilities
and expenses to the maximum extent provided by Pennsylvania
law.
As provided in the BCL, current and former
directors, officers, employees and agents of the Holding Company,
BCB and Heritage are entitled to indemnification (i) in third
party actions if such person acted in good faith and in a manner
he reasonably believed to be in, or not opposed to, the best
interests of the corporation and, with respect to any criminal
proceeding, had no reasonable cause to believe his conduct was
unlawful, (ii) in derivative actions if he acted in good faith
and in a manner he reasonably believed to be in, or not opposed
to, the best interests of the corporation; provided, however,
that no indemnification shall be made in any case where the act
or failure to act giving rise to the claim for indemnification is
determined by a court to have constituted willful misconduct or
recklessness.
In connection with any claim for indemnification,
Heritage's Bylaws require a determination by disinterested
members of the Board of Directors or by shareholders, or by
disinterested persons named by the Board of Directors or by
independent legal counsel in a written opinion: (1) that the
director acted in the best interest of Heritage and with respect
to criminal action, had no reason to believe his conduct was
unlawful; (2) the amount of indemnification is reasonable;
(3) the indemnification complies with the law; and (4) the amount
of the indemnification.
Shareholder Meetings
Special meetings of the Holding Company's shareholders
may be called at any time by the Board of Directors. The Holding
Company's shareholders are not entitled to call a special
meeting.
The Holding Company's bylaws require a shareholder
entitled to vote for the election of directors to submit written
notice of any matter desired to be placed on the agenda of an
annual meeting of shareholders not less than sixty (60) days
prior to any annual meeting of shareholders. If shareholders
receive less than twenty-one (21) days' notice of the meeting,
then such notice must be sent to the Secretary of the Holding
Company not later than the close of the seventh day following the
day on which notice of the meeting was mailed to shareholders.
Each notice must provide a brief description of the business
desired to be brought before the annual meeting.
Special meetings of BCB shareholders may be called
at any time by the Chairman of the Board, the President, a
majority of the Board of Directors or of its Executive Committee
or by shareholders entitled to cast at least one-third (1/3) of
the votes which all shareholders are entitled to cast at the
particular meeting. If such request is addressed to the
Secretary, it must be signed by the person making the request and
state the purpose of the proposed meeting. Written notice of the
meeting stating the place, date, hour and purpose must be mailed
at least ten days before the meeting to each shareholder entitled
to vote at the meeting.
The annual meeting of the shareholders of BCB must
be held no later than the thirty-first day of May in each year,
when they elect a Board of Directors. Written notice of the
meeting stating the place, date and hour must be mailed at least
ten days before the meeting to each shareholder entitled to vote
at the meeting.
Special meetings of Heritage shareholders may be
called by the President, or the Board of Directors or
shareholders entitled to cast at least one-fifth (1/5) of the
votes which all shareholders are entitled to cast at the
particular meeting. It is the duty of the Secretary of Heritage
to fix the date which must be less than sixty (60) days after
receipt of the request for a special meeting. If the secretary
refuses to set a date, the person calling the meeting may do so.
Business transacted at all special meetings is confined to that
stated in the call and matters germane thereto, unless all
shareholders entitled to vote are present and consent. Written
notice of special meetings must be given to each shareholder
entitled to vote at the meeting at least ten (10) days before
such meeting.
Action by Shareholders Without a Meeting
The Holding Company's Articles of Incorporation provide
that no action required or permitted to be taken at any annual or
special meeting of the Holding Company's shareholders may be
taken without a meeting, and the power of the Holding Company's
shareholders to consent in writing to action without a meeting is
expressly denied.
BCB's Bylaws allow shareholders of BCB to act without a
meeting if consent in writing setting forth the action so taken
shall be signed by all shareholders who would be entitled to vote
at a meeting for such purpose and shall file with the Secretary
of the Corporation.
Heritage's Bylaws allow shareholders of Heritage to
act without a meeting if consent in writing setting forth the
action so taken shall be signed by all shareholders who would be
entitled to vote and shall be filed with the Secretary of
Heritage.
Antitakeover Provisions
BCB, Heritage and the Holding Company are subject to
the provisions of Subchapters 25E through 25J of the BCL. For a
description of Subchapters 25E through 25J, see "DESCRIPTION OF
THE HOLDING COMPANY - Pennsylvania Antitakeover Provisions."
Required Shareholder Vote
General
The Holding Company's Articles of Incorporation,
BCB's Bylaws and Heritage's Bylaws both provide that holders of
common stock entitled to vote at a meeting of shareholders are
entitled to one vote for each share of common stock owned of
record.
Fundamental Changes
The Holding Company's Articles of Incorporation require
that a plan of merger, consolidation, share exchange, division,
conversion, asset transfer (in respect of a sale, lease, exchange
or other disposition of all, or substantially all, the assets of
the Holding Company) or any transaction similar to the foregoing
must be approved by the affirmative vote of at least 80 percent
(80%) of votes cast by shareholders entitled to vote, and if any
class of shares is entitled to vote as a separate class, the
affirmative vote of shareholders entitled to cast at least a
majority of the votes cast by the outstanding shares of any such
class. The Holding Company may voluntarily completely liquidate
and/or dissolve only in accordance with all applicable laws and
only if the proposed liquidation and/or dissolution is approved
by the affirmative vote of shareholders entitled to cast at least
80 percent (80%) of the votes which all shareholders are entitled
to cast. The above provisions do not apply to any transaction
which is approved in advance by seventy-five percent (75%) of the
members of the board of directors of the Holding Company, at a
meeting duly called and held.
BCB's Articles of Incorporation require that a merger,
consolidation, liquidation or dissolution of BCB or any action
that would result in the sale or other disposition of all, or
substantially all, of the assets of BCB is valid if first
approved by the affirmative vote of the holders of at least
seventy-five percent (75%) of the outstanding shares of BCB
Common Stock.
Heritage's Articles of Incorporation require that a
plan of merger, consolidation, share exchange, liquidation or
dissolution of Heritage, or any action that would result in the
sale or other disposition of all, or substantially all, of the
assets of Heritage, be approved by the affirmative vote of
holders of at least seventy-five percent (75%) of the votes cast
by all shareholders entitled to vote thereon; or the holders of
at least a majority of the votes cast by all shareholders
entitled to vote thereon, provided that such transaction has
received the prior approval of at least eighty percent (80%) of
all of the members of the Board of Directors of Heritage.
Amendment of Articles of Incorporation
The Holding Company's Articles of Incorporation provide
the Holding Company with the right to amend, alter, change or
repeal any provision in its Articles of Incorporation now or
hereafter prescribed by statute, however, the Holding Company's
Articles of Incorporation also contain various provisions that
require a supermajority vote of shareholders to amend or repeal
particular sections of such Articles. Amendment or repeal of the
provisions of the Holding Company's Articles of Incorporation
relating to noncumulative voting, the classification of
directors, the acquisition of voting control, the requirement of
holding meetings for shareholder action, tender offer, merger,
consolidation or similar transaction all require (i) the
affirmative vote of eighty percent (80%) of the shares entitled
to vote or (ii) the affirmative vote of eighty percent (80%) of
the members of the Holding Company's Board of Directors and the
affirmative vote of shareholders entitled to cast at least a
majority of votes which all shareholders are entitled to cast.
BCB's Articles of Incorporation require the affirmative
vote of seventy-five percent (75%) of the outstanding shares of
BCB Common Stock to amend provisions relating to the merger,
consolidation, liquidation, dissolution and those addressing
beneficial ownership of twenty-five percent (25%) of the
outstanding shares of BCB.
Heritage's Articles of Incorporation require that
amendments to Heritage's Articles relating to the amendment of
Heritage's Bylaws be approved by: (1) the holders of at least
seventy-five percent (75%) of the votes cast by and all
shareholders entitled to vote thereon; or (2) the holders of at
least a majority of the votes cast by all shareholders entitled
to vote thereon, provided that such amendment has received the
prior approval of at least eighty percent (80%) of all of the
members of the Board of Directors of Heritage. Heritage's
Articles of Incorporation provide that other amendments to the
Articles shall be as provided by statute.
Amendment of Bylaws
The authority to amend or repeal the Holding Company's
Bylaws is vested in the Holding Company's Board of Directors,
subject always to the power of the shareholders of the Holding
Company to change such action by the affirmative vote of
shareholders entitled to cast at least sixty-six and two-thirds
percent (66-2/3%) of the Holding Company's total voting power,
except that any amendment to decrease director indemnification or
increase the exposure to liability for directors shall require
the affirmative vote of sixty-six and two-thirds percent
(66-2/3%) of the entire Board of Directors or shareholders
entitled to cast at least seventy-five percent (75%) of the votes
that all shareholders are entitled to cast.
BCB's Bylaws may be altered, amended or repealed by the
affirmative vote of the holders of two-thirds (2/3) of the
outstanding shares of BCB Common Stock at any regular or special
meeting duly convened after notice to the shareholders of that
purpose, or by a majority vote of the members of the Board of
Directors at any regular or special meeting thereof duly convened
after notice to the directors of that purpose, subject always to
the power of the shareholders to change such action of the Board
of Directors by the affirmative vote of the holders of two-thirds
(2/3) of the outstanding shares of BCB Common Stock.
Heritage's Bylaws may be altered, amended or
repealed by a vote of the majority of the Board of Directors of
Heritage present at any regular or special meeting regularly
called, notice of the proposed alteration, amendment or repeal
having been mailed to each director at least ten days preceding
such meeting. However, the power of the Board of Directors is
subject to the power of the shareholders to change or repeal such
Bylaws.
Mandatory Tender Offer Provision
The Holding Company's Articles of Incorporation provide
that if any corporation, person, entity or group becomes the
beneficial owner of capital stock having the right to cast in the
aggregate twenty-five percent (25%) or more of all votes entitled
to be cast by all issued and outstanding shares of capital stock
entitled to vote, such corporation, person, entity or group
shall, within thirty (30) days thereafter offer to purchase all
shares of capital stock of the Holding Company issued,
outstanding and entitled to vote, at a price per share equal to
the highest price paid for each respective class or series of
capital stock of the Holding Company purchased by such
corporation, person, entity or group within the preceding twelve
months. If such person, entity, corporation or group did not
purchase any shares of a particular class or series of capital
stock of the Holding Company within the preceding twelve (12)
months, such offer to purchase shall be at a price per share
equal to the fair market value of such class or series of capital
stock on the date on which such corporation, person, entity or
group becomes the beneficial owner, directly or indirectly, of
shares of capital stock of the Holding Company having the right
to cast in the aggregate twenty-five percent (25%) or more of all
votes entitled to be cast by all issued and outstanding capital
stock of the Holding Company. Such offer shall provide that the
purchase price for such shares shall be payable in cash. These
provisions are inapplicable if eighty percent (80%) or more of
the Holding Company's Board of Directors approves in advance the
acquisition of beneficial ownership by such corporation, person,
entity or group, of shares of capital stock of the Holding
Company having the right to cast in the aggregate twenty-five
percent (25%) or more of all votes entitled to be cast by all
issued and outstanding shares of capital stock of the Holding
Company. The provisions provided in the Holding Company's
Articles of Incorporation are to be in addition to and not in
lieu of any rights granted under Subchapter 25E of the BCL.
However, if the provisions of the Holding Company's Articles of
Incorporation addressing mandatory tender offers and Subchapter E
of the BCL are both applicable, the price per share to be paid
for shares of capital stock of the Holding Company issued,
outstanding and entitled to vote shall be the higher of the price
per share determined in accordance with the Holding Company's
Articles of Incorporation addressing mandatory tender offers or
the price per share determined in accordance with the provisions
of Subchapter 25E of the BCL.
BCB's Articles of Incorporation provide that when
any person is determined by the Board of Directors to be the
beneficial owner, either directly or indirectly, of twenty-five
percent (25%) or more of the outstanding shares of BCB (a
"Substantial Shareholder"), then the Board of Directors may issue
in its sole discretion on a pro rata basis to shareholders of BCB
not affiliated with the Substantial Shareholder warrants to
purchase additional shares of BCB Common Stock at a purchase
price equivalent to fifty percent (50%) of the average
transaction price of all purchases and sales of BCB Common Stock
that occurred during the previous twelve month period and that
are known by the Board of Directors. Such warrants shall be
issued without any consideration, shall not be assignable and
shall expire six (6) months from the date of their issuance. The
Board of Directors shall have the sole discretion in the
determination of the number of shares of BCB Common Stock that
may be purchased pursuant to such warrants. Neither Heritage's
Articles of Incorporation nor Bylaws contain equivalent
provisions.
Subchapter 25E of the BCL also provides that following
any acquisition by a person or group of more than twenty percent
(20%) of a publicly-held corporation's voting stock, the
remaining shareholders have the right to receive payment, in
cash, for their shares from such person or group of an amount
equal to the "fair value" of their shares, including a
proportionate amount for any control premium. The Holding
Company and BCB are subject to Subchapter 25E of the BCL. See
"DESCRIPTION OF THE HOLDING COMPANY -- Antitakeover Provisions."
Dissenters' Rights
Under the BCL, a shareholder of a corporation is
generally entitled to receive payment of the fair value of such
shareholder's shares if such shareholder duly exercises its
dissenters' rights with respect to a plan of merger or
consolidation, share exchange, asset transfer, division or
conversion to which such corporation is a party, unless the
shares are (i) listed on a national securities exchange or
(ii) held of record by more than 2,000 shareholders. The
foregoing market exceptions do not apply, and dissenters' rights
generally are available in respect of, (i) shares that are not
converted solely into shares of the acquiring, surviving, new or
other corporation or solely into such shares and money in lieu of
fractional shares, (ii) shares of any preferred or special class
unless the shareholders of the class are entitled to vote on the
plan and such class vote is required for the adoption of the plan
or to effectuate the transaction and (iii) shares which under the
plan are treated differently from shares of the same class or
series and which are not entitled to vote as a special class
under BCL Section 1906(c). The BCL allows a corporation to
provide dissenters' rights notwithstanding the statutory
exceptions, but neither the Holding Company's, BCB's nor
Heritage's Articles of Incorporation or Bylaws require such
optional dissenters' rights. Under the BCL, if a plan of merger
or consolidation, share exchange, asset transfer, division or
conversion is adopted by the directors only, without any
shareholder approvals required, the shareholders have no
statutory dissenters' rights in respect of the plan other than
optional dissenters' rights, if any.
Dividends
Under the BCL, a corporation may pay dividends unless,
after giving effect thereto, (i) the corporation would be unable
to pay its debts as they become due in the usual course of its
business or (ii) the total assets of the corporation would be
less than the sum of its total liabilities plus the amount that
would be needed, if the corporation were to be dissolved at the
time as of which the distribution is measured, to satisfy the
preferential rights upon dissolution of shareholders whose
preferential rights are superior to those receiving the
distribution.
Voluntary Dissolution
The Holding Company's and Heritage's Articles of
Incorporation and Bylaws are silent regarding voluntary
dissolution. Under the BCL, if the Board of Directors of a
Pennsylvania corporation recommends that the corporation be
dissolved and directs that the question be submitted to a vote at
a meeting of shareholders, the corporation may be dissolved upon
the affirmative vote of a majority of the votes cast by all
shareholders entitled to vote thereon and, if any class of shares
is entitled to vote thereon as a class, the affirmative vote of a
majority of the votes cast in each class vote.
Under BCB's Articles of Incorporation, no dissolution
of BCB is valid unless first approved by the holders of at least
seventy-five percent (75%) of the outstanding shares of BCB
Common Stock.
Preemptive Rights
Holders of Holding Company Common Stock, BCB Common
Stock and Heritage Common Stock are not entitled to preemptive
rights.
Voluntary Dissolution
The Holding Company's and Heritage's Articles of
Incorporation and Bylaws are silent regarding voluntary
dissolution. Under the BCL, if the Board of Directors of a
corporation recommends that the corporation be dissolved and
directs that the question be submitted to a vote at a meeting of
shareholders, the corporation may be dissolved upon the
affirmative vote of a majority of the votes cast by all
shareholders entitled to vote thereon and, if any class of shares
is entitled to vote thereon as a class, the affirmative vote of a
majority of the votes cast in each class vote.
Preemptive Rights
Holders of Holding Company Common Stock and Heritage
Common Stock are not entitled to preemptive rights.
<PAGE>
DESCRIPTION OF BCB
Business
General. BCB is a Pennsylvania corporation headquartered
in Reading, Pennsylvania and is a registered bank holding company
for Berks County Bank, a Pennsylvania-chartered commercial bank.
Berks County Bank is a member of the Federal Reserve System and
Berks County Bank's deposits are insured by the FDIC to the
fullest extent provided by law. Berks County Bank was founded in
1987 to serve individuals and small- to medium-sized businesses
that management believed were not being adequately served by the
larger competitors in its market area. Berks County Bank
currently maintains six full-service branches in Reading, Exeter,
Wyomissing, Muhlenberg, Shillington and Pottstown, Pennsylvania,
and six loan production offices in Wyomissing, Pottstown,
Schuylkill Haven, Jamison, Exton, and Allentown, Pennsylvania.
At December 31, 1997, BCB had total consolidated assets,
deposits, net loans and stockholders' equity of $447.6 million,
$360.6 million, $246.2 million and $44.1 million,
respectively.
Market Overview. Berks County Bank's primary market area
consists of Berks County, the central western portion of
Montgomery County, the southern half of Schuylkill County,
central Bucks County, eastern Chester County and eastern Lehigh
County. Berks County, with a population of 350,000, includes the
City of Reading, the county's largest municipality with a
population of 78,000. The central western portion of Montgomery
County includes the Borough of Pottstown and six contiguous
townships, which together have a population of approximately
82,000. Berks County Bank's extended market area consists of the
remainder of the foregoing counties and Lancaster and Lebanon
counties.
Berks County Bank's primary market area has experienced
population growth that has materially outpaced statewide growth
in the 1990s. During the same time, the household economic
demography has undergone a significant change. The percentage of
households with income over $50,000 has grown markedly in each of
Berks, Chester and Montgomery Counties. Historically, the Berks
County economy was based on heavy industry and manufacturing in
Reading and agriculture in much of the rest of the county.
Agriculture still plays a major role in the economy of the county
but overall, the economy has become more diversified with
significantly greater reliance on the service sector and a
concomitant reduced reliance on heavy industry and
manufacturing.
As of June 30, 1997, there were 19 different banking
institutions operating approximately 124 branch offices and
having total deposits of approximately $4.1 billion in Berks
County. The six largest of these institutions with respect to
total deposits operated over 65% of the County's branch offices
and had over 75% of the County's deposits. Berks County Bank's
five Berks County branches had approximately 6.0% of the County's
deposits at June 30, 1997, versus 4.0% and 3.3% of the County's
deposits at June 30, 1996 and 1995, respectively, and was the
County's sixth largest banking institution with respect to total
deposits at June 30, 1997.
Products and Services. Berks County Bank offers a range
of commercial and retail banking services to its customers,
including, personal and business checking and savings accounts,
certificates of deposit, residential mortgage, consumer and
commercial loans, and trust and private banking services. While
Berks County Bank's customers typically borrow between $25,000
and $1.5 million, if a customer's loan request exceeds Berks
County Bank's legal lending limit, which was $5.3 million in
1997, Berks County Bank seeks to arrange such loans on a
participation basis with other financial institutions. In
addition, Berks County Bank provides safe deposit boxes,
traveler's checks, wire transfer of funds, ACH (Automated
Clearing House) origination and other typical banking services.
Berks County Bank is a member of the MAC/Plus network, provides
clients with access to automated teller machines worldwide, and
makes credit cards available to its customers through
correspondent banking institutions.
BCB continues to update its product offering in order to
remain competitive. In the past twelve months, BCB has
introduced a number of new products and services such as an
"after hours" phone system for customers to access their
accounts, automated teller terminals, and BCB "Classic" Club
featuring interest checking for members age 50 and older.
Loan Portfolio. BCB's loan portfolio consists of
commercial loans, residential one-to-four-family mortgage loans
and consumer loans. Commercial loans are primarily made to small
businesses and professionals in the form of term loans and for
working capital purposes with maturities generally between one
and five years. The majority of these commercial loans are
collateralized by real estate and further secured by personal
guarantees. In 1997, BCB originated $73.2 million in commercial
loans. At December 31, 1997, BCB had $118.0 million in
commercial loans of which 78.7% are fixed rate loans and 21.3%
are floating rate loans.
BCB's commercial lending staff consists of six commercial
lenders, two commercial real estate lenders and four business
development staff. This staff generates and services commercial
and commercial real estate loans ranging from $25,000 to
$5.0 million. Loans are concentrated in the Berks and Pottstown
markets. BCB's philosophy is to develop a total banking
relationship with its commercial customers by providing all of
their lending, deposit and personal banking needs. New business
is generated mostly through referrals from accountants,
attorneys, realtors and existing customers.
The risk associated with BCB's commercial loan portfolio
is greater than the risk associated with residential real estate
lending. However, BCB believes that this risk is mitigated by
the fact that the majority of the commercial loan portfolio is
real estate secured and carries the personal guaranty of the
principals. Asset-based loans and unsecured loans account for a
small percentage of BCB's loan portfolio.
BCB's consumer loan portfolio consists primarily of home
equity term loans and home equity lines of credit. Although
consumer lending also entails greater risk than residential
lending, BCB's consumer lending portfolio is largely real estate
based and BCB's experience with home equity lending has been that
these loans provide good yields, collateral coverage and
repayment history. Unsecured loans and automobile loans, which
entail greater risk, account for a small percentage of the loan
portfolio because these loans are generally provided only as an
accommodation for existing customers or in conjunction with an
individual switching his or her entire banking relationship to
Berks County Bank. At December 31, 1997, BCB had $20.0 million
in consumer loans of which 22.5% are fixed rate loans and 77.5%
are floating rate loans.
BCB is the largest originator of residential mortgage
loans in Berks County. This includes all mortgage loans and
loans in low and moderate income areas. In 1997, BCB originated
$101.8 million in residential mortgage loans. BCB is a full
service residential lender, offering a wide variety of
conventional, FHA/VA and alternative credit programs. BCB is an
active participant in the secondary market and sells loans to
several investors and the Federal National Mortgage Association
("Fannie Mae"). BCB originates all mortgage loans directly
through employees who are full-time mortgage consultants. At
December 31, 1997, BCB had $110.8 million in residential mortgage
loans of which 55.7% are fixed rate loans and 44.3% are floating
rate loans.
Thirty year fixed rate mortgages are resold in the
secondary market unless the loan is retained at the specific
request of the customer or due to size (i.e., jumbo loans) or
other reasons the loan was not underwritten to secondary market
standards and was deemed suitable for retention in Berks County
Bank's portfolio. At any one time, BCB may hold thirty year
fixed rate mortgages as available for sale pending disposition in
the secondary market. BCB generally does not retain servicing
rights on loans sold. In addition, BCB offers selected mortgage
products which meet either the investment objectives of Berks
County Bank or are designed specifically to meet community
lending needs. To serve these community lending needs, BCB
selectively retains a portion of mortgage loans in all
categories.
BCB underwrites generally in accordance with secondary
market guidelines. Loans in excess of 80% of appraised value are
required to have mortgage insurance placed with an appropriate
coverage based upon the loan to value ratio. BCB utilizes
private mortgage insurance through several companies, FHA
Insurance and VA Guaranty. As a community bank, BCB recognizes
the need to provide home mortgage financing to all segments of
the market. In that regard, BCB does have special community
based lending programs that provide financing for home purchases
with greater than 80% loan to value ratios without credit
enhancement. This special program is reviewed and approved
annually by the Board of Directors.
With respect to commercial real estate loans, BCB's
lending policy is to adhere to the Uniform Real Estate Lending
Standards promulgated by federal regulators. These standards
outline the permitted loan to value ratios for various types of
real estate loans. Loans in excess of the standards are reported
to BCB's Board of Directors on a quarterly basis. Currently, as
a percentage of capital, BCB has only 8.3% of an allowable 100%
of its loans that are an exception to the standards. As a
percentage of non one-to-four-family residential loans, only
1.10% of an allowable 30% of capital are an exception to the
standards.
BCB's loans, net of deferred loan fees and allowance for
loan losses, at December 31, 1997 totaled $246.2 million, an
increase of $54.1 million, or 28.2%, compared to net loans at
December 31, 1996 of $192.1 million. This follows an increase of
$45.8 million, or 31.3%, from the $146.3 million amount of net
loans at December 31, 1995. These increases reflect continued
loan demand from BCB's target customers.
The following tables set forth (i) BCB's loans by major
categories as of the dates indicated and (ii) BCB's loan
origination activity by major categories for the periods
indicated.
<PAGE>
<TABLE>
<CAPTION>
At December 31,
1997 1996 1995 1994 1993
(In thousands)
<S> <C> <C> <C> <C> <C>
Commercial:
Real estate secured $ 72,565 $ 55,732 $ 43,057 $ 38,003 $ 33,066
Non-real estate secured/
unsecured 37,248 27,154 18,159 14,826 13,635
Construction 7,525 5,006 3,004 2,577 1,294
117,338 87,892 64,220 55,406 47,995
Less deferred loan fees (costs) (678) (431) (207) (166) (94)
Total commercial $118,016 $ 88,323 $ 64,427 $ 55,572 $ 48,089
________ ________ ________ ________ ________
Residential:
Mortgages $104,714 $ 85,027 $ 63,538 $ 58,497 $ 50,155
Construction 6,279 4,666 5,502 5,690 5,556
110,993 89,693 69,040 64,187 55,711
Less deferred loan fees (costs) 209 184 185 105 43
Total residential $110,784 $ 89,509 $ 68,855 $ 64,082 $ 55,668
________ ________ ________ ________ ________
Consumer:
Installment $ 4,374 $ 3,590 $ 2,468 $ 1,732 $ 1,535
Home equity lines-secured 14,632 11,832 11,512 5,030 4,627
Lines of credit-unsecured 936 840 666 529 559
$ 19,942 $ 16,262 $ 14,646 $ 7,291 $ 6,721
Less deferred loan fees (costs) (68) (54) (37) (26) (22)
Total consumer $ 20,010 $ 16,316 $ 14,683 $ 7,317 $ 6,743
________ ________ ________ ________ ________
Total loans, net of deferred
loan fees (costs) $248,810 $194,148 $147,965 $126,971 $110,500
======== ======== ======== ======== ========
<CAPTION>
Loan Originations
At December 31,
1997 1996 1995
(In thousands)
<S> <C> <C> <C>
Commercial:
Real estate secured $ 44,822 $ 34,883 $ 20,390
Non-real estate secured/
unsecured 17,511 13,738 9,976
Construction 10,869 7,514 3,742
Total commercial $ 73,202 $ 56,135 $ 34,108
======== ======== ========
Residential:
Mortgages $ 84,453 $ 69,100 $ 47,700
Construction 17,344 13,970 14,020
Total residential $101,797 $ 83,070 $ 61,720
======== ======== ========
Consumer:
Installment $ 3,466 $ 2,922 $ 2,009
Home equity lines-secured 12,199 6,331 14,193
Lines of credit-unsecured 341 536 772
Total consumer $ 16,006 $ 9,789 $ 16,974
======== ======== ========
</TABLE>
Loan Maturity and Interest Rate Sensitivity
The amount of loans outstanding by category as of
December 31, 1997, which are due in (i) one year or less,
(ii) more than one year through five years and (iii) over five
years, is shown in the following table. Loan balances are also
categorized according to their sensitivity to changes in interest
rates.
<TABLE>
<CAPTION>
At December 31, 1997
More Than
One Year
One Year Through Over Total
or Less Five Years Five Years Loans
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Commercial, construction, other $ 57,666 $ 43,890 $16,460 $118,016
Mortgage 29,541 58,197 23,046 110,784
Consumer 15,795 4,185 30 20,010
Total (1) $103,002 $106,272 $39,536 $248,810
======== ======== ======= ========
Loans with fixed rate $ 48,719 $ 72,342 $38,114 $159,175
Loans with floating rate 54,283 33,930 1,422 89,635
Total (1) $103,002 $106,272 $39,536 $248,810
======== ======== ======= ========
Percent composition by maturity 41.40% 42.71% 15.89% 100.00%
======== ======== ======= ========
Fixed rate loans as a percentage
of total loans maturing 19.58% 29.08% 15.31% 63.97%
======== ======== ======= ========
Floating rate loans as a percentage
of total loans maturing 21.82% 13.64% .57% 36.03%
======== ======== ======= ========
</TABLE>
____________
(1) Includes deferred loan fees
In the ordinary course of business, loans maturing within
one year may be renewed, in whole or in part, as to principal
amount, at interest rates prevailing at the date of renewal.
At December 31, 1997, 64.0% of total loans were fixed
rate compared to 67.0% at December 31, 1996. For additional
information regarding interest rate sensitivity, see
"Management's Discussion and Analysis of Financial Condition and
Results of Operations - Interest Rate Risk Management."
Credit Quality
BCB's written lending policies require underwriting, loan
documentation and credit analysis standards to be met prior to
funding any loan. After the loan has been approved and funded,
continued periodic review is required. In addition, due to the
secured nature of residential mortgages and the smaller balances
of individual installment loans, sampling techniques are used on
a continuing basis for credit reviews in these loan areas. Berks
County Bank has a policy to discontinue accrual of interest
income within ten days following the month end in which a loan
becomes 90 days past due in either principal or interest, except
for those insured for credit loss. In addition, if circumstances
warrant, accrual of interest may be discontinued prior to
90 days. In all cases, any payments received on non-accrual
loans are credited to principal until full recovery of past due
payments has been recognized, and the loan is not restored to
accrual status until the customer becomes and remains current for
six consecutive payments. Loans are charged off, in whole or in
part, upon determination that a loss is anticipated. Non-accrual
and large delinquent loans are reviewed monthly to determine
potential losses.
The following summary shows information concerning loan
delinquency and other non-performing assets at the dates
indicated.
<TABLE>
<CAPTION>
At December 31,
1997 1996 1995 1994 1993
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Loans accruing, but past due
90 days or more $ 225 $ 187 $ 231 $ 41 $ 39
Total non-accrual loans 3,554 2,603 1,463 2,893 1,893
Restructured loans 73 79 85 91 ---
Total non-performing loans (1) 3,852 2,869 1,779 3,025 1,932
Foreclosed real estate 175 762 1,316 --- 754
Total non-performing
assets (2) $4,027 $3,631 $3,095 $3,025 $2,686
====== ====== ====== ====== ======
Non-performing loans as a
percentage of total loans,
net of unearned income 1.55% 1.48% 1.20% 2.38% 1.75%
Non-performing assets as a
percentage of total assets 0.90% 1.12% 1.50% 1.96% 1.85%
</TABLE>
____________________
(1) Non-performing loans are comprised of (i) loans that are on
a non-accrual basis, (ii) accruing loans that are 90 days or
more past due which are insured for credit loss, and
(iii) restructured loans.
(2) Nonperforming assets are comprised of non-performing
loans and foreclosed real estate.
The following summary shows the impact on interest income
of nonaccrual and restructured loans for the periods
indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
(Dollars in thousands)
<S> <C> <C> <C>
Interest income that would have
been recorded had the loans
been in accordance with their
original terms $284 $221 $122
Interest income included in net
income 58 41 24
</TABLE>
Restructured loans are loans whose terms have been
modified, because of a deterioration in the financial position of
the borrower, to provide for a reduction of either interest or
principal. At December 31, 1997, there was one restructured loan
in the amount of $73,000.
At December 31, 1997, BCB had no foreign loans and no
loan concentrations exceeding 10% of total loans not disclosed in
the table "Loan Portfolio Composition." Loan concentrations are
considered to exist when there are amounts loaned to a multiple
number of borrowers engaged in similar activities that would
cause them to be similarly impacted by economic or other
conditions.
Foreclosed real estate is initially recorded at fair value,
net of estimated selling costs at the date of foreclosure,
thereby establishing a new cost basis. After foreclosure,
valuations are periodically performed by management and the
assets are carried at the lower of cost or fair value, less
estimated costs to sell. Revenues and expenses from operations
and changes in the valuation allowance are included in other
expenses.
Potential problem loans consist of loans that are
included in performing loans, but for which potential credit
problems of the borrowers have caused management to have serious
doubts as to the ability of such borrowers to continue to comply
with present repayment terms. At December 31, 1997, all
identified potential problem loans were included in the preceding
table except for $0.8 million of loans included on Berks County
Bank's internal watch list.
Berks County Bank had no credit exposure to "highly
leveraged transactions" at December 31, 1997, as defined by the
FRB.
Allowance for Loan Losses
A detailed analysis of BCB's allowance for loan losses for
each of the years in the five year period ended December 31, is
as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1996 1995 1994 1993
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of year: $ 2,001 $ 1,674 $ 1,437 $ 1,447 $ 1,932
Charge-offs:
Commercial 87 90 222 56 579
Real estate-mortgage 296 329 173 49 267
Consumer 58 29 10 3 24
Total Charge-offs $ 441 $ 448 $ 405 $ 108 $ 870
Recoveries:
Commercial 27 62 102 39 65
Real estate-mortgage 56 24 20 32 107
Consumer -- 2 2 5 3
Total recoveries $ 83 $ 88 $ 124 $ 76 $ 175
Net charge-offs 358 360 281 32 695
Provision for loan losses 960 687 518 22 210
Balance at end of year $ 2,603 $ 2,001 $ 1,674 $ 1,437 $ 1,447
======== ======== ======== ======== =======
Average loans outstanding (1) $223,130 $170,135 $133,860 $118,435 $100,235
======== ======== ======== ======== ========
As a percent of average loans (1):
Net charge-offs 0.16% 0.21% 0.21% 0.03% 0.69%
Provision for loan losses 0.43% 0.40% 0.39% 0.02% 0.21%
Allowance for loan losses 1.17% 1.18% 1.25% 1.21% 1.44%
Allowance as a percent of each
of the following:
Total loans, net of
unearned income 1.05% 1.03% 1.13% 1.13% 1.31%
Total delinquent loans
(past due 30 to 89 days) 98.86% 68.69% 52.08% 244.80% 215.33%
Total non-performing loans 67.58% 69.75% 94.10% 47.50% 74.90%
</TABLE>
__________________
(1) Includes non-accruing loans
Management makes a monthly determination as to an
appropriate provision from earnings necessary to maintain an
allowance for loan losses that is adequate for potential yet
undetermined losses. This determination necessarily includes a
review of loans that are current, but for which management has
determined for a variety of reasons require more careful
monitoring going forward. The dollar amount charged to earnings
is determined based upon several factors including: a continuing
review of delinquent, classified and non-accrual loans, large
loans, and overall portfolio quality; regular examination and
review of the loan portfolio by regulatory authorities;
analytical review of loan charge-off experience, delinquency
rates, other relevant historical and peer statistical ratios; and
management's judgment with respect to local and general economic
conditions and their impact on the existing loan portfolio.
Determining the appropriate level of the allowance for
loan losses at any given date is difficult, particularly in a
continually changing economy. In management's opinion, the
allowance for loan losses was adequate at December 31, 1997.
However, there can be no assurance that, if asset quality
deteriorates in future periods, additions to the allowance for
loan losses will not be required.
Berks County Bank's management is unable to determine in
what loan category future charge-offs and recoveries may occur.
The following schedule sets forth the allocation of the allowance
for loan losses among various categories. At December 31, 1997,
approximately 37.3% of the allowance for loan losses is allocated
to general risk to protect Berks County Bank against potential
yet undetermined losses. The allocation is based upon historical
experience. The entire allowance for loan losses is available to
absorb future loan losses in any loan category.
<TABLE>
<CAPTION>
AT DECEMBER 31,
_________________________________________________________________________________________________________
1997 1996 1995 1994 1993
_________________________________________________________________________________________________________
Percent Percent Percent Percent Percent
of Loans of Loans of Loans of Loans of Loans
in Each in Each in Each in Each in Each
Category Category Category Category Category
Amount to Loans(1) Amount to Loans(1) Amount to Loans(1) Amount to Loans(1) Amount to Loans(1)
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Allocation of
allowance for loan
losses:
Commercial $ 851 44.41% $ 652 42.91% $ 420 41.51% $ 692 41.59% $ 806 42.35%
Mortgage 574 42.00% 434 43.70% 336 42.82% 298 46.11% 265 45.35%
Consumer 150 8.04% 122 8.40% 110 9.92% 55 5.78% 50 6.10%
Construction 56 5.55% 73 4.99% 64 5.75% 62 6.52% 57 6.20%
General Allowance 972 720 744 330 269
Total $2,603 $2,001 $1,674 $1,437 $1,447
====== ====== ====== ====== ======
</TABLE>
(1) Loans, net of unearned income.
Securities Portfolio
BCB's securities portfolio is intended to provide
liquidity, reduce interest rate risk and contribute to earnings
while exposing BCB to reduced credit risk. As a result of BCB's
recent growth, the securities portfolio has also grown
significantly from $29.6 million at December 31, 1995 to
$88.6 million at December 31, 1996, and $169.2 million at
December 31, 1997. This significant increase is due in large
part to matched funding programs that use FHLB advances and the
significant deposit inflows at existing and new branches to fund
both loan originations and securities purchases. The purpose of
these matched funding programs is to target earnings growth and
net interest margin increases while managing liquidity, credit,
market and interest rate risk. From time to time a specific
matched funding program may attempt to achieve current earnings
benefits from future growth in deposits that management is
reasonably confident will occur.
A summary of securities available for sale and securities
held to maturity at December 31, 1997, 1996, and 1995
follows:
<TABLE>
<CAPTION>
Securities Securities
Available for Sale Held To Maturity
at December 31, at December 31,
1997 1996 1995 1997 1996 1995
(In Thousands) (In Thousands)
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury $ 991 $ 3,465 $ 5,450 $ - $ - $ -
U.S. Government agencies 32,981 18,000 3,757 60,724 24,253 3,002
State and municipal 23,192 23,275 6,978 10,165 10,787 6,205
Mortgage-backed and asset-
backed securities (1) 33,006 4,357 2,807 - - -
Other securities (2) 7,069 4,467 1,134 25 25 -
Total Amortized Cost of
Securities $97,239 $53,564 $20,126 $70,914 $35,065 $ 9,207
======= ======= ======= ======= ======= =======
Total Fair Value of
Securities $98,326 $53,489 $20,359 $71,769 $35,147 $ 9,367
======= ======= ======= ======= ======= =======
</TABLE>
(1) All of these obligations consist of U.S. Government Agency
issued securities.
(2) Comprised mostly of FHLB stock, Federal Reserve Bank stock
and a Pennsylvania community bank stock.
The following table presents the maturity distribution
and weighted average yield of the securities portfolio of BCB at
December 31, 1997. Weighted average yields on tax-exempt
obligations have been computed on a taxable equivalent basis.
<TABLE>
<CAPTION>
Available for Sale
December 31, 1997
(Dollars In Thousands)
After 1 Year After 5 Years
But But After 10 Years
Within 1 Year Within 5 Years Within 10 Years or no maturity (1) Total
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Amortized Cost:
U.S. Treasury Securities $ 498 7.383% $ 493 7.779% $ 0 0% $ 0 0% $ 991 7.580%
U.S. Government Agencies 0 0 0 0 16,981 7.287 16,000 7.354 32,981 7.320
State and Municipal 0 0 0 0 0 0 23,192 7.807 23,192 7.807
Mortgage-backed and
asset-backed securities 0 0 0 0 0 0 33,006 5.787 33,006 5.787
Other Securities 5,654 6.375 0 0 0 0 1,415 7.377 7,069 6.575
Total securities
available for sale $6,152 6.456% $ 493 7.779% $16,981 7.287% $73,613 6.794% $97,239 6.864%
====== ===== ====== ===== ======= ===== ======= ===== ======= =====
<CAPTION>
Held to Maturity
December 31, 1997
(Dollars In Thousands)
After 1 Year After 5 Years
But But After 10 Years
Within 1 Year Within 5 Years Within 10 Years or no maturity (1) Total
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Amortized Cost:
U.S. Treasury Securities $ 0 0% $ 0 0% $ 0 0% $ 0 0% $ 0 0%
U.S. Government Agencies 0 0 0 0 20,481 7.396 40,243 7.379 60,724 7.385
State and Municipal 365 8.845 1,704 6.609 796 8.446 7,300 8.059 10,165 7.875
Mortgage-backed and
asset-backed securities 0 0 0 0 0 0 0 0 0 0
Other Securities 0 0 0 0 25 7.500 0 0 25 7.500
Total securities
held to maturity $ 365 8.845% $1,704 6.609% $21,302 7.435% $47,543 7.483% $70,914 7.455%
====== ====== ====== ====== ======= ====== ======= ===== ======= ======
</TABLE>
__________________
(1) The majority of the securities listed in this category
are callable or likely to repay within five years.
Berks County Bank maintains a securities portfolio for
the secondary application of funds as well as a secondary source
of liquidity. At December 31, 1997, securities having an
amortized cost of $15.5 million were pledged as collateral for
public funds and other purposes as required or permitted by
law.
Neither BCB nor Berks County Bank hold securities of any
one issuer, excluding U.S. Treasury and U.S. Government Agencies,
that exceeded 10% of stockholders' equity at December 31, 1997 or
any prior period end.
Deposit Structure
The following is a distribution of the average balances
of Berks County Bank's deposits and the average rates paid
thereon for the years ended December 31, 1997, 1996 and 1995.
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
Amount Rate Amount Rate Amount Rate
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Demand--non-interest bearing $ 31,422 ----% $ 21,127 ----% $ 12,960 ----%
Demand--interest-bearing 131,447 3.90% 68,642 3.76% 28,455 3.29%
Savings 12,384 3.25% 11,010 3.12% 10,162 2.68%
Time, $100,000 and over 12,563 5.69% 9,965 5.52% 9,221 5.77%
Time, other 122,033 5.76% 102,533 5.52% 86,908 5.59%
Total deposits $309,849 4.28% $213,277 4.28% $147,706 4.47%
======== ===== ======== ===== ======== =====
</TABLE>
The following is a breakdown, by maturities, of Berks
County Bank's time certificates of deposit issued in
denominations of $100,000 or more as of December 31, 1997.
<TABLE>
<CAPTION>
Certificates of Deposit $100,000 or more
At December 31,
1997
(In thousands)
<S> <C>
Maturing in:
Three months or less $ 2,722
Over three through six months 910
Over six through twelve months 1,185
Over twelve months 8,006
Total $12,823
=======
</TABLE>
Long-Term Debt and Other Borrowed Funds
Berks County Bank maintains a U.S. Treasury tax and loan
note option account for the deposit of withholding taxes,
corporate income taxes and certain other payments to the federal
government. Deposits are subject to withdrawal and are evidenced
by an open-ended interest-bearing note. Borrowings under this
note option account were approximately $1.0 million at
December 31, 1997 and 1996.
Berks County Bank had other short-term borrowings from
the FHLB at December 31, 1997 and December 31, 1996 in the amount
of $21.0 million and $13.0 million, respectively. The
December 31, 1997 balance outstanding was mostly due in
January 1998 with the balance due in September 1998. The
December 31, 1997 balance had an average interest rate of
5.93%.
The following table sets forth information regarding
short-term borrowings at and for the periods ended December 31,
1997 and 1996.
<TABLE>
<CAPTION>
1997 1996
(In Thousands)
<S> <C> <C>
Short-term advances from the FHLB
bearing interest at a weighted
average rate of 5.93% and 5.41% as
of December 31, 1997 and 1996,
respectively:...........................$21,000 $13,000
Treasury, tax and loan note option........ 1,056 718
$22,056 $13,718
======= =======
Maximum amount of short-term advances
from the FHLB outstanding at any
month-end during the twelve months
ended December 31, 1997 and 1996........$43,396 $13,000
Maximum amount of Treasury, tax and
loan note option outstanding............ 1,121 1,362
$44,517 $14,362
======= =======
Average amount of short-term advances
outstanding during the twelve months
ended December 31, 1997 and 1996,
at weighted average interest rates
of 5.73% and 5.41%, respectively........$21,430 $ 5,171
Average amount of Treasury, tax and
loan note option outstanding............ 720 632
$22,150 $ 5,803
======= =======
</TABLE>
Long-term debt consisted of the following at December 31,
1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
(In Thousands)
<S> <C> <C>
Advances from the FHLB bearing
interest at a weighted average
rate of 5.96% and 5.49% as of
December 31, 1997 and 1996,
respectively............................$10,000 $22,000
======= =======
</TABLE>
Maturities of long-term debt at December 31, 1997 are as
follows:
(In
Thousands)
1998........................................... $ ---
1999........................................... 5,000
2000........................................... ---
2001........................................... 5,000
$10,000
=======
Berks County Bank has maximum borrowing capacity with the
FHLB of approximately $177.1 million. Advances from the FHLB are
secured by qualifying assets of Berks County Bank.
Berks Mortgage Company. Berks County Bank owns a 70%
interest in Berks Mortgage Company, a Pennsylvania business
trust. The remaining 30% is owned by a mortgage banking
affiliate of the local Coldwell Banker real estate franchise. As
a majority-owned subsidiary of Berks County Bank, Berks Mortgage
Company is authorized to engage in full service mortgage banking
in Pennsylvania. At the present time, Berks Mortgage Company
originates loans that are separately underwritten and funded by
Berks County Bank. Berks Mortgage Company commenced operations
in 1995. The overall activity of Berks Mortgage Company in 1995,
1996 and 1997 was immaterial in relation to BCB taken as a whole.
Competition. Berks County Bank faces significant
competition from other commercial banks, savings banks, savings
and loan associations and several other financial or investment
service institutions in the communities it serves. Several of
these institutions are affiliated with major banking and
financial institutions which are substantially larger and have
greater financial resources than BCB and Berks County Bank. As
the financial services industry continues to consolidate,
competition affecting Berks County Bank may increase. For most
of the services that Berks County Bank performs there is also
competition from credit unions and issuers of commercial paper
and money market funds. Such institutions, as well as brokerage
firms, consumer finance companies, insurance companies and
pension trusts, are important competitors for various types of
financial services.
Property. On February 18, 1998, BCB acquired the
150,000 square foot Penn Square Center located at 601 Penn
Street, Reading, Pennsylvania. BCB's and Berks County Bank's
executive/administrative offices will occupy four of the ten
floors of this facility. BCB plans to lease out the remaining
floors. The total purchase price for the building is $2,475,000
and includes an ATM machine and certain furnitures, fixtures and
equipment.
As of December 31, 1997, Berks County Bank owned one
property, the land and building at the site of its branch
location at High and Wilson Streets, Pottstown, Montgomery
County, Pennsylvania and an additional parcel of land located in
Exeter Township, Berks County, used for employee parking.
Berks County Bank leases the land upon which it constructed
the branch office it owns in Exeter Township, Berks County,
Pennsylvania. This lease expires in June 1999 and has renewal
options for twenty years thereafter. The lease expense for this
land was $44,000 and $45,000 in 1996 and 1997, respectively. The
lease expense for 1998 will be $46,000. Berks County Bank also
leases land located in Wyomissing Hills, Berks County,
Pennsylvania, upon which it constructed its Wyomissing branch.
The total term of this lease is twenty-nine years, eleven months,
expiring November 2024. The lease expense for 1996 and 1997 was
$41,000 and $42,000, respectively. The lease expense for 1998
will be $43,000.
Berks County Bank also leases the land upon which it
constructed its Muhlenberg Township branch. The branch opened on
March 29, 1997. The term of the lease is three years, expiring
November 1999. At the conclusion of the lease, Berks County Bank
will purchase the land for $375,000. The monthly lease payments
are fixed at $3,750 per month until the end of the lease. Berks
County Bank also leases the land upon which it constructed its
Shillington (Cumru Township) branch. The branch opened May 3,
1997. The term of the lease is ten years, expiring in January
2007. At the conclusion of the lease, Berks County Bank will
purchase the land for $400,000. The monthly lease payments are
fixed at $4,000 until the end of the lease.
Berks County Bank also leases space for its main branch
and executive/administrative offices at 400 Washington Street,
Reading, Pennsylvania. The space consists of a first floor
location for Berks County Bank branch and office space on the
second, eighth, ninth and twelfth floors for lending and
operations staff. The space is leased under separate leases
that, in the aggregate, required annual lease payments of
$164,000 and $175,000 in 1996 and 1997, respectively, and will
require lease payments of $119,000 in 1998. The leases expire at
various dates through 1998. Berks County Bank has options to
renew the terms of the leases for additional periods. In April
1998, it is expected, that BCB's and Berks County Bank's
executive/administrative operations will be relocated to BCB's
Penn Square facility.
On January 6, 1998, Berks County Bank announced that the
Bank's seventh full-service branch will be opened in Hamburg
(Berks County), Pennsylvania. The Hamburg branch opened on
March 14, 1998. Berks County Bank has agreed to lease a 1,500
square foot commercial property for the Hamburg branch. The
lease expense for 1998 will be $15,000.
On November 11, 1997, Berks County Bank entered into two
agreements of sale for two adjacent parcels of land in Douglass
Township (Montgomery County), Pennsylvania. Berks County Bank
will use these two parcels of land to construct its eighth
full-service branch. Estimated completion date is the third
quarter of 1998. The aggregate purchase price for the two
parcels is $525,000.
On December 8, 1997, Berks County Bank entered into an
agreement of sale for a parcel of land in Heidelberg Township
(Berks County), Pennsylvania. Berks County Bank will use this
parcel of land to construct its ninth full-service branch. The
estimated completion date for the Robesonia Branch is the third
quarter of 1998. The purchase price for the parcel is
$189,000.
Berks County Bank leases space for its mortgage center
and loan office at Two Woodland Road in Wyomissing, Pennsylvania.
The lease expired in February 1998 and had three renewal options
of one year each. The annual lease expense in 1996 and 1997 was
$39,000 and $40,000, respectively. The lease expense through
February 15, 1998 will be approximately $5,000. The lease has
been temporarily extended through May 31, 1998 at an approximate
additional expense of $12,000 for 1998.
Berks County Bank also leases space for a mortgage center
and loan office at 108 East Main Street, Schuylkill Haven,
Schuylkill County, Pennsylvania. The lease expires in May 1998
and has three additional extensions of six months each. The
lease expense in 1996 and 1997 was $450 and $5,000, respectively.
The lease expense for through May 31, 1998 will be $2,250.
Berks County Bank leases space for a mortgage center and
loan office in Jamison, Bucks County, Pennsylvania. The lease
expires in March 1998. The annual lease expense for 1997 was
$6,000. The lease expense through March 1998 will be $2,000.
After March 1998, the Bank will continue to lease this space on a
month-to-month basis.
Berks County Bank leases space for its Exton loan production
office in Chester County, Pennsylvania. The lease expires in
June 1998. The annual lease expense for 1997 was $7,000.
On February 1, 1998, Berks County Bank entered into a
lease agreement for a mortgage center and loan office in
Allentown, Lehigh County, Pennsylvania. The lease expires in
January 1999. The lease expense for 1998 will be approximately
$16,000.
In addition to its branches and offices, Berks County Bank
operates automated teller machines at its Exeter, Pottstown,
Wyomissing, Muhlenberg and Shillington branch offices and at a
location owned by St. Joseph's Hospital, Reading, Pennsylvania.
Legal Proceedings. BCB and Berks County Bank are from time
to time a party (plaintiff or defendant) to lawsuits that are in
the normal course of BCB's and Berks County Bank's business.
While any litigation involves an element of uncertainty,
management, after reviewing pending actions with its legal
counsel, is of the opinion that the liability of the Company and
Berks County Bank, if any, resulting from such actions will not
have a material effect on the financial condition or results of
operations of BCB and Berks County Bank.
Supervision and Regulation. Various requirements and
restrictions under the laws of the United States and the
Commonwealth of Pennsylvania affect BCB and Berks County Bank.
General. BCB is a bank holding company subject to
supervision and regulation by the FRB under the Bank Holding
Company Act of 1956, as amended. As a bank holding company,
BCB's activities and those of its subsidiary are limited to the
business of banking and activities closely related or incidental
to banking and BCB may not directly or indirectly acquire the
ownership or control of more than 5% of any class of voting
shares or substantially all of the assets of any company,
including a bank, without the prior approval of the FRB.
Berks County Bank is subject to supervision and examination
by applicable federal and state banking agencies. Berks County
Bank is a member of the Federal Reserve System, and therefore,
subject to the regulations of the FRB. Berks County Bank is also
a Pennsylvania-chartered bank subject to supervision and
regulation by the Pennsylvania Department of Banking.
In addition, because the deposits of Berks County Bank are
insured by the FDIC, Berks County Bank is subject to regulation
by the FDIC. Berks County Bank is also subject to requirements
and restrictions under federal and state law, including
requirements to maintain reserves against deposits, restrictions
on the types and amounts of loans that may be granted and the
interest that may be charged thereon, and limitations on the
types of investments that may be made and the types of services
that may be offered. Various consumer laws and regulations also
affect the operations of Berks County Bank. In addition to the
impact of regulation, commercial banks are affected significantly
by the actions of the FRB in attempting to control the money
supply and credit availability in order to influence the economy.
Holding Company Structure. Berks County Bank is subject
to restrictions under federal law which limit its ability to
transfer funds to BCB, whether in the form of loans, other
extensions of credit, investments or asset purchases. Such
transfers by Berks County Bank to the Company are generally
limited in amount to 10% of Berks County Bank's capital and
surplus. Furthermore, such loans and extensions of credit are
required to be secured in specific amounts, and all transactions
are required to be on an arm's length basis. Berks County Bank
has never made any loan or extension of credit to BCB nor has it
purchased any assets from BCB.
Under FRB policy, a bank holding company is expected to act
as a source of financial strength to its subsidiary bank and to
commit resources to support the bank, i.e., to downstream funds
to the bank. This support may be required at times when, absent
such policy, the bank holding company might not otherwise provide
such support. Any capital loans by a bank holding company to its
subsidiary bank are subordinate in right of payment to deposits
and to certain other indebtedness of the bank. In the event of a
bank holding company's bankruptcy, any commitment by the bank
holding company to a federal bank regulatory agency to maintain
the capital of its subsidiary bank will be assumed by the
bankruptcy trustee and entitled to a priority of payment.
Regulatory Restrictions on Dividends. Dividend payments
by Berks County Bank to BCB are subject to the Pennsylvania
Banking Code of 1965 (the "Banking Code"), the Federal Reserve
Act, and the Federal Deposit Insurance Act (the "FDIA"). Under
the Pennsylvania Banking Code, no dividends may be paid except
from "accumulated net earnings" (generally, undivided profits).
Under the FRB's regulations, Berks County Bank cannot pay
dividends that exceed its net income from the current year and
the preceding two years. Under the FDIA, no dividends may be
paid by an insured bank if the bank is in arrears in the payment
of any insurance assessment due to the FDIC. Under current
banking laws, Berks County Bank would be limited to approximately
$5.1 million of dividends in 1998 plus an additional amount equal
to Berks County Bank's net profit for 1998, up to the date of any
such dividend declaration.
State and federal regulatory authorities have adopted
standards for the maintenance of adequate levels of capital by
banks. Adherence to such standards further limits the ability of
Berks County Bank to pay dividends to the Company.
The payment of dividends to BCB by Berks County Bank may
also be affected by other regulatory requirements and policies.
If, in the opinion of the FRB, Berks County Bank is engaged in,
or is about to engage in, an unsafe or unsound practice (which,
depending on the financial condition of Berks County Bank, could
include the payment of dividends), the FRB may require, after
notice and hearing, that Berks County Bank cease and desist from
such practice. The FRB has formal and informal policies
providing that insured banks and bank holding companies should
generally pay dividends only out of current operating earnings.
FDIC Insurance Assessments. The FDIC has implemented a
risk-related premium schedule for all insured depository
institutions that results in the assessment of premiums based on
capital and supervisory measures.
Under the risk-related premium schedule, the FDIC, on a
semiannual basis, assigns each institution to one of three
capital groups (well capitalized, adequately capitalized or under
capitalized) and further assigns such institution to one of three
subgroups within a capital group corresponding to the FDIC's
judgment of the institution's strength based on supervisory
evaluations, including examination reports, statistical analysis
and other information relevant to gauging the risk posed by the
institution. Only institutions with a total capital to risk-
adjusted assets ratio of 10.00% or greater, a Tier 1 capital to
risk adjusted assets ratio of 6.0% or greater and a Tier 1
leverage ratio of 5.0% or greater, are assigned to the well-
capitalized group.
Berks County Bank's FDIC insurance assessment for the
first six months of 1998 is estimated to be $50,000. In
addition, for 1997 through 1999, the banking industry is required
to help pay the FICO interest payments at an assessment rate that
is one-fifth the rate paid by thrifts. The FICO assessment on
BIF insured deposits is 1.29 cents per $100 in deposits; for SAIF
insured deposits it is 6.44 cents per $100 in deposits.
Beginning January 1, 2000, the FICO interest payments will be
paid at the same rate by banks and thrifts, which rate will be
determined at such time by the FDIC. At December 31, 1997, BCB
estimated the FICO interest assessment to be approximately
$40,000 for 1998.
Capital Adequacy. The FRB adopted risk-based capital
guidelines for bank holding companies, such as BCB. The required
minimum ratio of total capital to risk-weighted assets (including
off-balance sheet activities, such as standby letters of credit)
is 8.0%. At least half of the total capital is required to be
"Tier 1 capital," consisting principally of common stockholders'
equity, noncumulative perpetual preferred stock and minority
interests in the equity accounts of consolidated subsidiaries,
less goodwill. The remainder ("Tier 2 capital") may consist of a
limited amount of subordinated debt and intermediate-term
preferred stock, certain hybrid capital instruments and other
debt securities, perpetual preferred stock, and a limited amount
of the general loan loss allowance.
In addition to the risk-based capital guidelines, the FRB
established minimum leverage ratio (Tier 1 capital to average
total assets) guidelines for bank holding companies. These
guidelines provide for a minimum leverage ratio of 3% for those
bank holding companies which have the highest regulatory
examination ratings and are not contemplating or experiencing
significant growth or expansion. All other bank holding
companies are required to maintain a leverage ratio of at least
1% to 2% above the 3% stated minimum. BCB is in compliance with
these guidelines. Berks County Bank is subject to similar
capital requirements also adopted by the FRB.
The risk-based capital standards are required to take
adequate account of interest rate risk, concentration of credit
risk and the risks of non-traditional activities.
Interstate Banking. The Riegle-Neal Interstate Banking
and Branching Efficiency Act of 1994 (the "Interstate Banking
Law"), amended various federal banking laws to provide for
nationwide interstate banking, interstate bank mergers and
interstate branching. The interstate banking provisions allow
for the acquisition by a bank holding company of a bank located
in another state.
Interstate bank mergers and branch purchase and assumption
transactions were allowed effective June 1, 1997; however, states
may "opt-out" of the merger and purchase and assumption
provisions by enacting a law which specifically prohibits such
interstate transactions. States could, in the alternative, enact
legislation to allow interstate merger and purchase and
assumption transactions prior to June 1, 1997. States could also
enact legislation to allow for de novo interstate branching by
out of state banks. In July 1995, Pennsylvania adopted "opt-in"
legislation which allows such transactions.
Year 2000 Computer Issues. Management has initiated a
company-wide program to prepare BCB's and Berks County Bank's
computer systems and applications for the year 2000.
The "year 2000" challenge is pervasive and complex as
virtually every computer operation will be affected in some way
by the rollover of the two digit year value to 00. The issue is
whether computer systems will properly recognize date sensitive
information when the year changes to 2000.
BCB is utilizing both internal and external resources to
identify, correct or reprogram, and test the systems for the year
2000 compliance.
BCB plans to have all reprogramming efforts completed by
December 31, 1998, allowing adequate time for testing.
BCB expects to incur internal staff costs and other
expenses related to hardware and software enhancements necessary
to prepare the systems for the year 2000. Management expects
these "year 2000" maintenance or modification costs to be
immaterial.
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview. Berks County Bank opened its first office in
Reading, Pennsylvania in 1987 to serve individuals and small- to
medium-sized businesses that it believed were not being
adequately served by its larger competitors in the Berks County
market area. Berks County Bank opened its second office in
Exeter in 1991.
In 1995, Berks County Bank initiated a more aggressive
branch expansion and marketing program targeting customers of
larger institutions that were recently acquired. Berks County
Bank opened branches in Pottstown and Wyomissing in 1995, and in
Muhlenberg and Shillington on March 29 and May 3, 1997,
respectively. As a result, BCB's assets have grown from
$154.7 million at December 31, 1994 to $447.6 million at
December 31, 1997, a compound annual growth rate of approximately
42.5%. In addition, Berks County Bank aggressively has sought to
leverage deposit inflows into new loan originations and since
1995 has opened loan production offices in Wyomissing, Pottstown,
Schuylkill Haven, Jamison, Exton, and Allentown. Net loans have
grown from $125.5 million at December 31, 1994 to $246.2 million
at December 31, 1997.
Future growth plans include the opening of at least three
new branches in 1998 and the addition of two new offices per year
for the next several years in Berks and the contiguous counties.
Management's goal in establishing any new branch is to achieve
deposits of at least $50 million in three years or less. In
addition, BCB expects to open additional loan production offices
in those areas where BCB perceives market opportunities and which
may be suitable for future branch sites.
BCB's net income historically has fluctuated with the timing
of new branch openings because BCB incurs incremental non-
interest expense when opening a new branch office. Specifically
in 1995 BCB opened two new branches within the same calendar
quarter. Because BCB was much smaller in 1995 than it is in
1998, the incremental non-interest expense as a percentage of net
income was substantially greater in 1995 than BCB expects it to
be in 1998. As BCB continues to open additional branches, it
expects the impact of incremental non-interest expense on net
income to be less dramatic than in prior years as a result of the
growth in BCB's asset base.
BCB began paying cash dividends in 1993 at an annual rate of
$0.04 per share. Since that time, BCB has paid a cash dividend
each quarter and has annually increased such dividend to its
current annual rate of $0.32 per share.
The following discussion and analysis of financial condition
and results of operations of BCB should be read in conjunction
with the consolidated financial statements of the Company
including the related notes thereto, included elsewhere herein.
Results of Operations for the Years Ended December 31, 1997
and 1996
Overview
BCB's net income for the year-ended December 31, 1997 was
$3.3 million, increasing by 73.7% from $1.9 million for 1996.
The increase in net income for 1997 compared to 1996 was largely
attributable to an increase in net interest income.
Analysis of Net Interest Income
Historically, BCB's earnings have depended primarily upon
the Bank's net interest income, which is the difference between
interest earned on interest-earning assets and interest paid on
interest-bearing liabilities. BCB's net interest income,
calculated on a tax-equivalent basis, increased $4.2 million, or
48.3%, to $12.9 million during 1997 from $8.7 million during
1996. The increase in net interest income was primarily due to
an increase in average interest-earning assets at rates higher
than the increase in average interest-bearing liabilities.
Interest income, on a tax-equivalent basis, increased
$9.8 million, or 53.0%, from $18.5 million in 1996 to
$28.3 million in 1997, while interest expense increased $5.5
million, or 56.1%, from $9.8 million in 1996 to $15.3 million in
1997.
Net interest margin decreased 13 basis points to 3.59%
for the year-ended December 31, 1997 compared to 3.72% for the
year-ended December 31, 1996, calculated on a tax-equivalent
basis. Net interest margin is the difference between interest
earned and interest paid, divided by average total
interest-earning assets. Net interest margin decreased in 1997
due primarily to a decrease in the average yield on interest
earning assets -- specifically securities, and an increase in the
average yield on interest-bearing liabilities, primarily other
borrowed funds and deposits. In 1997, the average yield on
interest-earning assets, on a tax equivalent basis, decreased 6
basis points, or less than 1 percent, to 7.85% compared to 7.91%
for the prior year-ended December 31, 1996. The average yield on
total interest-bearing liabilities (deposits plus borrowed funds)
increased 8 basis points, or 1.7%, to 4.87% for the year-ended
December 31, 1997 compared to 4.79% for the prior year-ended
December 31, 1996.
To the extent that BCB chooses to invest in tax-free
securities or extend tax-free loans, BCB's tax expense can be
reduced from the statutory rate of 34% to an effective rate below
that level. The amount of tax that is saved by the acquisition
of tax-free assets is included in interest income for purposes of
calculating the tax-equivalent yield on earning assets. During
the latter part of 1996, BCB significantly increased its
investments in State and Municipal Securities, which are
substantially tax-free, except for the disallowance of the
deduction of twenty percent of interest expense on deposits or
liabilities used to fund these investments, in accordance with
the Federal tax laws governing bank qualified securities. This
resulted in a substantial increase in the average balance in
State and Municipal securities in 1997, versus 1996.
Net interest income is affected by changes in the mix of
the volume and rates of interest-earning assets and
interest-bearing liabilities. The Average Balances, Average
Rates, and Net Interest Margin table provides an analysis of net
interest income on a tax-equivalent basis, setting forth for the
periods (i) average assets, liabilities and stockholders' equity,
(ii) interest income earned on interest-earning assets and
interest expense paid on interest-bearing liabilities,
(iii) average yields earned on interest-earning assets and
average rates paid on interest-bearing liabilities, and (iv) the
Bank's net interest margin (net interest income as a percentage
of average total interest-earning assets).
<TABLE>
<CAPTION>
Average Balances, Average Rates, and Net Interest Margin
Years Ended December 31, 1997 December 31, 1996 December 31, 1995
Interest Interest Interest
(Dollars in thousands) Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Balance Expense(1) Rate(2) Balance Expense(1) Rate(2) Balance Expense(1) Rate(2)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Interest-bearing deposits
at banks $ 4,287 $ 243 5.67% $ 8,095 $ 431 5.32% $ 9,716 $ 560 5.76%
U.S. Treasury 2,376 167 7.03 4,168 261 6.26 5,891 382 6.48
U.S. Government agencies 91,503 6,333 6.92 25,237 1,770 7.01 6,239 397 6.36
State and municipal (3) 32,574 2,560 7.86 22,003 1,773 8.06 7,336 591 8.06
Other bonds and securities 5,477 343 6.24 1,920 119 6.20 1,177 78 6.63
Total securities 131,930 9,403 7.13 53,328 3,923 7.36 20,643 1,448 7.01
Federal funds sold 649 35 5.55 2,319 121 5.22 1,290 73 5.66
Commercial loans (3) 104,044 9,098 8.74 76,196 6,758 8.87 57,443 5,307 9.24
Mortgage loans 100,446 7,779 7.74 78,745 5,952 7.56 66,832 5,124 7.67
Installment loans 18,640 1,703 9.14 15,194 1,324 8.71 9,585 864 9.01
Total loans(4) 223,130 18,580 8.33 170,135 14,034 8.25 133,860 11,295 8.44
Total interest-
earning assets 359,996 28,261 7.85 233,877 18,509 7.91 165,509 13,376 8.08
Unrealized depreciation on
available for sale
securities (106) (227) (172)
Allowance for loan losses (2,283) (1,849) (1,492)
Non-interest earning assets 22,275 15,479 11,821
Total assets $379,882 $247,280 $175,666
======== ======== ========
INTEREST-BEARING LIABILITIES:
Demand deposits,
interest-bearing $131,447 $ 5,131 3.90% $ 68,642 $ 2,582 3.76% $ 28,455 $ 937 3.29%
Savings deposits 12,384 402 3.25 11,010 343 3.12 10,162 272 2.68
Other time deposits 134,596 7,744 5.75 112,498 6,210 5.52 96,129 5,391 5.61
Total deposits 278,427 13,277 4.77 192,150 9,135 4.75 134,746 6,600 4.90
Other borrowed funds 22,150 1,256 5.67 5,803 303 5.22 2,736 141 5.15
Long-term borrowings 13,830 788 5.70 6,742 371 5.50 5,488 285 5.19
Total interest-bearing
liabilities 314,407 15,321 4.87 204,695 9,809 4.79 142,970 7,026 4.91
Demand deposits,
non-interest bearing 31,422 21,127 12,960
Other non-interest
bearing liabilities 4,682 2,718 1,870
Total liabilities 350,511 228,540 157,800
Redeemable common stock --- 14 315
Stockholders' equity 29,371 18,726 17,551
Total liabilities,
redeemable common stock
and stockholders' equity $379,882 $247,280 $175,666
======== ======== ========
Net interest income $12,940 $8,700 $6,350
======= ====== ======
Net interest margin(5) 3.59% 3.72% 3.84%
===== ===== =====
</TABLE>
_____________
(1) Includes loan fee income.
(2) Yields on investments are calculated on amortized cost.
(3) Taxable equivalent basis, using a 34% statutory tax rate and
adjusted for the disallowance of the deduction for interest
expense to carry bank eligible tax-exempt securities and
loans.
(4) Loans outstanding include non-accruing loans.
(5) Represents the difference between interest earned and
interest paid, divided by average total interest-earning
assets.
BCB's total interest income on a tax-equivalent basis
increased by $9.8 million during 1997 over the previous year,
from $18.5 million in 1996 to $28.3 million in 1997. Interest
and fees on loans increased $4.6 million, from $14.0 million for
the year-ended December 31, 1996 to $18.6 million for the
year-ended December 31, 1997, which was the result of an increase
in average loan volume, from $170.1 million at December 31, 1996
to $223.1 million at December 31, 1997, and an increase in the
average yield on loans, from 8.25% in 1996 to 8.33% in 1997.
Also contributing to the increase in total interest income was an
increase in interest and dividend income on securities of
$5.5 million, from $3.9 million in 1996 to $9.4 million in 1997.
This increase in investment income was the result of an increase
in the average balance of securities owned in 1997 versus 1996,
from $53.3 million in 1996 to $131.9 million in 1997. BCB has
elected during the past several years to maintain the bulk of its
excess liquidity in an interest-bearing account at the Federal
Home Loan Bank of Pittsburgh instead of selling it overnight as
Federal Funds Sold. By doing this during 1997, BCB increased its
yield on its deposits at the FHLB by 12 basis points over what it
could have earned in Federal Funds Sold, an average yield of
5.67% versus 5.55%. Plus, the FHLB affords BCB the protection of
an AAA/Aaa rated institution by Moodys and Standard and Poor,
since it is a quasi-Federal government agency.
BCB's total interest expense increased $5.5 million, or
56.1%, to $15.3 million in 1997 from $9.8 million in 1996. This
increase was due to an increase in the volume of average
interest-bearing liabilities of $109.7 million, or 53.6%, to
$314.4 million for the year-ended December 31, 1997 versus
$204.7 million for the year-ended December 31, 1996. The average
rate paid on interest-bearing liabilities increased 8 basis
points, or 1.7%, from 4.79% for 1996 compared to 4.87% for 1997.
This increase was primarily the result of BCB's decision to
leverage its balance sheet in order to increase earnings, thereby
electing to increase its average volume of borrowed funds, which
were at rates in excess of the average rate on total average
deposits.
The average rate paid on interest-bearing demand
deposits, primarily money market savings and interest checking
accounts, increased in 1997 to 3.90% from 3.76% in 1996.
Additionally, the average volume increased from $68.6 million in
1996 to $131.4 million in 1997, an increase of $62.8 million, or
91.5%. BCB believes that its strategy of paying an above market
4.20% APY (annual percentage yield) on money market savings
accounts having balances of $1,000 or more, and guaranteeing that
APY through June 30, 1998 has resulted in significant volume
increases in deposits at incremental costs far below those that
would have been paid for the same volume of certificates of
deposit.
Interest expense on time deposits increased $1.5 million,
or 24.2%, from $6.2 million during 1996 to $7.7 million during
1997. This increase was due to an increase in the average volume
of certificates of deposit in the amount of $22.1 million, or
19.6%, from $112.5 million in 1996 to $134.6 million in 1997.
Interest expense on other borrowed funds and long-term
borrowings increased in 1997 to $2.0 million from $0.7 million in
1996 as the average balance increased to $36.0 million in 1997
from $12.5 million in 1996. The increase, along with the increase
in deposits and other borrowed funds, funded purchases of
securities and loans as part of an on-going matched funding
program that's primary purpose was to increase earnings while
also managing interest-rate risk and liquidity. An integral part
of this strategy was to aggressively promote "free" non-interest
bearing business and personal demand (checking) accounts. This
strategy is continuing into 1998 in an on-going effort by BCB to
lower its overall cost of funds while attracting significant
volumes of new deposits at incremental rates below rates on
certificates of deposit or borrowings.
During 1997, non-interest bearing business and personal
demand (checking) deposits increased to $38.5 million at
December 31, 1997 from $29.0 million at December 31, 1996, an
increase of $9.5 million, or 32.8%. On an average balance basis,
the increase from 1996 to 1997 was $10.3 million, or 48.8%, from
$21.1 million in 1996 to $31.4 million in 1997. Since the cost
of funds on these deposits is zero percent, to the extent BCB is
successful in increasing these non-interest bearing deposits as a
percentage of total deposits, it should mitigate any above market
interest rates paid on savings and time deposits acquired to fund
earning assets in the future.
Rate/Volume Analysis of Changes in Net Interest Income
Net interest income may also be analyzed by segregating
the volume and rate components of interest income and interest
expense. The "Rate/Volume Analysis of Changes in Net Interest
Income" table which follows sets forth an analysis of volume and
rate changes in net interest income for the periods indicated.
For purposes of this table, changes in interest income and
interest expense are allocated to volume and rate categories
based upon the respective percentage changes in average balances
and average rates.
<TABLE>
<CAPTION>
Years Ended December 31,
1997 vs 1996 1996 vs 1995
Change due to Change due to
Average Average Increase Average Average Increase
Volume Rate (Decrease) Volume Rate (Decrease)
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest earned on:
Interest-bearing deposits
with banks $ (294) $ 106 $ (188) $ 428 $ (557) $ (129)
Federal funds sold (87) 2 (85) (42) 90 48
Securities (1) 5,816 (337) 5,479 2,941 (466) 2,475
Loans (1) 4,485 61 4,546 3,415 (676) 2,739
Total interest income $9,920 $ (168) $9,752 $ 6,742 $(1,609) $5,133
Interest paid on:
Interest bearing demand
and savings deposits $2,385 $ 223 $2,608 $1,097 $ 619 $1,716
Time deposits under $100,000 143 5 148 724 68 792
Time deposits $100,000 and above 1,078 309 1,387 193 (166) 27
Borrowed funds 1,284 85 1,369 2,009 (1,761) 248
Total interest expense $4,890 $ 622 $5,512 $4,023 $(1,240) $2,783
Net interest income $5,030 $ (790) $4,240 $2,719 $ (369) $2,350
====== ======= ====== ====== ======= ======
</TABLE>
______________
(1) Interest income is reported on a tax-equivalent basis,
using a 34% statutory tax rate and adjusted for the
disallowance of the deduction for interest expense to
carry bank eligible tax-exempt securities and loans.
Provision for Loan Losses
The provision for loan losses is charged to operations to
bring the total allowance for loan losses to a level considered
appropriate by management. The level of the allowance for loan
losses is determined by management of the Bank based upon its
evaluation of the known as well as inherent risks within the
Bank's loan portfolio. Management's periodic evaluation is based
upon an examination of the portfolio, past loss experience,
current economic conditions, the results of the most recent
regulatory examinations and other relevant factors (See
discussion under "Asset Quality"). The provision for loan losses
was $1.0 million for 1997 compared to $0.7 million for 1996.
The reason for the increase in 1997 was to replace that
portion of the allowance for loan losses used to fund loan
charge-offs, net of recoveries, in 1997 of $358,000 as well as to
build the allowance for loan losses to a level deemed to be
satisfactory given the growth in the size of the loan portfolio
during 1997. Non-performing assets were 0.90% of total assets at
December 31, 1997, compared to 1.12% at December 31, 1996.
Delinquencies were down to 2.3% at December 31, 1997, from the
2.7% ratio at December 31, 1996.
Other Income
Non-interest income increased $0.8 million, or 61.5%,
from $1.3 million in 1996 to $2.1 million in 1997. The increase
was due primarily to a $0.3 million increase in customer service
fees for services such as merchant cards, overdrafts and NSF
(non-sufficient funds) charges, safe deposit box rentals, and
other services that are primarily deposit driven. The increase
in customer service fees was nearly proportional to the increase
in the Bank's average total deposits. Also, income from mortgage
banking activities increased $0.3 million, or 50.0%, from
$0.6 million in 1996 to $0.9 million in 1997, due to an increase
in investors' mortgage commitments in 1997. In 1997, BCB also
realized gains on the sale of securities of $176,000, an increase
of $177,000 over the ($1,000) net losses realized in 1996.
Other Expenses
Total other expenses increased $2.6 million, or 40.0%,
from $6.5 million in 1996 to $9.1 million in 1997. Salaries,
wages and employee benefits increased $1.8 million, or 64.3%,
from $2.8 million in 1996 to $4.6 million in 1997. The primary
reason for the increase in salaries, wages and employee benefits
was the opening and staffing of two new branches in Muhlenberg
and Shillington along with the additional backroom staff required
to support the rapid growth of the bank.
Occupancy expenses increased $142,000, or 24.9%, from
$570,000 in 1996 to $712,000 in 1997. Equipment expenses
increased $136,000 or 32.5%, from $419,000 in 1996 to $555,000 in
1997. Other operating expenses increased $0.6 million, or 23.1%,
from $2.6 million in 1996 to $3.2 million in 1997. Other
operating expenses encompasses all expenses not otherwise
categorized and includes items such as third-party data
processing costs for ATM machines, FDIC insurance premiums,
professional fees, advertising costs, insurance and other
miscellaneous expenses. The primary reason why occupancy,
equipment, and other operating expenses increased during 1997 was
the growth of the Bank.
The largest increase in other operating expenses in 1997
came from office supplies and expenses. In 1997 office supplies
and expenses were $612,000 versus $372,000 in 1996, a $240,000
increase, or 64.5%. Professional fees also increased
significantly, to $350,000 in 1997 versus $161,000 in 1996, a
$189,000 increase, or 117.4%. These two expenses account for
78.9% of the net increase in the other operating expense
category. Other expenses that increased significantly in 1997
versus 1996 were Advertising, a $60,000 or 10.0% increase;
Insurance, a $20,000 or 23.9% increase; Dues and Subscriptions,
an $18,000 or 98.2% increase; Travel and Entertainment, a $30,000
or 67.7% increase; Data Processing and MAC Fees, a $117,000 or
31.9% increase; Telephone, a $32,000 or 53.7% increase; and other
loan expenses increased $111,000 or 80.3%.
During the normal course of operations, it sometimes
becomes necessary for the Bank to take possession of real estate
collateral associated with non-performing loans. Until that real
estate is disposed of through a sale, the Bank often must incur
maintenance, repair, taxes and other expenses in order to protect
the value of that real estate. These costs, plus losses (net of
gains) on the sale of foreclosed real estate totaled $301,000 in
1996, but decreased to a net gain of ($66,000) in 1997, a
decrease of $367,000.
Provision for Income Taxes
The provision for federal income taxes increased
$435,000, or 100.5%, to $868,000 in 1997 from $433,000 in 1996.
The effective tax rates for the years ended December 31, 1997 and
1996 were 20.8% and 18.5% respectively. The significant decrease
in 1997's and 1996's effective tax rate from the statutory tax
rate of 34% was due to the significant generation of tax-exempt
interest income earned on bank-qualified municipal securities and
loans. The significant increase in the amount of federal income
taxes from 1996 to 1997 was the result of the substantial
increase in income before income taxes of $1.9 million, from
$2.3 million in 1996 to $4.2 million in 1997. A reconciliation
of the statutory income tax at a rate of 34% to the income tax
expense for 1997 and 1996 is included in footnote No. 8 to the
consolidated financial statements.
Financial Condition
BCB's total assets increased 37.9% from $324.5 million at
December 31, 1996 to $447.6 million at year-end 1997. During the
same period, net loans increased by 28.2% to $246.2 million, and
securities increased by 90.1% to $169.2 million. The increase in
securities was due primarily to the net purchase of $44.8 million
in available for sale securities and $35.8 million in held to
maturity securities as part of a matched funding program by the
Bank to increase earnings. Cash and amounts due from banks,
interest-bearing deposits (which are held at the Federal Home
Loan Bank, "FHLB"), and federal funds sold are all liquid funds.
The aggregate amount in these three categories decreased by
$18.0 million to $13.7 million at December 31, 1997 from
$31.7 million at December 31, 1996, primarily due to a greater
amount of growth in loans and securities during 1997 than the
amount of growth in deposits. Amounts due from mortgage
investors increased from $3.5 million at year-end 1996 to
$5.4 million at year-end 1997. These amounts represent loans
originated by the Bank for other mortgage investors/lenders under
standing commitments. These loans are temporarily funded for
such investors for periods ranging from three to forty-five days
after origination. Bank premises and equipment, net of
accumulated depreciation, increased from $4.4 million at year-end
1996 to $6.4 million at year-end 1997. The increase of
$2.0 million was mainly attributable to the construction of two
new branch sites in Muhlenberg and Shillington. These offices
opened in the first and second quarters of 1997, respectively.
Prepaid expenses and other assets increased by $2.3 million, from
$0.5 million at December 31, 1996 to $2.8 million at December 31,
1997. The increase was mainly due to securities sold prior to
year end 1997, which did not settle until early 1998. Foreclosed
real estate decreased from $0.8 million at December 31, 1996 to
$0.2 million at December 31, 1997. Foreclosed real estate is
comprised of property acquired through foreclosure proceeding or
acceptance of a deed-in-lieu of foreclosure.
Total liabilities increased by $98.7 million, or 32.4%,
from $304.8 million at December 31, 1996 to $403.5 million at
December 31, 1997. During this period, deposits increased by
36.4% from $264.3 million at year-end 1996 to $360.6 million at
year-end 1997. The deposit mix changed considerably during 1997,
along the same trend as it did in 1996, because the Bank
continued to place greater emphasis upon the generation of
savings and checking deposits versus higher cost certificates of
deposits. This was accomplished by raising the rate of interest
paid for money market deposits in 1996 and maintaining the above
market interest rate throughout 1997; offering no-fee, "free"
personal and business checking; and also paying attractive
interest rates on interest checking accounts during a period of
time where major competitors charged fees for checking and paid
no interest, or lower interest, for checking accounts. The
aggregate amount of demand and savings deposits, which are lower
in rate than time deposits, increased $70.9 million, or 49.9%,
from $142.0 million at December 31, 1996 to $212.9 million at
December 31, 1997. As a percentage of total deposits, aggregate
demand and savings deposits increased from 53.7% at December 31,
1996 to 59.0% at December 31, 1997. Aggregate demand deposits
include non-interest bearing demand, interest checking (NOW) and
money market deposits. Certificates of deposit increased
$25.3 million, or 20.7%, from $122.3 million at year-end 1996 to
$147.6 million at December 31, 1997. As a percentage of total
deposits, certificates of deposit decreased from 46.3% at
December 31, 1996 to 40.9% at December 31, 1997. The proceeds
from the increase in deposits were used to fund new loans,
securities purchases, and additions to bank premises and
equipment. Other borrowed funds increased $8.4 million from
$13.7 million at year-end 1996 to $22.1 million at year-end 1997.
The increase was primarily the result of new FHLB advances with a
maturity date of less than one year. Long-term borrowed funds
decreased $12.0 million from $22.0 million at year-end 1996 to
$10.0 million at year-end 1997. This decrease was due to the
reclassification of long-term borrowings that, due to the passage
of time, mature in less than a year, or due to their prepayment.
BCB utilizes FHLB borrowings as part of its on-going matched
funding program to increase earnings and/or to manage
interest-rate risk and liquidity.
Shareholders' equity increased $24.4 million, or 123.9%
to $44.1 million at December 31, 1997 from $19.7 million at
December 31, 1996. The increase in shareholders' equity is
primarily attributable to the completion of BCB's secondary
public offering, during the third quarter of 1997, in which it
sold 1,380,000 shares at $16.375 per share. Net proceeds to BCB,
after deducting expenses of $1.7 million, were $20.9 million.
Also contributing to the increase was the retention of earnings
of $2.5 million, net of cash dividends declared of $0.8 million.
The change in net unrealized appreciation (depreciation) on
securities available for sale, net of taxes, was $766,000, from
($49,000) depreciation at December 31, 1996 to $717,000
appreciation at December 31, 1997. This increase was caused by
the general decrease in interest rates during the period. When
interest rates fall, the fair value of debt securities generally
increases, thereby increasing equity.
Asset Quality
Non-performing assets as a percentage of total assets
decreased 19.6% from 1.12% at December 31, 1996 to 0.90% at
December 31, 1997. Non-performing assets increased 11.1%, from
$3.6 million at December 31, 1996 to $4.0 million at December 31,
1997. Non-performing assets are comprised of non-accrual loans,
accruing loans that are 90 days or more past due which are
insured for credit loss, foreclosed real estate (assets acquired
in foreclosures), and restructured loans. It is the Bank's
policy to classify a loan, other than a loan insured for credit
loss, as non-accrual within ten days after the month end in which
the loan becomes 90 days past due for either principal or
interest.
The balance in the allowance for loan losses was
$2.6 million, or 1.05% of total loans, at December 31, 1997. At
December 31, 1996, the balance in the allowance for loan losses
was $2.0 million, or 1.03% of total loans. The balance in the
allowance for loan losses was 1.97% of total loans excluding
residential mortgages at December 31, 1997, compared to 1.83% at
December 31, 1996. The ratio of the allowance for loan losses to
non-performing loans was 67.58% at December 31, 1997 compared to
69.75% at December 31, 1996. It has been the Bank's experience
that the percentage of loan losses have been substantially less
in its residential mortgage portfolio than its commercial loan
portfolio. At December 31, 1997, 44.5% of the Bank's loan
portfolio was in residential mortgage loans, compared to 46.1% at
December 31, 1996.
As a financial institution which assumes lending and
credit risks as a principal element of its business, BCB
anticipates that credit losses will be experienced in the normal
course of business. Accordingly, management of BCB makes a
quarterly determination as to an appropriate provision from
earnings necessary to maintain an allowance for loan losses that
is adequate for potential yet undetermined losses. The amount
charged against earnings is based upon several factors including,
at a minimum, each of the following:
- a continuing review of delinquent, classified and
non-accrual loans, large loans, and overall portfolio
quality. This continuous review assesses the risk
characteristics of both individual loans and the total
loan portfolio;
- analytical review of loan charge-off experience,
delinquency rates and other relevant historical and
peer statistical ratios;
- management's judgment with respect to local and general
economic conditions and their impact on the existing
loan portfolio;
- regular examinations and reviews of the loan portfolio
by the bank regulators.
When it is determined that the prospect for recovery of
theprincipal of a loan has significantly diminished, that portion
of the loan is immediately charged against the allowance account.
Subsequent recoveries, if any, are credited to the allowance
account. In addition, non-accrual and large delinquent loans are
reviewed monthly to determine potential losses.
Management believes the allowance for loan losses was
adequate to cover risks inherent in its loan portfolio at
December 31, 1997. However, there can be no assurance that BCB
will not have to increase its provision for loan losses in the
future as a result of changes in economic conditions or for other
reasons. Any such increase could adversely affect BCB's results
of operations.
Interest Rate Risk Management.
Interest rate risk management involves managing the extent
to which interest-sensitive assets and interest-sensitive
liabilities are matched. Berks County Bank typically defines
interest-sensitive assets and interest sensitive liabilities as
those that reprice within one year or less. Maintaining an
appropriate match is a method of avoiding wide fluctuations in
net interest margin during periods of changing interest rates.
The difference between interest-sensitive assets and
interest-sensitive liabilities is known as the "interest-
sensitivity gap" ("GAP"). A positive GAP occurs when interest-
sensitive assets exceed interest sensitive liabilities repricing
in the same time periods, and a negative GAP occurs when
interest-sensitive liabilities exceed interest-sensitive assets
repricing in the same time periods. A negative GAP ratio
suggests that a financial institution may be better positioned to
take advantage of declining interest rates rather than increasing
interest rates, and a positive GAP ratio suggests the converse.
Berks County Bank attempts to manage its assets and
liabilities in a manner that stabilizes net interest income and
net economic value under a broad range of interest rate
environments. Adjustments to the mix of assets and liabilities
are made periodically in an effort to provide dependable and
steady growth in net interest income regardless of the behavior
of interest rates.
The following table presents a summary of Berks County
Bank's interest rate sensitivity at December 31, 1997 calculated
on a beta-adjusted basis. For purposes of this table, Berks
County Bank has used assumptions based on industry data and
historical experience to calculate the expected maturity of loans
because, statistically, certain categories of loans are prepaid
before their maturity date, even without regard to interest rate
fluctuations.
<TABLE>
<CAPTION>
INTEREST RATE SENSITIVITY ANALYSIS AT December 31, 1997 (1)
0 days 31 days 61 days 91 days 181 days 1 year
through through through through through through Over 5
30 days 60 days 90 days 180 days 1 year 5 years Years Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans $45,518 $4,444 $4,582 $16,445 $32,013 $106,272 $ 39,536 $248,810
Securities (2) 5,904 0 0 293 320 28,405 133,231 168,153
Interest-bearing deposits
& Federal Funds sold 645 0 0 0 0 0 0 645
Total $52,067 $4,444 $4,582 $16,738 $32,333 $134,677 $172,767 $417,608
Interest-bearing liabilities:
Interest bearing deposits $59,606 $4,137 $4,465 $ 6,536 $15,269 $108,314 $123,759 $322,086
Borrowed Funds 20,056 0 0 0 2,000 10,000 0 32,056
Non-interest-bearing
deposits 7,562 0 0 0 0 0 30,904 38,466
Total $87,224 $4,137 $4,465 $ 6,536 $17,269 $118,314 $154,663 $392,608
Interest-rate sensitivity
gap:
Interval ($35,157) $ 307 $ 117 $10,202 $15,064 $ 16,363 $ 18,104 $ 25,000
========= ====== ====== ======= ======= ======== ======== ========
Cumulative ($35,157) ($34,850) ($34,733) ($24,531) ($9,467) $ 6,896 $ 25,000 $ 25,000
========= ========= ========= ========= ======== ======== ======== ========
Ratio of cumulative gap
to total rate-sensitive
assets (8.42%) (8.35%) (8.32%) (5.87%) (2.27%) 1.65% 5.99% 5.99%
======= ======= ======= ======= ======= ===== ===== =====
</TABLE>
____________
(1) Calculated on a beta-adjusted basis.
(2) Maturity of securities is based on maturity date;
excludes unrealized appreciation on available for sale
securities.
Shortcomings are inherent in a simplified and static GAP
analysis that may result in an institution with a negative GAP
having interest rate behavior associated with an asset-sensitive
balance sheet. For example, although certain assets and
liabilities may have similar maturities or periods to repricing,
they may react in different degrees to changes in market interest
rates. Furthermore, repricing characteristics of certain assets
and liabilities may vary substantially within a given time
period. In the event of a change in interest rates, prepayment
and early withdrawal levels could also deviate significantly from
those assumed in calculating GAP in the manner presented in the
table.
The traditional static GAP analysis implicitly assumes that
the interest rates on all assets and liabilities that reprice
within a given repricing period change by the same amount as the
change in the market interest rate of the same duration. For
example, if the Federal funds rate increased by 100 basis points,
a static GAP model assumes that the prime rate and the rate paid
on money market deposits will each change by 100 basis points.
However, experience suggests that such an analysis is not
accurate. For example, if the Federal funds rate changes by 100
basis points, the prime rate may only change by 90 basis points
and the rate paid on money market accounts may only change by 40
basis points. More sophisticated asset/liability management
models attempt to adjust for this defect in the static GAP model.
Accordingly, Berks County Bank measures its interest-rate risk by
conducting various analyses in addition to the traditional static
GAP report, including repricing matrices, beta-adjusted GAP
reports, simulation modeling and duration analyses.
Beta is the measure of the relative sensitivity of the
amount of change in the interest rate on a given asset or
liability with the amount of change in another independent
financial instrument. For example, an asset or liability with a
beta of .75 means that a 100 basis point change in the
independent variable (e.g. Federal funds) will result in a 75
basis point change in the rate of the asset or liability. A beta
is assigned to each key rate for each asset and liability
account, and the volume of assets and liabilities that reprice
within a repricing period are adjusted by this beta factor. The
result is a beta-adjusted GAP position. This data is also
organized into a repricing matrix to give a graphical
presentation of the GAP position. Results of these analyses as
of December 31, 1997 indicate that despite the negative GAP
balance shown in the table, Berks County Bank does not have
material interest-rate risk in the event that interest rates rise
or fall as much as 300 basis points over the next twelve
months.
Capital
BCB's Tier 1 capital to risk-weighted assets ratio at
December 31, 1997 was 17.01% compared to 10.39% at December 31,
1996. These ratios far exceeded the Tier I regulatory capital
requirement of 4.00%. BCB's total capital to risk-weighted
assets ratio at December 31, 1997 was 18.03% compared to 11.44%
at December 31, 1996. These ratios exceeded the total risk-based
capital regulatory requirement of 8.00%. At December 31, 1997,
BCB's leverage ratio was 9.87% versus 6.82% at December 31, 1996.
BCB is categorized as "well capitalized" under applicable Federal
regulations. BCB's capital performance, as measured by its return
on average equity ratio (ROAE), increased to 11.24% in 1997 from
10.16% in 1996. This increase was caused by a faster rate of
growth in earnings in 1997 than the rate of growth in average
equity in 1997.
Banking laws and regulations limit the amount of
dividends that may be paid. Under current banking laws, the Bank
would be limited to approximately $5.1 million of dividends in
1998 plus an additional amount equal to the Bank's net profit for
1998, up to the date of such dividend declaration. In
December 1997, BCB declared an $.08 per share cash dividend to
stockholders of record on January 2, 1998, payable January 20,
1998.
Liquidity and Capital Resources
Financial institutions must maintain liquidity to meet
day-to-day requirements of depositors and borrowers, take
advantage of market opportunities, and provide a cushion against
unforeseen needs. Liquidity needs can be met by either reducing
assets or increasing liabilities. Sources of asset liquidity are
provided by securities maturing within one year, cash and amounts
due from banks, interest-bearing deposits with banks, and Federal
funds sold.
These liquid assets totalled $20.3 million at
December 31, 1997 compared to $38.8 million at December 31, 1996.
Maturing and repaying loans are another source of asset
liquidity. At December 31, 1997, the Bank estimated that an
additional $28.8 million of loans will mature or repay in the
next six-month period ended June 30, 1998.
Liability liquidity can be met by attracting deposits
with competitive rates, buying Federal funds or utilizing the
facilities of the Federal Reserve System or the Federal Home Loan
Bank System. The Bank utilizes a variety of these methods of
liability liquidity. At December 31, 1997, the Bank had
approximately $146.1 million in unused lines of credit available
to it under informal arrangements with the Federal Home Loan Bank
compared to $98.5 million at December 31, 1996. These lines of
credit enable the Bank to purchase funds for short-term needs at
current market rates.
Liquidity can be further analyzed by reference to the
Consolidated Statements of Cash Flows. See "Consolidated
Financial Statements." Net cash provided by (used in) operating
activities during the years ended December 31, 1997 and 1996 was
($0.6 million) and $3.0 million, respectively. The decrease from
1996 to 1997 was due primarily to an increase in due from
mortgage investors, accrued interest receivable, and prepaid
expenses and other assets. BCB's cash flows from financing
activities remained relatively consistent at $113.1 million
during the year-ended December 31, 1997 compared to
$113.4 million in 1996. During 1997, the cash provided by
financing activities was the result of a continued net increase
in deposits and the cash proceeds from BCB's stock offering
completed in July 1997. In 1996, such cash was provided by the
net increase in deposits and net borrowings with the Federal Home
Loan Bank. The net increase in deposits was $84.4 million in
1996 versus a net increase of $96.2 million in 1997. BCB
utilized $108.3 million in cash for investing activities in 1997
compared to $115.1 million in 1996. Cash utilized for investing
activities was primarily due to an increase in loans originated
for the portfolio in 1997 versus 1996 and by the purchase of
securities, offset by a decrease in interest-bearing deposits
with banks. The changes in cash flows resulted in a net increase
of internally generated cash of $4.1 million during the
year-ended December 31, 1997 compared to a net increase in 1996
of $1.3 million.
Capital expenditures that are anticipated for 1998
include approximately $2.75 million for the purchase and
improvement of an operations center at 601 Penn Street, Reading,
PA. Also anticipated for 1998 are capital expenditures for the
purchase, improvement, and construction of three full-service
branch sites totaling approximately $2.5 million. These sites
will be located in Hamburg, a second in Boyertown and a third in
Robesonia. The Hamburg site should only require modest
improvements plus equipment totaling about $100,000, since this
site is being leased. The Hamburg branch opened on
March 14, 1998 and is located in Hamburg, Berks County,
Pennsylvania. The Boyertown site includes improvements to land
plus construction that will be approximately $1.25 million. The
Boyertown site is located in Douglass Township, Montgomery
County, Pennsylvania, and is expected to open in the third
quarter of 1998. The Robesonia site is under an agreement of
sale and is located in Heidelberg Township, Berks County,
Pennsylvania and is expected to open in the third quarter of
1998. These cost estimates also include furniture, fixtures, and
equipment necessary to operate these offices.
Effects of Inflation
Berks County Bank's asset and liability structure is
primarily monetary in nature. As such, Berks County Bank's
assets and liabilities tend to move in concert with inflation.
While changes in interest rates may have a significant impact on
financial performance, interest rates do not necessarily move in
the same direction or in the same magnitude as prices of other
goods and services and may frequently reflect government policy
initiatives or economic factors not measured by a price index.
New Financial Accounting Standards
Recently Issued Accounting Guidance
In June 1997, the FASB issued Statement No. 130,
"Reporting Comprehensive Income", which establishes standards for
reporting and display of comprehensive income and its components
(revenues, expenses, gains, and losses) in a full set of general-
purpose financial statements. Statement No. 130 requires that
all items that are required to be recognized under accounting
standards as components of comprehensive income be reported in an
financial statement that is displayed with the same prominence as
other financial statements. BCB will adopt Statement No. 130 in
its December 31, 1998 Form 10-KSB. Reclassification of financial
statements for earlier periods provided for comparative purposes
will be required. Adoption of Statement No. 130 is not expected
to have a material impact on BCB.
In June 1997, the FASB issued Statement No. 131,
"Disclosures about Segments of an Enterprise and Related
Information", which establishes standards for the way that public
enterprises report information about operating segments in annual
financial statements and requires that those enterprises report
selected information about operating segments in interim
financial reports issued to stockholders. Statement No. 131
supersedes FASB Statement No. 14, "Financial Reporting for
Segments of a Business Enterprise." BCB will adopt Statement
No. 131 in its December 31, 1998 Form 10-KSB, and comparative
information for earlier years will be restated. Adoption of
Statement No. 131 is not expected to have a material impact on
the BCB.
Management
The following sets forth information concerning BCB's
executive officers.
<TABLE>
<CAPTION>
Name Age Title
<S> <C> <C>
Nelson R. Oswald. . . . . . . . 52 Chairman of the Board, President and Chief Executive Officer of BCB
and Berks County Bank.
Robert D. McHugh, Jr. . . . . . 43 Senior Vice President and Treasurer of BCB and Berks County Bank.
Norman E. Heilenman . . . . . . 50 Vice President of Residential Mortgage Lending of BCB and Berks
County Bank.
Steven A. Ehrlich . . . . . . . 35 Vice President of Commercial and Consumer Lending of BCB and Berks
County Bank.
Donna L. Rickert, CPA . . . . . 30 Vice President and Controller of BCB and Berks County Bank.
Sherelyn A. Ammon . . . . . . . 40 Vice President of Operations of BCB and Berks County Bank.
Dorothy I. Krick . . . . . . . 38 Branch Administrator of BCB and Berks County Bank.
</TABLE>
Nelson R. Oswald. Mr. Oswald has been Chairman of the
Board, President, Chief Executive Officer and Director of BCB and
Berks County Bank since their formation in February 1987. Senior
Vice President of Lending and Credit of Bank of Pennsylvania from
October 1982 to January 1987. Senior Real Estate Lender of
Meridian Bank from 1978 to 1982 and Vice President of Lending of
Meridian Bank from 1974 to 1978.
Robert D. McHugh, Jr. Mr. McHugh has been Senior Vice
President and Treasurer of BCB and Berks County Bank since July
1987. Consultant for the accounting firm of Grant Thornton, from
1986 to 1987. Vice President/Finance, Auditor of National Bank
of Boyertown from 1978 to 1986.
Norman E. Heilenman. Mr. Heilenman has been Vice President
of Residential Mortgage Lending of BCB and Berks County Bank
since September 1992. Department Head of BCB's Mortgage
Department since September 1992. Chief Financial Officer and
Vice President of Finance and Administration of Robertson
Brothers Company (real estate development firm) from October 1989
to August 1992. Chief Financial Officer and Vice President of
The Mallard Group (real estate development firm) from June 1984
to September 1989. Vice President and Department Head of
Residential Mortgage Lending/Servicing of Germantown Savings Bank
from 1969 to 1984.
Steven A. Ehrlich. Mr. Ehrlich has been Vice President of
Commercial and Consumer Lending of BCB and Berks County Bank
since November 1990 and Senior Commercial Lender since August
1994. Assistant Vice President of BCB and the Bank from
September 1989 to November 1990. Commercial loan officer of
Berks County Bank from October 1988 to September 1989. Prior
thereto, credit analyst for Meridian Bank from April 1988 to
October 1988. Credit analyst and commercial real estate lender
for Sovereign Bank from July 1985 to April 1988.
Donna L. Rickert, CPA. Ms. Rickert has been Vice President
of BCB and Berks County Bank since June 1997, and has been
Controller of BCB and Berks County Bank since March 1994. Prior
thereto, Senior Accountant, Beard and Company, Inc., from 1989 to
1994, specializing in audits of financial institutions.
Sherelyn A. Ammon. Ms. Ammon has been Vice President of
Operations of BCB and Berks County Bank since August 1987.
Operations Officer for Meridian Bank from 1981 to 1987. Quality
Control Specialist for Meridian Bank from 1979 to 1981.
Dorothy I. Krick. Ms. Krick has been Branch Administrator
of BCB and Berks County Bank since June 1997 and prior thereto
Branch Manager of Berks County Bank from May 1995 to June 1997.
Personal Service Representative for Trust and Private Banking at
CoreStates from August 1983 to May 1995.
The following table sets forth information concerning BCB's
directors.
<TABLE>
<CAPTION>
Principal Occupation Director or
for Past Five Years and Executive Officer
Position Held With BCB of BCB/
Name Age and Berks County Bank Berks County Bank Since
<S> <C> <C> <C>
Harold C. Bossard (1)(2)........ 79 Retired President of Bernville Bank, 1987/1987
N.A.; Secretary of BCB and
Berks County Bank
Edward J. Edwards (2)(3)(4)..... 71 Real Estate Sales and Appraisals, E. J. 1987/1987
Edwards Real Estate
Lewis R. Frame, Jr. (4)(5)...... 39 Vice President, Frame Group, Ltd. 1988/1988
Ivan H. Gordon (1)(4)........... 63 Chairman, Gloray Company 1987/1987
Jeffrey W Hayes (3)(5).......... 51 President, Hayes Construction, Inc. 1988/1988
Alfred B. Mast (2).............. 53 President, Mast and Moyer, Inc. 1987/1987
Nelson R. Oswald (2)(3)(5)(6)... 52 President, Chief Executive Officer and 1987/1987
Chairman of the Board of Directors of
BCB and Berks County Bank
Wesley R. Pace (1)(3)(4)(6)... 49 Chairman of the Board of Wesrock Capital
Co.; President, Shanna Wash, Inc. 1987/1987
Floyd S. Weber (1)(3)(4)(5)... 65 Retired Partner, King's Potato Chip Co. & 1987/1987
King Distributing Co.
Randall S. Weeber (2)........... 42 President, Weeber Realtors; Broker 1987/1987
Associate, Berkshire Real Estate
Network
</TABLE>
- -------------------------
(1) Member of the Audit Committee.
(2) Member of the Loan Committee.
(3) Member of the Executive Committee.
(4) Member of the Compensation Committee.
(5) Member of the Property Committee.
(6) Member of the Insurance Committee.
<PAGE>
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of December 31,
1997, the amount and percentage of the BCB Common Stock
beneficially owned by each person who is known to BCB to own more
than five percent of the BCB Common Stock, each director, each
named executive officer, and all directors and executive officers
of BCB as a group.
<TABLE>
<CAPTION>
Amount and Nature
Name and Address of of Beneficial Percent
Beneficial Owner(1) Ownership(2)(3) of Class
<S> <C> <C>
DIRECTORS:
Harold C. Bossard(4)(5)......................................... 19,635 0.57%
Edward J. Edwards(4)(6)......................................... 29,311 0.84
Lewis R. Frame, Jr.(7)(8)....................................... 75,919 2.18
Ivan H. Gordon(9)(10)........................................... 15,489 0.45
Jeffrey W. Hayes(9)(11)......................................... 74,579 2.14
Alfred B. Mast(9)(12)........................................... 40,572 1.17
Nelson R. Oswald(4)(13)......................................... 116,837 3.32
Wesley R. Pace(4)(14)........................................... 35,145 1.01
Floyd S. Weber(7)(15)........................................... 37,842 1.09
Randall S. Weeber(7)(16)........................................ 15,886 0.46
OTHER NAMED EXECUTIVE OFFICERS:
Robert D. McHugh, Jr.(17)....................................... 30,894 0.88
Steven A. Ehrlich(18)........................................... 5,906 0.17
Norman E. Heilenman(19)......................................... 5,806 0.17
All Directors and executive officers as a group (15 persons).... 515,072 14.27%(20)
____________________
</TABLE>
(1) Unless otherwise indicated, the address of each beneficial
owner is Berks County Bank, P.O. Box 1097, 400 Washington
Street, Reading, Pennsylvania 19603.
(2) The securities "beneficially owned" by an individual are
determined in accordance with the definitions of "beneficial
ownership" set forth in the General Rules and Regulations of
the Securities and Exchange Commission and may include
securities owned by or for the individual's spouse and minor
children and any other relative who has the same home, as
well as securities to which the individual has or shares
voting or investment power or has the right to acquire
beneficial ownership within sixty (60) days after
December 31, 1997. Beneficial ownership may be disclaimed
as to certain of the securities. Shares of BCB Common Stock
held in the 401(k) Retirement Savings Plan are not included
in ownership amounts above. These shares are voted by the
Plan Administrators.
(3) Information furnished by the directors, executive officers
and BCB.
(4) A current Class C Director whose term expires in 2000.
(5) Includes 16,335 shares of BCB Common Stock held jointly by
Mr. Bossard and his spouse and 3,300 shares subject to stock
options granted to Mr. Bossard which are currently
exercisable.
(6) Includes 23,311 shares of BCB Common Stock held jointly by
Mr. Edwards and his spouse and 6,000 shares subject to stock
options granted to Mr. Edwards which are currently
exercisable.
(7) A Class B Director whose term expires in 1999.
(8) Includes 69,919 shares of BCB Common Stock held individually
by Mr. Frame and 6,000 shares subject to stock options
granted to Mr. Frame which are currently exercisable.
(9) A Class A Director whose term expires in 1998.
(10) Includes 6,166 shares of BCB Common Stock held individually
by Mr. Gordon, 3,323 shares of BCB Common Stock held jointly
by Mr. Gordon and his spouse and 6,000 shares subject to
stock options granted to Mr. Gordon which are currently
exercisable.
(11) Includes 46,780 shares of BCB Common Stock held individually
by Mr. Hayes, 15,155 shares of BCB Common Stock held by
Irene D. Hayes, his spouse, 4,644 shares of BCB Common Stock
held by Irene D. Hayes, custodian for their daughter, 2,000
shares of BCB Common Stock held by Mr. Hayes as custodian
for their daughter and 6,000 shares subject to stock options
granted to Mr. Hayes which are currently exercisable.
(12) Includes 32,246 shares of BCB Common Stock held individually
by Mr. Mast, 2,326 shares of BCB Common Stock held by
Mr. Mast's children and 6,000 shares subject to stock
options granted to Mr. Mast which are currently exercisable.
(13) Includes (i) 72,231 shares of BCB Common Stock held jointly
by Mr. Oswald and his spouse, (ii) 318 shares of BCB Common
Stock held by Mr. Oswald's son and (iii) 44,288 shares of
BCB Common Stock subject to stock options granted to
Mr. Oswald which are currently exercisable.
(14) Includes 29,008 shares of BCB Common Stock held jointly by
Mr. Pace and his spouse, 137 shares of BCB Common Stock held
by Mr. Pace's son and 6,000 shares subject to stock options
granted to Mr. Pace which are currently exercisable.
(15) Includes 31,842 shares of BCB Common Stock held jointly by
Mr. Weber and his spouse and 6,000 shares subject to stock
options granted to Mr. Weber which are currently
exercisable.
(16) Includes 238 shares of BCB Common Stock held individually by
Mr. Weeber, 6,493 shares of BCB Common Stock held by
Randall S. Weeber Profit Sharing Keough Plan, 3,155 shares
held by Weeber Realtors and 6,000 shares subject to stock
options granted to Mr. Weeber which are currently
exercisable.
(17) Includes 8,716 shares of BCB Common Stock held individually
by Mr. McHugh and 22,178 shares subject to stock options
granted to Mr. McHugh which are currently exercisable.
(18) Includes 676 shares of BCB Common Stock held jointly by
Mr. Ehrlich and his spouse and 5,230 shares subject to stock
options granted to Mr. Ehrlich which are currently
exercisable.
(19) Includes 407 shares of BCB Common Stock held individually by
Mr. Heilenman, 39 shares of common stock held by
Mr. Heilenman's spouse and 5,360 shares subject to stock
options granted to Mr. Heilenman which are currently
exercisable.
(20) The percent of class assumes all outstanding stock options
issued to the executive officers and non-employee directors
have been exercised and, therefore, on a pro forma basis,
3,608,872 shares of BCB Common Stock would be outstanding.
Executive Compensation
Compensation Paid to Executive Officers. Set forth below is
information concerning the annual compensation for services in
all capacities to BCB and Berks County Bank for the fiscal years
ended December 31, 1997, 1996, and 1995 of those persons who
were, at December 31, 1997, (i) chief executive officer or
(ii) executive officers of BCB and Berks County Bank to the
extent such executive officers' total annual salary and bonus
exceeded $100,000. There were no other executive officers for
whom disclosure would have been provided but for the fact that
such individuals were not serving at the end of the 1997 fiscal
year.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term Compensation
Annual Compensation Awards Payouts
Securities
Other Restricted Under- Other
Annual Stock lying LTIP Compen-
Name and Salary Bonus Compen- Award(s) Options/ Payouts sation
Principal Position Year ($) ($) sation ($) SARs(#) ($) ($)(1)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Nelson R. Oswald.......... 1997 218,314(2) 118,841(3) 0 0 0 0 6,203
Chairman of the Board 1996 192,948 50,000 0 0 0 0 6,138
President and CEO 1995 180,000 38,048 0 0 0 0 6,231
Robert D. McHugh, Jr...... 1997 125,000 45,924(4) 0 0 0 0 6,922
Senior Vice President 1996 112,000 35,294 0 0 0 0 6,164
and Treasurer 1995 100,000 28,474 0 0 0 0 3,863
Steven A. Ehrlich......... 1997 72,577 35,229 0 0 0 0 3,234
Vice President 1996 66,852 16,860 0 0 0 0 2,177
Commercial Lending 1995 60,000 9,555 0 0 0 0 1,565
Norman E. Heilenman....... 1997 68,423 32,518 0 0 0 0 3,564
Vice President 1996 61,616 17,994 0 0 0 0 3,583
Residential Mortgage
Lending 1995 57,108 17,698 0 0 0 0 3,366
</TABLE>
(1) Amounts shown represent contributions by BCB on behalf of
the named individuals to BCB's 401(k) Retirement Savings
Plan.
(2) 1997 salary includes deferred compensation of $18,314.
(3) 1997 bonus includes the fair value of 1,000 shares of BCB
Common Stock granted to Mr. Oswald which equalled $17,256 at
July 1, 1997.
(4) 1997 bonus includes the fair value of 992 shares of BCB
Common Stock granted to Mr. McHugh which equalled $15,131 at
January 2, 1997.
The following table sets forth information concerning the
exercise of BCB Options to purchase BCB Common Stock by the named
executive officers during the fiscal year ended December 31,
1997, as well as the number of securities underlying unexercised
BCB Options and the potential value of unexercised BCB Options as
of December 31, 1997. No BCB Options were granted in 1997.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR, AND
FISCAL YEAR-END OPTION/SAR VALUES (1)
<TABLE>
<CAPTION>
Number of Value of
Securities Unexercised
Underlying In-the-Money
Options/SARs Options/SARs
Shares at Fiscal at Fiscal
Acquired on Value Year-end (#) Year-end ($)
Exercise Realized Exercisable/ Exercisable/
Name (#) ($) (2) Unexercisable Unexercisable (3)
<S> <C> <C> <C> <C>
Nelson R. Oswald....... 2,950 32,269 44,288/0 683,839/0
Robert D. McHugh, Jr... -- -- 22,178/0 323,324/0
Steven A. Ehrlich...... 132 2,038 5,230/0 71,732/0
Norman E. Heilenman.... 132 1,312 5,360/0 73,870/0
</TABLE>
(1) All amounts represent stock options. No SARs or SARs
granted in tandem with BCB Options were either exercised during
1996 or outstanding at year-end 1997.
(2) Represents the aggregate market value of the underlying
shares of BCB Common Stock at the date of exercise minus the
aggregate exercise prices for BCB Options exercised.
(3) "In-the-money options" are BCB options with respect to
which the market value of the underlying shares of BCB Common
Stock exceeded the exercise price at December 31, 1997. The
value of such BCB Options is determined by subtracting the
aggregate exercise price for such BCB Options from the aggregate
fair market value of the underlying shares of BCB Common Stock on
December 31, 1997.
Compensation Paid to Directors. All directors of BCB are also
directors of Berks County Bank. During 1997, BCB and Berks
County Bank held 14 joint Board of Directors meetings and
15 joint committee meetings. In 1997, non-employee directors
received $350 prior to July 1, 1997 and $400 after July 1, 1997
for each jointly held Board of Directors and committee meeting
attended. Directors are paid an annual retainer of $1,500.
Harold C. Bossard, Director and Secretary of BCB, received $100
per month for additional services provided to BCB and Berks
County Bank. Each non-employee director of BCB was granted an
option to purchase 6,000 shares of Common Stock at an exercise
price per share equal to the fair value of the Common Stock on
the date of grant.
The Board of Directors has established the following
committees:
Executive Committee. This committee meets on an as-needed
basis between meetings of the Board of Directors to decide and
take action on any issues that require attention between Board
meetings. This committee also performs the functions of the
Nominating Committee. Messrs. Edwards, Hayes, Oswald, Pace and
Weber are members of the Executive Committee.
Audit Committee. This committee recommends an outside
auditor for the year and reviews the financial statements and
progress of BCB and Berks County Bank. Messrs. Bossard, Gordon,
Pace and Weber are members of the Audit Committee.
Property Committee. This committee makes recommendations
concerning building projects and space needs for BCB and Berks
County Bank. Messrs. Frame, Hayes, Oswald and Pace are members
of the Property Committee.
Loan Committee. This committee meets the second Thursday of
each month to review loan asset quality and credit related
matters. Messrs. Bossard, Edwards, Mast, Oswald and Weeber are
members of the Loan Committee.
Insurance Committee. This committee meets to review
insurance policies regarding BCB and Berks County Bank.
Messrs. Oswald and Weber are members of the Insurance Committee.
Compensation Committee. This Committee was formed in 1994
and meets on an as-needed basis between meetings of the Board of
Directors to discuss compensation related matters.
Messrs. Edwards, Frame, Gordon, Pace and Weber are members of the
Compensation Committee.
Executive Employment Agreements
Nelson R. Oswald and Robert D. McHugh, Jr. each have
Executive Employment Agreements with BCB and Berks County Bank.
Mr. Oswald's Executive Employment Agreement, dated as of
January 1, 1995, has been automatically renewed for an additional
three-year term ending December 31, 2000, subject to additional
three-year renewal periods in accordance with the terms thereof.
Mr. McHugh's Executive Employment Agreement originally dated
December 31, 1991, has been renewed through December 31, 1998.
The Executive Employment Agreements specify: term; the
Executive's position and duties; compensation; benefits;
indemnification; and termination rights. Each of the Executive
Employment Agreements also contain a noncompetition clause and a
confidentiality provision which inure to the benefit of BCB and
Berks County Bank.
Under the terms of his Executive Employment Agreement,
Mr. Oswald is a member of Berks County Bank's Board of Directors
and was entitled to an annual salary during 1997 of $200,000 plus
a grant of 1,000 shares of BCB Common Stock each July 1. The
Executive Employment Agreement provides that this amount will be
increased by not less than five percent (5%) per year.
Mr. Oswald also receives certain employee benefits including life
insurance, disability and health insurance, vacation days and a
supplemental retirement plan. Berks County Bank provides an
automobile for Mr. Oswald.
Under the terms of his Executive Employment Agreement,
Mr. McHugh was entitled to an annual salary during 1997 of
$125,000 plus a grant of 992 shares of BCB Common Stock at the
end of each twelve months of employment. Mr. McHugh's Executive
Employment Agreement also provides that this amount will be
increased by not less than five percent (5%) per year.
Mr. McHugh also receives certain employee benefits including life
insurance, disability and health insurance and vacation days.
Berks County Bank also provides Mr. McHugh with an automobile.
Each of the Executive Employment Agreements provide that if
the Executive's employment is terminated by Berks County Bank
other than for "Cause" as defined therein, or if the Executive
terminates his employment for "Good Reason", as defined therein,
the Executive is entitled to receive certain monetary benefits.
In such a case, Mr. Oswald would be entitled to an amount equal
to one and one-half (1 1/2) of his Annual Direct Salary (as
defined), and Mr. McHugh would be entitled to an amount equal to
his then Annual Direct Salary from the date of termination
through the following six (6) calendar months. Berks County Bank
would also be required to maintain in full force and effect
certain employee benefits for Messrs. Oswald and McHugh.
Mr. Oswald's and Mr. McHugh's Agreements also contain provisions
allowing BCB and Berks County Bank to terminate Mr. Oswald's or
Mr. McHugh's employment for "Cause" (as defined).
Each of the Executive Employment Agreements contain a
"Change of Control" provision which provides, among other things,
that when any "person" as defined therein, obtains the beneficial
ownership of a specified percentage of BCB Common Stock, the
Executive is entitled to certain payments and benefits from BCB
and Berks County Bank. In such a case, Mr. Oswald would be
entitled to an amount equal to three (3) times his then Annual
Direct Salary, and Mr. McHugh would be entitled to one (1) times
his then Annual Direct Salary.
Certain Relationships and Related Transactions
Certain directors, executive officers of BCB, beneficial
owners of 5% or more of the Common Stock and their affiliates
were customers of and had transactions with Berks County Bank in
the ordinary course of business during Berks County Bank's fiscal
year ended December 31, 1997. Similar transactions may be
expected to take place in the future. It is expected that any
other transactions with directors and officers and their
associates in the future will be conducted on the same basis.
Hayes Construction, Inc., a construction company of which
Jeffrey W. Hayes, a director of BCB and Berks County Bank, is
President, received payments of approximately $571,000 in 1997 in
connection with the construction of Berks County Bank's
Muhlenberg branch office and $637,000 in 1997 in connection with
the construction of Berks County Bank's Shillington branch. In
1996, Hayes Construction, Inc. received payments of approximately
$49,000 and $8,800 in connection with the construction of the
Muhlenberg and Shillington branches, respectively. Such payments
were in amounts and on substantially the same terms and
conditions as would have been available to BCB from an
unaffiliated party.
Mast and Moyer, Inc. an insurance agency of which Alfred G.
Mast, a director of BCB and Berks County Bank, is President,
received payments in the form of gross insurance premiums of
approximately $73,000 and $141,000 in 1997 and 1996,
respectively, in connection with various insurance policies Berks
County Bank has purchased through the insurance agency. Such
payments were in amounts and on substantially the same terms and
conditions as would have been available to BCB from an
unaffiliated party.
At December 31, 1997, Berks County Bank had total loans
outstanding and commitments to loan to directors, executive
officers, beneficial owners of 5% or more of the Common Stock and
their affiliates of $2.5 million, or approximately 5.67% of the
total consolidated equity capital as of that date. Loans to such
persons were made in the ordinary course of business, were made
on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable
transactions with other persons. The loans did not involve more
than the normal risk of collectibility or present other
unfavorable features.
Market Price of and Dividends on BCB Common Stock and Related
Shareholder Matters
The BCB Common Stock is listed on the Nasdaq Stock
Market National Market under the symbol "BCBF." As of the BCB
Record Date, BCB had approximately 3,627 shareholders of record.
The table below sets forth for the periods indicated the amount
of dividends paid per share and the quarterly ranges of high and
low sales prices for BCB Common Stock as reported by the Nasdaq
Stock Market National Market and does not necessarily reflect
mark-ups, mark-downs or commissions.
Quarterly
Quarter Ended Dividend High Low
March 31, 1998(1) $
December 31, 1997 .08 28 19 1/2
September 30, 1997 .08 20 1/2 15
June 30, 1997 .07 18 14 3/4
March 31, 1997 .07 19 5/8 14 3/4
December 31, 1996 .06 15 3/4 12 1/16
September 30, 1996 .05 12 11/16 11 7/8
June 30, 1996 .05 12 15/16 11 7/8
March 31, 1996 .05 12 15/16 10 13/16
December 31, 1995 .04 11 1/16 9 5/8
September 30, 1995 .04 10 1/8 9 5/16
June 30, 1995 .04 9 3/4 8 3/4
March 31, 1995 .04 9 3/4 8 1/2
__________________
(R)(1) Through March __, 1998.(/R)
On November 17, 1997, the last business day
preceding public announcement of the Consolidation, the last sale
price for the BCB Common Stock was $22.75 per share. On
March __, 1998, the last sale price for the BCB Common Stock was
$______ per share. The average weekly trading volume for the BCB
Common Stock during the quarter ended December 31, 1997 was
75,430 shares.
For information on the ability of BCB to pay dividends
on the BCB Common Stock following execution of the Agreement, see
"THE CONSOLIDATION - Dividends." For certain limitations on the
ability of Berks County Bank to pay dividends to BCB, see
"DESCRIPTION OF BCB - Business - Supervision and Regulation."
The Holding Company presently intends to pay an annual
dividend of $.56 per share of Holding Company Common Stock.
However, the timing and amount of future dividends, if any, will
depend upon earnings, capital levels, cash requirements, the
financial condition of the Holding Company, Berks County Bank and
Heritage National Bank, applicable government regulations and
policies and other factors deemed relevant by the Holding
Company's Board of Directors, including the amount of dividends
payable to the Holding Company by the Berks County Bank and
Heritage National Bank.
The principal source of income and cash flow of the
Holding Company, including cash flow to pay dividends on the
Holding Company Common Stock, is dividends from the Berks County
Bank and Heritage National Bank. Various federal and state laws,
regulations and policies limit the ability of the Berks County
Bank and Heritage National Bank to pay dividends to the Holding
Company. For certain limitations on the Berks County Bank's
ability to pay dividends to the Holding Company, see "DESCRIPTION
OF BCB - Business-Supervision and Regulation" and Note 17 to the
Financial Statements of BCB. For certain limitations on Heritage
National Bank's ability to pay dividends to the Holding Company,
see "Item 1. Business - Dividends" set forth in Heritage's
Annual Report on Form 10-K for the year ended December 31, 1997.
See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
DESCRIPTION OF HERITAGE
Management
The names, ages and positions of all of the Heritage's executive
officers as of December 31, 1997 are listed below along with
their business experience during the past five years. Executive
officers are appointed by the Board of Directors. There are no
family relationships among these executive officers, nor any
arrangement or understanding between any executive officer and
any other person pursuant to which the executive officer was
selected.
Position and Business Experience
Name Age During Past 5 Years
Allen E. Kiefer 54 President and Chief Executive
Officer of and Heritage National
Bank.
Richard A. Ketner 43 Secretary of Heritage and Heritage
National Bank (April 1997 to date),
Executive Vice President of
Heritage and Heritage National Bank
(March 1995 to date), formerly
President and Chief Executive
Officer of Bankers' Financial
Services Corporation and the
Schuylkill Haven Trust Company.
David L. Scott, CPA 27 Treasurer and Chief Financial
Officer of Heritage and Vice
President and Treasurer of Heritage
National Bank (April 1997 to date),
Assistant Vice President of
Heritage National Bank and Chief
Accounting Officer of Heritage
National Bank and Heritage (1995 to
April 1997), formerly certified
public accountant with Beard &
Company, Inc., Reading,
Pennsylvania.
The following table sets forth information concerning
Heritage's directors.
<TABLE>
<CAPTION>
Present Principal Occupation
and Principal Occupation Director
Name Age for Past Five Years Since
<S> <C> <C> <C>
Richard D. Biever 56 Vice President, Alpha Mills Corporation 1995*
(Textile Manufacturer)
Allen E. Kiefer 54 President and Chief Executive Officer 1983
of Bank and Heritage
Robert F. Koehler 66 Retired, formerly President of Sylray, 1981
Inc. (Textile Manufacturer)
Ermano O. Agosti 66 President, Hometown, IGA, Inc. 1988
(Retail Grocery Stores)
Albert L. Evans, Jr. 58 President, Evans Delivery Company, 1995*
Inc.
Richard T. Fenstermacher 55 Co-owner, Hadesty Hardware Co., Inc. 1991
(Major Appliances, Electronics and
Hardware)
Richard A. Ketner 43 Secretary of Heritage and Heritage 1995*
National Bank (April 1997 to date),
Executive Vice President of Heritage and
Heritage National Bank (1995 to date;
formerly President and Chief Executive
Officer of Bankers' Financial Services
Corporation and The Schuylkill Haven
Trust Company
Joanne C. McCloskey 65 Retired School Teacher 1993
Joseph P. Schlitzer 46 President, Higgins Insurance Associates 1995
and Coldwell Banker Higgins Associates
(Insurance/Real Estate)
Frederick A. Gosch 56 Chairman and Chief Financial Officer, 1995*
Pflueger Insurance Agency, Inc.
Raman V. Patel 61 Retired, formerly President, Raydyne, 1995*
Inc. (Consulting Engineers)
William J. Zimmerman 52 Director, Student Affairs and Marketing, 1991
Penn State University, Schuylkill Campus
</TABLE>
_________________
* Prior to March 1, 1995, named person served as a Director of
Bankers' Financial Services Corporation, which merged into
Miners National Bancorp, Inc. ("Miners") on March 1, 1995,
at which time Miners changed its name to Heritage Bancorp,
Inc.
Security Ownership Of Management
The following table sets forth information relating to
beneficial ownership of shares of common stock of Heritage by all
of Heritage's present Directors, each named executive officer of
Heritage and by all of Heritage's Directors and executive
officers as a group, without naming them, as of December 31,
1997. Unless otherwise indicated in a footnote below, each
individual holds sole voting and investment power over the shares
listed in the table. For purposes of the table, beneficial
ownership also includes any shares which the individual has the
right to acquire within 60 days of December 31, 1997 through the
exercise of outstanding Heritage Options granted pursuant to
Heritage's stock option plans.
<TABLE>
<CAPTION>
Position No. of Shares and
with Nature of Beneficial Percentage
Name of Beneficial Owner Heritage Ownership of Class
<S> <C> <C> <C>
Ermano O. Agosti Director 7,063(1) 0.15%
Richard D. Biever Director 19,056(2) 0.40%
Albert L. Evans, Jr. Chairman of the Board 25,334(3) 0.53%
Richard T. Fenstermacher Director 11,043(4) 0.23%
Frederick A. Gosch Director 15,608(5) 0.33%
Richard A. Ketner Executive Vice President,
Director and Secretary 33,051(6) 0.69%
Allen E. Kiefer President, Chief Executive
Officer and Director 40,272(7) 0.84%
Robert F. Koehler Director 30,978(8) 0.65%
Joanne C. McCloskey Director 22,860(9) 0.48%
Raman V. Patel Director 13,210(10) 0.28%
Joseph P. Schlitzer Director 34,711(11) 0.73%
William J. Zimmerman Director 4,716(12) 0.10%
David L. Scott Vice President and 3,179(13) 0.07%
Chief Financial Officer
All Directors and Executive
Officers (13 Persons) 261,081 5.47%
______________________
</TABLE>
(1) Includes 4,867 shares held jointly with spouse and
1,500 shares which may be acquired upon exercise of stock
options.
(2) Includes 1,300 shares which may be acquired upon exercise of
stock options.
(3) Includes 21,593 shares held jointly with spouse and
1,590 shares which may be acquired upon exercise of stock
options.
(4) 7,846 of the shares reported as beneficially owned by
Mr. Fenstermacher are owned directly by Sonric, a
partnership. Also includes 1,500 shares which may be
acquired upon exercise of stock options.
(5) Includes 12,636 shares held jointly with spouse,
1,472 shares held by Pflueger Insurance Agency and
1,500 shares which may be acquired upon exercise of stock
options.
(6) Includes 9,070 shares held jointly with spouse,
23,248 shares which may be acquired upon exercise of stock
options and 733 shares allocated to the account of
Mr. Ketner under Heritage's Employee Stock Ownership Plan
and 401(k) Profit Sharing Plan.
(7) Includes 9,154 shares held jointly with spouse,
20,624 shares which may be acquired upon exercise of stock
options and 4,078 shares allocated to the account of
Mr. Kiefer under Heritage's Employee Stock Ownership Plan
and 401(k) Profit Sharing Plan.
(8) Includes 6,816 shares held jointly with spouse,
22,662 shares held directly by spouse and 1,500 shares which
may be acquired upon exercise of stock options. Mr. Koehler
disclaims beneficial ownership of the shares held directly
by his spouse.
(9) Includes 16,698 shares held jointly with spouse,
1,450 shares held in a self-directed IRA, 2,712 shares held
by spouse in a self-directed IRA, 1,500 shares which may be
acquired upon exercise of stock options and 500 shares held
as co-trustee. Mrs. McCloskey disclaims beneficial
ownership of the 500 shares held in trust.
(10) Includes 11,710 shares held jointly with spouse and
1,500 shares which may be acquired upon exercise of stock
options.
(11) Includes 27,351 shares held jointly with spouse,
1,500 shares which may be acquired upon exercise of stock
options and 5,860 shares held by Higgins Insurance
Associates, Inc., a corporation of which Mr. Schlitzer is a
controlling person.
(12) Includes 2,065 shares held jointly with spouse and
1,500 shares which may be acquired upon exercise of stock
options.
(13) Includes 324 shares held jointly with spouse, 1,950 shares
which may be acquired upon exercise of stock options and
905 shares allocated to the account of Mr. Scott under
Heritage's Employee Stock Ownership Plan and 401(k) Profit
Sharing Plan.
Market Price of and Dividends on Heritage Common Stock and
Related Shareholder Matters
The Heritage Common Stock is listed on the Nasdaq
Stock Market National Market under the symbol "HBCI." As of the
Heritage Record Date, there were approximately 1,273 shareholders
of record. The table below sets forth for the periods indicated
the amount of dividends declared per share and the quarterly
ranges of high and low closing sales prices as reported on the
Nasdaq Stock Market National Market for the periods indicated.
Such prices do not necessarily reflect mark-ups, mark-downs or
commissions.
Quarterly
Quarter Ended Dividend High Low
March 31, 1998(1) $
December 31, 1997(1) .14 24.50 18.88
September 30, 1997 .13 19.00 15.75
June 30, 1997 .12 17.25 12.75
March 31, 1997 .12 13.50 11.13
December 31, 1996 .12 12.00 10.75
September 30, 1996 .11 11.38 10.25
June 30, 1996 .10 11.38 9.90
March 31, 1996 .10 10.40 9.70
December 31, 1995 .09 10.20 9.60
September 30, 1995 .09 10.30 9.62
June 30, 1995 .09 10.40 9.60
March 31, 1995 .08 10.50 9.80
__________________
(1) Through March __, 1998
On November 17, 1997, the last business day
preceding public announcement of the Consolidation, the last sale
price for the Heritage Common Stock was $23.50 per share. On
March __, 1998, the last sale price for the Heritage Common Stock
was $.14 per share. The average weekly trading volume for the
Heritage Common Stock during the quarter ended December 31, 1997
was approximately 9,944 shares.
For information on the ability of Heritage to pay
dividends on the Heritage Common Stock following execution of the
Agreement, see "THE CONSOLIDATION - Dividends." For certain
limitations on the ability of Heritage National Bank to pay
dividends to Heritage, see "Item 1. Business - Dividends" set
forth in Heritage's Annual Report on Form 10-K for the year ended
December 31, 1997. See "INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE."
The Holding Company presently intends to pay an annual
dividend of $.56 per share of Holding Company Common Stock.
However, the timing and amount of future dividends, if any, will
depend upon earnings, capital levels, cash requirements, the
financial condition of the Holding Company, Berks County Bank and
Heritage National Bank, applicable government regulations and
policies and other factors deemed relevant by the Holding
Company's Board of Directors, including the amount of dividends
payable to the Holding Company by the Berks County Bank and
Heritage National Bank.
The principal source of income and cash flow of the
Holding Company, including cash flow to pay dividends on the
Holding Company Common Stock, is dividends from the Berks County
Bank and Heritage National Bank. Various federal and state laws,
regulations and policies limit the ability of the Berks County
Bank and Heritage National Bank to pay dividends to the Holding
Company. For certain limitations on the Berks County Bank's
ability to pay dividends to the Holding Company, see "DESCRIPTION
OF BCB - Business-Supervision and Regulation" and Note 18 to the
Financial Statements of BCB. For certain limitations on Heritage
National Bank's ability to pay dividends to the Holding Company,
see "Item 1. Business - Dividends" set forth in Heritage's
Annual Report on Form 10-K for the year ended December 31, 1997.
See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
ADJOURNMENT
In the event that there are not sufficient votes to
constitute a quorum or approve the adoption of the Agreement at
the time of one or both of the Meetings, such proposal could not
be approved unless the Meetings were adjourned in order to permit
further solicitation of proxies. In order to allow proxies which
have been received by BCB or Heritage, as the case may be, at the
time of the applicable Meeting to be voted for such adjournment,
if necessary, each of BCB and Heritage has submitted the question
of adjournment under such circumstances to its shareholders as a
separate matter for their consideration.
The Boards of Directors of each of BCB and Heritage
recommend that shareholders vote their proxies in favor of the
BCB Adjournment Proposal or the Heritage Adjournment Proposal, as
the case may be, so that their proxies may be used for such
purposes in the event it becomes necessary. Properly executed
proxies will be voted in favor of the BCB Adjournment Proposal or
the Heritage Adjournment Proposal, as the case may be, unless
otherwise indicated thereon. If it is necessary to adjourn one
or both of the Meetings, no notice of the time and place of the
adjourned meeting is required to be given to shareholders other
than an announcement of such time and place at the Special
Meeting.
<PAGE>
INDEMNIFICATION
Pennsylvania law provides that a Pennsylvania
corporation may indemnify directors, officers, employees and
agents of the corporation against liabilities they may incur in
such capacities for any action taken or any failure to act,
whether or not the corporation would have the power to indemnify
the person under any provision of law, unless such action or
failure to act is determined by a court to have constituted
recklessness or willful misconduct. Pennsylvania law also
permits the adoption of a Bylaw amendment, approved by
shareholders, providing for the elimination of a director's
liability for monetary damages for any action taken or any
failure to take any action unless (1) the director has breached
or failed to perform the duties of his office and (2) the breach
or failure to perform constitutes self-dealing willful misconduct
or recklessness.
The Bylaws of the Holding Company provide for
(1) indemnification of directors, officers, employees and agents
of the Holding Company and its subsidiaries and (2) the
elimination of a director's liability for monetary damages, to
the fullest extent permitted by Pennsylvania law.
Directors and officers also are insured against certain
liabilities for their actions, as such, by an insurance policy
obtained by the Holding Company.
Insofar as indemnification for liabilities arising
under the Securities Act may be permitted to the directors,
officers and controlling persons of the Holding Company pursuant
to the foregoing provisions, or otherwise, the Holding Company
has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.
EXPERTS
The consolidated financial statements of BCB appearing
in this Proxy Statement/Prospectus have been audited by Beard &
Company, Inc., independent accountants, to the extent and for the
periods indicated in their report appearing elsewhere herein, and
are included in reliance upon such report and upon the authority
of such firm as experts in accounting and auditing.
The consolidated financial statements of Heritage at
December 31, 1997 and 1996 and for each of the three years in the
period ended December 31, 1997, included in Heritage's Annual
Report on Form 10-K for the year ended December 31, 1997, have
been audited by Beard & Company, Inc., independent accountants,
as set forth in their report thereon included therein and
incorporated herein by reference. Such consolidated financial
statements are included in reliance upon such report given upon
the authority of such firm as experts in accounting and
auditing.
LEGAL MATTERS
The validity of the Holding Company Common Stock to be
issued in the Consolidation, certain federal income tax
consequences of the Consolidation, and certain other legal
matters relating to the Consolidation are being passed upon by
the law firm of Stevens & Lee, P.C., counsel to BCB.
Legal matters in connection with the Consolidation will
be passed upon for Heritage by Rhoads & Sinon LLP, Harrisburg,
Pennsylvania.
OTHER MATTERS
As of the date of this Proxy Statement/Prospectus, the
Boards of Directors of BCB and Heritage know of no matters which
will be presented for consideration at the Meetings other than as
set forth in this Proxy Statement/Prospectus. However, if any
other matters shall properly come before either of the Meetings
or any adjournments thereof and be voted upon, the forms of proxy
shall be deemed to confer discretionary authority to the
individuals named as proxies therein to vote the shares
represented by such proxy as to any such matters.
<PAGE>
FINANCIAL STATEMENTS OF BCB
INDEX
BCB Financial Services Corporation and Berks County Bank:
Financial Statements (Audited)
Independent Auditor's Report .......................... S-2
Consolidated Balance Sheets - As of December 31, 1997
and 1996 ............................................ S-3
Consolidated Statements of Income - For the years ended
December 31, 1997 and 1996 ........................... S-5
Consolidated Statements of Stockholders' Equity
- For the years ended December 31, 1997 and 1996 ..... S-7
Consolidated Statements of Cash Flows - For the years
ended December 31, 1997 and 1996 ................... S-8
Notes to Consolidated Financial Statements ............. S-10
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
BCB Financial Services Corporation
Reading, Pennsylvania
We have audited the accompanying consolidated balance sheets
of BCB Financial Services Corporation and its wholly-owned
subsidiary, Berks County Bank, as of December 31, 1997 and 1996,
and the related consolidated statements of income, stockholders'
equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company'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 audits to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the
financial position of BCB Financial Services Corporation and its
wholly-owned subsidiary, Berks County Bank, as of December 31,
1997 and 1996, and the consolidated results of their operations
and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
BEARD & COMPANY, INC.
Reading, Pennsylvania
January 30, 1998
<PAGE>
BCB FINANCIAL SERVICES CORPORATION
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERKS COUNTY BANK
CONSOLIDATED BALANCE SHEETS
December 31,
1997 1996
(In Thousands,
Except Per Share Data)
ASSETS
Cash and due from banks $ 13,093 $ 8,985
Interest-bearing deposits with banks 175 21,407
Federal funds sold 470 1,290
Securities available for sale 98,326 53,489
Securities held to maturity, fair value
1997 $71,769; 1996 $ 35,147 70,914 35,065
Loans receivable, net of allowance for
loan losses 1997 $ 2,603; 1996 $ 2,001 246,207 192,148
Mortgage loans held for sale - 609
Due from mortgage investors 5,425 3,478
Premises and equipment, net 6,399 4,395
Accrued interest receivable 3,571 2,129
Foreclosed real estate 175 762
Deferred income taxes 80 246
Prepaid expenses and other assets 2,759 519
Total assets $447,594 $324,522
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Demand, non-interest bearing $ 38,466 $ 29,048
Demand, interest bearing 165,311 100,847
Savings 9,126 12,123
Time deposits 147,649 122,305
Total deposits 360,552 264,323
Accrued interest payable and other
liabilities 10,885 4,777
Other borrowed funds 22,056 13,718
Long-term debt 10,000 22,000
Total liabilities 403,493 304,818
Stockholders' equity:
Common stock, par value $ 2.50 per
share; authorized 20,000,000 shares;
issued and outstanding 1997
3,471,062 shares; 1996 2,070,385
shares 8,678 5,176
Surplus 27,550 9,876
Retained earnings 7,156 4,701
Net unrealized appreciation
(depreciation) on securities
available for sale, net of
taxes 717 (49)
Total stockholders' equity 44,101 19,704
Total liabilities and stockholders'
equity $447,594 $324,522
See Notes to Consolidated Financial Statements.
<PAGE>
BCB FINANCIAL SERVICES CORPORATION
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERKS COUNTY BANK
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31,
1997 1996
(In Thousands,
Except Per Share Data)
Interest income:
Loans receivable, including fees $18,536 $14,011
Interest and dividends on securities:
U.S. Treasury 168 261
U.S. Government agencies and
corporations 6,333 1,770
State and political subdivisions,
tax-exempt 1,782 1,230
Dividends 341 119
Interest-bearing deposits with banks 243 431
Federal funds sold 35 121
Total interest income 27,438 17,943
Interest expense:
Deposits 13,277 9,135
Other borrowed funds 1,256 303
Long-term debt 788 371
Total interest expense 15,321 9,809
Net interest income 12,117 8,134
Provision for loan losses 960 687
Net interest income after
provision for loan losses 11,157 7,447
Other income:
Customer service fees 961 697
Mortgage banking activities 915 634
Net realized gain (loss) on sales
of securities 176 (1)
Other 38 15
Total other income 2,090 1,345
Other expenses:
Salaries and wages 3,770 2,265
Employee benefits 875 580
Occupancy 712 570
Equipment depreciation and
maintenance 555 419
Other 3,166 2,622
Total other expenses 9,078 6,456
Income before income taxes 4,169 2,336
Federal income taxes 868 433
Net income $ 3,301 $ 1,903
Basic earnings per share $ 1.23 $ 0.92
Diluted earnings per share $ 1.20 $ 0.91
See Notes to Consolidated Financial Statements.
<PAGE>
BCB FINANCIAL SERVICES CORPORATION
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERKS COUNTY BANK
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION> Years Ended December 31, 1997 and 1996
Net Unrealized
Appreciation
(Depreciation)
On Securities
Common Retained Available For
Stock Surplus Earnings Sale Total
(In Thousands, Except Per Share Data)
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995 $4,276 $10,628 $3,234 $ 157 $18,295
Issuance of 2,584 shares of common stock upon
exercise of stock options 7 11 - - 18
Net change in unrealized appreciation
(depreciation) on securities available for
sale, net of taxes - - - (206) (206)
Transfer of 12,539 shares from redeemable
common stock 31 99 - - 130
Issuance of 344,873 shares of common stock
in connection with a 6 for 5 stock split,
effectuated as a 20% stock dividend 862 (862) (1) - (1)
Cash dividends declared ($ .21 per share) - - (435) - (435)
Net income - - 1,903 - 1,903
Balance, December 31, 1996 5,176 9,876 4,701 (49) 19,704
Issuance of 6,146 shares of common stock upon
exercise of stock options 16 43 - - 59
Issuance of 14,531 shares of common stock under
dividend reinvestment and stock purchase plan 36 212 - - 248
Proceeds from issuance of 1,380,000 shares of
common stock upon completion of stock
offering (net of offering costs of $ 1,728) 3,450 17,419 - - 20,869
Net change in unrealized appreciation
(depreciation) on securities available for
sale, net of taxes - - - 766 766
Cash dividends declared ($ .30 per share) - - (846) - (846)
Net income - - 3,301 - 3,301
Balance, December 31, 1997 $8,678 $27,550 $7,156 $ 717 $44,101
====== ======= ====== ===== =======
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
BCB FINANCIAL SERVICES CORPORATION
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERKS COUNTY BANK
CONSOLIDATED STATEMENTS OF CASH FLOWS
[CAPTION]
<TABLE>
Years Ended December 31,
1997 1996
(In Thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 3,301 $ 1,903
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan and foreclosed real estate
losses 1,075 920
Provision for depreciation and amortization 536 376
Net realized (gain) loss on sales of securities (176) 1
Gain on sale of foreclosed real estate (223) (57)
Proceeds from sale of mortgage loans 51,251 34,710
Net (gain) loss on sale of mortgage loans (13) 11
Mortgage loans originated for sale (50,629) (34,878)
Net accretion (amortization) of securities
premiums and discounts 40 (74)
(Increase) decrease in:
Due from mortgage investors (1,947) (274)
Accrued interest receivable (1,442) (903)
Deferred income taxes (229) 69
Prepaid expenses and other assets (2,208) (350)
Increase in accrued interest payable
and other liabilities 21 1,523
Net cash provided by (used in) operating
activities (643) 2,977
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of securities available for
sale 25,598 2,882
Proceeds from maturities of and principal
repayments on securities available for sale 20,490 1,822
Proceeds from maturities and calls of securities
held to maturity 7,170 1,610
Purchases of securities available for sale (89,652) (36,916)
Purchases of securities held to maturity (37,094) (27,430)
(Increase) decrease in interest-bearing deposits
with banks 21,232 (11,364)
Net decrease in federal funds sold 820 1,755
Loans made to customers, net of principal
collected (55,761) (46,740)
Proceeds from sales of foreclosed real estate 1,437 575
Purchases of premises and equipment (2,540) (1,277)
Net cash used in investing activities (108,300) (115,083)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 96,229 84,385
Net proceeds from other borrowed funds 6,338 11,428
Proceeds from long-term debt - 22,000
Principal payments of long-term borrowings (10,000) (4,000)
Proceeds from exercise of stock options 59 18
Proceeds from dividend reinvestment and stock
purchase plan 248 -
Net proceeds from stock offering 20,869 -
Cash payments for fractional shares in connection
with stock dividend - (1)
Cash dividends (692) (396)
Net cash provided by financing activities 113,051 113,434
Increase in cash and due from banks 4,108 1,328
Cash and due from banks:
January 1 8,985 7,657
December 31 $ 13,093 $ 8,985
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest $ 14,960 $ 9,512
Income taxes $ 797 $ 490
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Other real estate acquired in settlement of loans $ 937 $ 245
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
BCB FINANCIAL SERVICES CORPORATION
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERKS COUNTY BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation:
The consolidated financial statements include the accounts
of BCB Financial Services Corporation ("the Company"), a
bank holding company, and its wholly-owned subsidiary, Berks
County Bank ("the Bank"). All significant intercompany
accounts and transactions have been eliminated.
Nature of operations:
The Bank operates under a state bank charter and provides
full banking services. The bank holding company and the
Bank are subject to regulation of the Pennsylvania
Department of Banking and the Federal Reserve Bank. The
area served by the Bank is principally Berks, Bucks,
Chester, Montgomery and Schuylkill Counties in Pennsylvania.
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.
Presentation of cash flows:
For purposes of reporting cash flows, cash and due from
banks includes cash on hand and amounts due from banks.
Securities:
Securities that management has both the positive intent and
ability to hold to maturity are classified as securities
held to maturity and are carried at cost, adjusted for
amortization of premium or accretion of discount using the
interest method. Securities that may be sold prior to
maturity for asset/liability management purposes, or that
may be sold in response to changes in interest rates,
changes in prepayment risk, to increase regulatory capital
or other similar factors, are classified as securities
available for sale and carried at fair value with
adjustments to fair value, after tax, reported as a separate
component of stockholders' equity. Management determines
the appropriate classification of debt securities at the
time of purchase and reevaluates such designation at each
balance sheet date.
Interest and dividends on securities, including the
amortization of premiums and the accretion of discounts, are
reported in interest and dividends on securities using the
interest method. Gains and losses on the sale of securities
are recorded on the trade date and are calculated using the
specific identification method.
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 their outstanding unpaid principal
balances, net of an allowance for loan losses and any
deferred fees or costs. Interest income is accrued on the
unpaid principal balance. Loan origination fees, net of
certain direct origination costs, are deferred and
recognized as an adjustment of the yield (interest income)
of the related loans. The Bank is generally amortizing
these amounts over the contractual life of the loan.
A loan is generally considered impaired when it is probable
the Bank will be unable to collect all contractual principal
and interest payments due in accordance with the terms of
the loan agreement. The accrual of interest is generally
discontinued when the contractual payment of principal or
interest has become 90 days past due or management has
serious doubts about further collectibility of principal or
interest, even though the loan is currently performing. A
loan may remain on accrual status if it is in the process of
collection and is either guaranteed or well secured. When a
loan is placed on nonaccrual status, unpaid interest
credited to income in the current year is reversed and
unpaid interest accrued in prior years is charged against
the allowance for loan losses. Interest received on
nonaccrual loans generally is either applied against
principal or reported as interest income, according to
management's judgment as to the collectibility of principal.
Generally, loans are restored to accrual status when the
obligation is brought current, has performed in accordance
with the contractual terms for a reasonable period of time
and the ultimate collectibility of the total contractual
principal and interest is no longer in doubt.
Allowance for loan losses:
The allowance for loan losses is established through
provisions for loan losses charged against income. Loans
deemed to be uncollectible are charged against the allowance
for loan losses, and subsequent recoveries, if any, are
credited to the allowance.
The allowance for loan losses related to impaired loans that
are identified for evaluation is based on discounted cash
flows using the loan's initial effective interest rate or
the fair value, less selling costs, of the collateral for
collateral dependent loans. By the time a loan becomes
probable of foreclosure it has been charged down to fair
value, less estimated cost to sell.
The allowance for loan losses is maintained at a level
considered adequate to provide for losses that can be
reasonably anticipated. Management's periodic evaluation of
the adequacy of the allowance is based on the Bank'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, composition of the loan portfolio, current
economic conditions and other relevant factors. This
evaluation is inherently subjective as it requires material
estimates that may be susceptible to significant change,
including the amounts and timing of future cash flows
expected to be received on impaired loans.
Mortgage loans held for sale:
Mortgage loans originated and intended for sale in the
secondary market are carried at the lower of cost or
estimated fair value. Net unrealized losses are recognized
through a valuation allowance by corresponding charges in
the statements of income. All sales are made without
recourse.
Due from mortgage investors:
A division of the Bank performs underwriting and origination
services for various mortgage investors. As part of this
program, the Bank will temporarily fund the investors'
mortgage commitments for periods generally ranging from
three to forty-five days.
Premises and equipment:
Premises and equipment are stated at cost less accumulated
depreciation. Depreciation is computed on the straight-line
and accelerated depreciation methods over their estimated
useful lives.
Foreclosed real estate:
Foreclosed real estate is comprised of property acquired
through a foreclosure proceeding or acceptance of a deed-in-
lieu of foreclosure and loans classified as in-substance
foreclosure. A loan is classified as in-substance
foreclosure when the Bank has taken possession of the
collateral regardless of whether formal foreclosure
proceedings take place.
Foreclosed real estate is initially recorded at fair value,
net of estimated selling costs at the date of foreclosure,
establishing a new cost basis. After foreclosure,
valuations are periodically performed by management and the
assets are carried at the lower of cost or fair value, less
estimated costs to sell. Revenues and expenses from
operations, net realized gains and losses on sales and
changes in the valuation allowance are included in other
expenses.
Advertising costs:
The Bank follows the policy of charging the costs of
advertising to expense as incurred.
Income taxes:
Deferred taxes are provided on the liability method whereby
deferred tax assets are recognized for deductible temporary
differences and deferred tax liabilities are recognized for
taxable temporary differences. Temporary differences are
the differences between the reported amounts of assets and
liabilities and their tax basis. Deferred tax assets are
reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion of
the deferred tax assets will not be realized. Deferred tax
assets and liabilities are adjusted for the effects of
changes in tax laws and rates on the date of enactment. The
Company and the Bank file a consolidated federal income tax
return.
Earnings per share:
In 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings Per Share." Statement No. 128
replaced the calculation of primary and fully diluted
earnings per share with basic and diluted earnings per
share. Unlike primary earnings per share, basic earnings
per share excludes any dilutive effects of stock options,
warrants and convertible securities. Diluted earnings per
share is very similar to the previously reported fully
diluted earnings per share. All earnings per share amounts
for all periods have been presented to conform to the
requirements of Statement No. 128.
Off-balance sheet financial instruments:
In the ordinary course of business, the Bank has entered
into off-balance sheet financial instruments consisting of
commitments to extend credit, letters of credit and
commitments to sell loans. Such financial instruments are
recorded in the consolidated balance sheets when they are
funded.
Reclassifications:
Certain items in the 1996 financial statements have been
reclassified to conform to the 1997 financial statement
presentation format. These reclassifications had no effect
on net income.
2. RESTRICTIONS ON CASH AND DUE FROM BANK BALANCES
The Bank is required to maintain average reserve balances
with the Federal Reserve Bank or in vault cash. The total
of those reserve balances was approximately $1,620,000 and
$1,000,000 at December 31, 1997 and 1996 respectively.
3. SECURITIES
The amortized cost and approximate fair value of securities
at December 31 were as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
(In Thousands)
<S> <C> <C> <C> <C>
Available for sale securities:
December 31, 1997:
U.S. Treasury securities $ 991 $ 9 $ - $ 1,000
U.S. Government agencies
and corporations 32,981 488 (9) 33,460
States and political
subdivisions 23,192 531 (5) 23,718
Mortgage-backed and
asset-backed securities 33,006 121 (80) 33,047
Equity securities 7,069 32 - 7,101
$97,239 $1,181 $ (94) $98,326
December 31, 1996:
U.S. Treasury securities $ 3,465 $ 44 $ - $ 3,509
U.S. Government agencies
and corporations 18,000 58 (75) 17,983
States and political
subdivisions 23,275 141 (219) 23,197
Mortgage-backed and
asset-backed securities 4,357 11 (35) 4,333
Equity securities 4,467 - - 4,467
$53,564 $ 254 $(329) $53,489
Held to maturity securities:
December 31, 1997:
U.S. Government agencies
and corporations $60,724 $ 602 $ (41) $61,285
States and political
subdivisions 10,165 302 (8) 10,459
Other 25 - - 25
$70,914 $ 904 $ (49) $71,769
December 31, 1996:
U.S. Government agencies
and corporations $24,253 $ 138 $(217) $24,174
States and political
subdivisions 10,787 173 (12) 10,948
Other 25 - - 25
$35,065 $ 311 $(229) $35,147
</TABLE>
Equity securities are principally comprised of Federal Home
Loan Bank and Federal Reserve Bank stock.
The amortized cost and fair value of securities as of
December 31, 1997, by contractual maturity, are shown below.
Expected maturities may differ from contractual maturities
because the securities may be called or prepaid with or
without any penalties.
Available For Sale Held To Maturity
Amortized Fair Amortized Fair
Cost Value Cost Value
(In Thousands)
Due in one year or less $ 498 $ 499 $ 365 $ 384
Due after one year
through five years 493 500 1,704 1,714
Due after five years
through ten years 16,981 17,290 21,302 21,809
Due after ten years 39,192 39,889 47,543 47,862
Mortgage-backed and
asset-backed
securities 33,006 33,047 - -
Equity securities 7,069 7,101 - -
$97,239 $98,326 $70,914 $71,769
Gross gains of $217,028 and gross losses of $41,031 were
realized on sales of available for sale securities in 1997.
Gross gains of $1,757 and gross losses of $2,439 were
realized on sales of available for sale securities in 1996.
Securities with an amortized cost of $15,477,000 and
$4,963,000 at December 31, 1997 and 1996 respectively were
pledged as collateral on public deposits and for other
purposes as required or permitted by law.
4. LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES
The components of loans receivable at December 31, 1997 and
1996 were as follows:
1997 1996
(In Thousands)
Commercial $109,813 $ 82,886
Installment 19,942 16,262
Mortgage 104,714 85,027
Construction 13,804 9,672
248,273 193,847
Less:
Allowance for loan losses 2,603 2,001
Net deferred loan fees and costs (537) (302)
2,066 1,699
$246,207 $192,148
Changes in the allowance for loan losses for the years ended
December 31, 1997 and 1996 were as follows:
1997 1996
(In Thousands)
Balance, beginning $2,001 $1,674
Provision for loan losses 960 687
Loans charged off (441) (448)
Recoveries 83 88
Balance, ending $2,603 $2,001
The recorded investment in impaired loans, not requiring an
allowance for loan losses, was $1,685,655 and $587,483 at
December 31, 1997 and 1996 respectively. The recorded
investment in impaired loans requiring an allowance for loan
losses was $227,336 and $711,861 at December 31, 1997 and
1996 respectively. At December 31, 1997 and 1996, the
related allowance for loan losses associated with those
loans was $146,626 and $252,321 respectively. For the years
ended December 31, 1997 and 1996, the average recorded
investment in these impaired loans was $1,563,001 and
$1,425,975 respectively. Interest income on impaired loans
of $38,638 and $23,840 was recognized for cash payments
received in 1997 and 1996 respectively.
5. PREMISES AND EQUIPMENT
Components of premises and equipment at December 31, 1997
and 1996 were as follows:
1997 1996
(In Thousands)
Land $1,569 $1,487
Building and improvements 3,690 2,256
Leasehold improvements 63 63
Equipment 2,027 1,424
Furniture and fixtures 737 421
Construction in progress 83 104
8,169 5,755
Less accumulated depreciation 1,770 1,360
$6,399 $4,395
6. DEPOSITS
The aggregate amount of certificates of deposit with a
minimum denomination of $100,000 were approximately
$12,823,000 and $12,372,000 at December 31, 1997 and 1996
respectively.
At December 31, 1997, the scheduled maturities of time
deposits are as follows (in thousands):
1998 $ 38,512
1999 53,589
2000 38,249
2001 8,033
2002 8,443
Thereafter 823
$147,649
7. OTHER BORROWED FUNDS AND LONG-TERM DEBT
The Bank maintains a U.S. Treasury tax and loan note option
account for the deposit of withholding taxes, corporate
income taxes and certain other payments to the federal
government. Deposits are subject to withdrawal and are
evidenced by an open-ended interest-bearing note.
Borrowings under this note option account were $1,056,000
and $718,000 at December 31, 1997 and 1996 respectively.
The Bank has other short-term borrowings from the Federal
Home Loan Bank at December 31, 1997 and 1996 in the amount
of $21,000,000 and $13,000,000 respectively. The
December 31, 1997 balance outstanding is due in 1998, at an
average interest rate of 5.93%.
Long-term debt consisted of the following at December 31,
1997 and 1996 (in thousands):
1997 1996
Advances from the Federal Home Loan Bank
bearing interest at a weighted average
rate of 5.96% and 5.49% as of
December 31, 1997 and 1996 respectively $10,000 $22,000
Maturities of long-term debt at December 31, 1997 are as
follows (in thousands):
1998 $ -
1999 5,000
2000 -
2001 5,000
$10,000
The Bank has maximum borrowing capacity with the Federal
Home Loan Bank of approximately $177,122,000. Advances from
the Federal Home Loan Bank are secured by qualifying assets
of the Bank.
8. INCOME TAXES
The provision for federal income taxes for the years ended
December 31, 1997 and 1996 consisted of the following (in
thousands):
1997 1996
Current $1,097 $364
Deferred (229) 69
$ 868 $433
A reconciliation of the statutory income tax at a rate of
34% to the income tax expense in the consolidated statements
of income for the years ended December 31, 1997 and 1996 is
as follows (in thousands):
1997 1996
Federal income tax at statutory rate $1,417 $794
Tax-exempt interest (655) (436)
Disallowance of interest expense 94 62
Other 12 13
$ 868 $433
The income tax provision includes $59,838 in 1997 and $(232)
in 1996 of income tax expense (benefit) related to net
realized securities gains (losses).
Net deferred tax assets consisted of the following
components as of December 31, 1997 and 1996 (in thousands):
1997 1996
Deferred tax assets:
Allowance for loan losses $627 $333
Interest on non-accrual loans 102 68
Unrealized depreciation on
securities available for sale - 25
Foreclosed real estate 26 35
Other 49 16
804 477
Deferred tax liabilities:
Premises and equipment 147 117
Supplies inventory 25 12
Loan origination fees and costs 182 102
Unrealized appreciation on securities
available for sale 370 -
Total deferred tax liabilities 724 231
Net deferred tax assets $ 80 $246
9. RETIREMENT SAVINGS PLAN - 401(k)
The Bank has a 401(k) plan which covers employees who meet
the eligibility requirements of having worked 1,000 hours in
a plan year and have attained the age of 21. Participants
are permitted to contribute from 1% to 15% of compensation.
The Bank will match 75% of the participant's contributions
up to a maximum match of 4.5%. The expense related to the
Bank's 401(k) plan was $114,392 and $80,851 for the years
ended December 31, 1997 and 1996 respectively.
10. OTHER EXPENSES
The following represents the most significant categories of
other expenses for the years ended December 31, 1997 and
1996:
1997 1996
(In Thousands)
Advertising $ 654 $ 594
Data processing and MAC fees 485 367
Office supplies and expenses 612 372
Professional fees 350 161
Foreclosed real estate (66) 301
All other expenses 1,131 827
$3,166 $2,622
11. STOCK OPTIONS AND GRANTS
The Company has adopted various qualified and non-qualified
stock option plans with approximately 200,000 shares of
common stock reserved for options to key employees and
non-employee directors. The option prices under the plans
are the fair market value of the common stock on the date
the options are granted and an option's maximum term is
generally ten years. All options are exercisable six months
after the date of grant.
A summary of the Company's stock option activity and related
information for the years ended December 31 follows:
1997 1996
Weighted Weighted
Average Average
Exercise Exercise
Options Price Options Price
Outstanding,
beginning of year 143,956 $10.80 62,321 $ 8.49
Granted - - 84,600 12.40
Exercised (6,146) 9.47 (2,965) 7.71
Outstanding,
end of year 137,810 $10.86 143,956 $10.80
Exercisable at end of year 137,810 $10.86 59,356 $ 8.53
Stock options outstanding at December 31, 1997 are
exercisable at prices ranging from $6.93 to $12.40 a share.
The weighted average remaining contractual life of those
options is 6.5 years.
The Company has adopted the disclosure-only provisions of
Statement of Financial Accounting Standards (SFAS) No. 123,
"Accounting for Stock-Based Compensation." Accordingly, no
compensation cost has been recognized for options granted in
1996. Had compensation cost for stock options granted in
1996 been determined based on the fair value at the grant
date consistent with the provisions of SFAS No. 123, the
Company's net income and earnings per share for the year
ended December 31, 1996 would have been reduced to the
pro forma amounts indicated below (in thousands, except per
share amounts):
Net income:
As reported $1,903
Pro forma $1,745
Basic earnings per share:
As reported $ .92
Pro forma $ .84
Diluted earnings per share:
As reported $ .91
Pro forma $ .84
The fair value of each option grant is estimated using the
Black-Scholes option-pricing model with the following
weighted-average assumptions: risk-free interest rate of
6.2%, 10.48% volatility, and an expected life of five years.
The weighted-average fair value of options granted was $2.52
per share for both the Non-employee Directors and Incentive
Stock Options.
Two of the Company's officers are entitled to receive grants
of 1,000 and 992 shares respectively of the Company's common
stock at the end of each 12 months of employment under their
employment agreements. The fair value of the stock grants
are recorded each year as compensation expense.
12. COMMITMENTS AND CONTINGENCIES
Lease commitments and total rental expense:
The Bank rents facilities under lease agreements which
expire between 1998 and 2009, and require various minimum
annual rentals. The total minimum rental commitment at
December 31, 1997 is approximately $922,000 which is due as
follows:
During the year ending December 31 (in thousands):
1998 $252
1999 85
2000 61
2001 63
2002 65
Later years 396
$922
The total rental expense included in the income statements
for the years ended December 31, 1997 and 1996 is $324,373
and $336,760 respectively.
Contingencies:
The Company is a defendant in various lawsuits wherein
various amounts are claimed. In the opinion of the
Company's management, these suits are without merit and
should not result in judgments which, in the aggregate,
would have a material adverse effect on the Company's
consolidated financial statements.
Commitments:
At December 31, 1997, the Bank has entered into agreements
of sale to purchase land in Robesonia, Pennsylvania to build
a branch office, to purchase land and a building in
Boyertown, Pennsylvania for the use as a branch office and
to purchase a building in Reading, Pennsylvania for the use
as the Company's operations facility. Deposits on the
purchase of these properties of $121,000 are included in
premises and equipment as of December 31, 1997. The
estimated cost to complete these projects is approximately
$5,250,000 at December 31, 1997.
13. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Bank is a party to financial instruments with off-
balance sheet risk in the normal course of business to meet
the financing needs of its customers. These financial
instruments include commitments to extend credit, letters of
credit and commitments to sell loans. Those instruments
involve, to varying degrees, elements of credit risk and
interest rate risk in excess of the amount recognized in the
balance sheets.
The Bank's exposure to credit loss in the event of
nonperformance by the other party to the financial
instrument for commitments to extend credit and letters of
credit is represented by the contractual amount of those
instruments. The Bank uses the same credit policies in
making commitments and conditional obligations as it does
for on-balance sheet instruments.
A summary of the contractual amount of the Bank's financial
instrument commitments at December 31, 1997 and 1996 is as
follows (in thousands):
1997 1996
Commitments to extend credit $43,629 $31,141
Outstanding letters of credit 2,649 1,102
Commitments to sell loans - -
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. Since many of the commitments
are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash
requirements. Commitments generally have fixed expiration
dates or other termination clauses and may require payment
of a fee. The Bank evaluates each customer's credit
worthiness on a case-by-case basis. The amount of
collateral obtained, if deemed necessary by the Bank upon
extension of credit, is based on management's credit
evaluation. Collateral held varies but may include personal
or commercial real estate, accounts receivable, inventory
and equipment.
Outstanding letters of credit are conditional commitments
issued by the Bank to guarantee the performance of a
customer to a third party. The credit risk involved in
issuing letters of credit is essentially the same as that
involved in extending loan facilities to customers.
Commitments to sell loans are to the Federal National
Mortgage Association and other mortgage investors. These
commitments are generally met through mortgage originations
in the normal course of business.
14. CONCENTRATION OF CREDIT RISK
The Bank grants commercial, residential and consumer loans
to customers primarily located in Berks, Bucks, Chester,
Montgomery and Schuylkill Counties in Pennsylvania. The
concentrations of credit by type of loan are set forth in
Note 4. Although the Bank has a diversified loan portfolio,
its debtors' ability to honor their contracts is influenced
by the region's economy.
15. TRANSACTIONS WITH EXECUTIVE OFFICERS AND DIRECTORS
The Bank has had, and may be expected to have in the future,
banking transactions in the ordinary course of business with
its executive officers and directors and their related
interests on the same terms, including interest rates and
collateral, as those prevailing at the time for comparable
transactions with others. At December 31, 1997 and 1996,
these persons were indebted to the Bank for loans totaling
$1,702,000 and $2,898,000 respectively. During 1997,
$2,858,000 of new loans were made; repayments totaled
$4,069,000. Other changes increased the loans outstanding
by $15,000.
16. STOCKHOLDER AUTOMATIC DIVIDEND REINVESTMENT AND STOCK
PURCHASE PLAN
The Company has a dividend reinvestment and stock purchase
plan available to stockholders who elect to reinvest their
cash dividends and, from time to time, as the Board of
Directors of the Company may in its discretion determine,
voluntary cash payments for the purchase of additional
shares of the Company's common stock. The common stock may
be purchased in the open market or from authorized but
unissued shares, substantially at prevailing market prices.
The Company has reserved 200,000 shares of common stock for
possible issuance under the plan. Stock purchases under the
Plan totaled 21,823 and 6,486 shares in 1997 and 1996
respectively. Share purchases made in the open market were
7,292 and 6,486 in 1997 and 1996 respectively.
17. REGULATORY MATTERS AND STOCKHOLDERS' EQUITY
The Company and the Bank are subject to various regulatory
capital requirements administered by the federal banking
agencies. Failure to meet minimum capital requirements can
initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken,
could have a direct material effect on the Company's
financial statements. Under capital adequacy guidelines and
the regulatory framework for prompt corrective action, the
Company and the Bank must meet specific capital guidelines
that involve quantitative measures of its assets,
liabilities and certain off-balance sheet items as
calculated under regulatory accounting practices. The
capital amounts and classification are also subject to
qualitative judgments by the regulators about components,
risk weightings and other factors.
Quantitative measures established by regulation to ensure
capital adequacy require the maintenance of minimum amounts
and ratios (set forth below) of total and Tier 1 capital (as
defined in the regulations) to risk-weighted assets, and of
Tier 1 capital to average assets. Management believes, as
of December 31, 1997, that the Company and the Bank meet all
capital adequacy requirements to which they are subject.
As of December 31, 1997, the most recent notification from
the Federal Reserve Bank categorized the Bank as well
capitalized under the regulatory framework for prompt
corrective action. There are no conditions or events since
that notification that management believes have changed the
Bank's category.
The actual capital amounts and ratios are also presented in
the table below:
<TABLE>
<CAPTION>
To Be Well
For Capital Capitalized Under
Adequacy Prompt Corrective
Actual Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
(Dollars In Thousands)
As of December 31, 1997:
Total capital (to risk weighted assets)
Greater Than or Equal To
<S> <C> <C> <C> <C> <C> <C>
Company $46,085 18.03% $20,445 8.00% N/A
Bank 39,253 15.38 20,411 8.00 $25,514 10.00%
Tier I capital
(to risk weighted assets)
Company 43,482 17.01 10,223 4.00 N/A
Bank 36,650 14.36 10,206 4.00 15,308 6.00
Tier I capital
(to average assets)
Company 43,482 9.87 17,628 4.00 N/A
Bank 36,650 8.33 17,591 4.00 21,989 5.00
As of December 31, 1996:
Total capital
(to risk weighted assets)
Company $21,752 11.44% $15,208 8.00% N/A
Bank 19,873 10.46 15,205 8.00 $19,006 10.00%
Tier I capital
(to risk weighted assets)
Company 19,751 10.39 7,604 4.00 N/A
Bank 17,872 9.40 7,602 4.00 11,403 6.00
Tier I capital
(to average assets)
Company 19,751 6.82 11,579 4.00 N/A
Bank 17,872 6.18 11,572 4.00 14,465 5.00
</TABLE>
Banking laws and regulations limit the amount of dividends
that may be paid. Under current banking laws, the Bank
would be limited to approximately $5,136,000 of dividends in
1998 plus an additional amount equal to the Bank's net
profit for 1998, up to the date of any such dividend
declaration. In December 1997, the Company declared a $.08
per share cash dividend to stockholders of record on
January 2, 1998, payable January 20, 1998.
18. EARNINGS PER SHARE
The following table sets forth the computations of basic and
diluted earnings per share:
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1996
<S> <C> <C>
Numerator, net income $3,301,000 $1,903,000
Denominator:
Denominator for basic earnings
per share, weighted average shares 2,682,281 2,069,251
Effect of dilutive securities,
stock options 57,611 20,375
Denominator for diluted earnings
per share, adjusted weighted
average shares and
assumed conversions 2,739,892 2,089,626
Basic earnings per common share $ 1.23 $ 0.92
Diluted earnings per common share $ 1.20 $ 0.91
</TABLE>
19. FAIR VALUE OF FINANCIAL INSTRUMENTS
Management uses its best judgment in estimating the fair
value of the Company's financial instruments; however, there
are inherent weaknesses in any estimation technique.
Therefore, for substantially all financial instruments, the
fair value estimates herein are not necessarily indicative
of the amounts the Company could have realized in a sales
transaction on the dates indicated. The estimated fair
value amounts have been measured as of their respective year
ends, and have not been reevaluated or updated for purposes
of these consolidated financial statements subsequent to
those respective dates. As such, the estimated fair values
of these financial instruments subsequent to the respective
reporting dates may be different than the amounts reported
at each year end.
The following information should not be interpreted as an
estimate of the fair value of the entire Company since a
fair value calculation is only provided for a limited
portion of the Company's assets. Due to a wide range of
valuation techniques and the degree of subjectivity used in
making the estimates, comparisons between the Company's
disclosures and those of other companies may not be
meaningful. The following methods and assumptions were used
to estimate the fair values of the Company's financial
instruments at December 31, 1997 and 1996:
Cash, federal funds sold and interest-bearing deposits with
banks:
The carrying amounts reported in the balance sheet for cash
and short-term instruments approximate those assets' fair
values.
Securities:
Fair values for securities are based on quoted market
prices, where available. If quoted market prices are not
available, fair values are based on quoted market prices of
comparable securities.
Loans receivable:
For variable-rate loans that reprice frequently and with no
significant change in credit risk, fair values are based on
carrying values. The fair values for fixed rate loans are
estimated using discounted cash flow analyses, using
interest rates currently being offered for loans with
similar terms to borrowers of similar credit quality.
Mortgage loans held for sale:
The fair values of the Bank's mortgages held for sale are
based on quoted market prices of similar loans sold.
Due from mortgage investors:
The carrying amounts of due from mortgage investors
approximate their fair values.
Accrued interest receivable:
The carrying amounts of accrued interest receivable
approximate their fair value.
Deposit liabilities:
The fair value of demand deposits, savings accounts and
certain money market accounts is the amount payable on
demand at the reporting date. The carrying amounts for
variable-rate fixed-term money market accounts and
certificates of deposits approximate their fair values at
the reporting date. The fair value of fixed-rate
certificates of deposit are estimated using a discounted
cash flow calculation that applies interest rates currently
being offered for deposits of similar remaining maturities.
Accrued interest payable:
The carrying amounts of accrued interest payable approximate
their fair value.
Other borrowed funds:
The carrying amounts of short-term borrowings approximate
their fair values.
Long-term debt:
The fair values of the Bank's long-term debt are estimated
using discounted cash flow analyses, based on the Bank's
current incremental borrowing rates for similar types of
borrowing arrangements.
Off-balance sheet instruments:
The fair values of the Bank's commitments to extend credit
and outstanding letters of credit are estimated using the
fees currently charged to enter into similar agreements,
taking into account the remaining terms of the agreements
and the counterparties' credit standing.
The estimated fair value of the Company's financial
instruments at December 31, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
(In Thousands)
<S> <C> <C> <C> <C>
Financial Assets:
Cash and due from banks $ 13,093 $ 13,093 $ 8,985 $ 8,985
Interest-bearing deposits
with banks 175 175 21,407 21,407
Federal funds sold 470 470 1,290 1,290
Securities 169,240 170,095 88,554 88,636
Loans receivable, net 246,207 248,320 192,148 193,674
Mortgage loans
held for sale - - 609 609
Due from mortgage
investors 5,425 5,425 3,478 3,478
Accrued interest receivable 3,571 3,571 2,129 2,129
Financial Liabilities:
Deposits 360,552 361,928 264,323 263,910
Accrued interest payable 1,502 1,502 1,141 1,141
Other borrowed funds 22,056 22,056 13,718 13,718
Long-term debt 10,000 9,915 22,000 21,854
Off-Balance Sheet
Financial Instruments:
Commitments to extend credit - - - -
Outstanding letters of credit - - - -
</TABLE>
20. MERGER
On November 18, 1997, the Company entered into an agreement
to merge with Heritage Bancorp, Inc. ("Heritage"), a one
bank holding company located in Pottsville, Pennsylvania.
Under the terms of the Agreement, the Company and Heritage
propose to combine into a new Pennsylvania business
corporation, with a name yet to be determined. Upon the
effective date, which is expected to occur during the second
quarter of 1998 pending regulatory and shareholder approval,
the new corporation will be the holding company for the
independent bank subsidiaries, Berks County Bank and
Heritage National Bank. There are no plans to merge the two
banking subsidiaries at this time. Stockholders of the
Company would receive 1.3335 shares of the new corporation
for each share of the Company held on the record date.
Stockholders of Heritage will receive 1.05 shares of common
stock of the new corporation for each share held on the
record date. The new corporation will be issuing
approximately 9,640,000 shares. The transaction will be
accounted for under the pooling of interests method of
accounting.
The following table provides a summary of the consolidated
operating results and financial condition on a pro forma
basis as of and for the year ended December 31, 1997:
BCB Financial
Services
Corporation Heritage Combined
(As Reported) Bancorp., Inc. Pro Forma
(In Thousands)
Net interest income $ 12,117 $ 16,287 $ 28,404
Net income 3,301 6,028 9,329
Total assets 447,594 366,269 813,863
Total stockholders'
equity 44,101 44,619 88,720
The pro forma combined results are not necessarily
indicative of the combined results of future operations.
<PAGE>
21. BCB FINANCIAL SERVICES CORPORATION (PARENT COMPANY ONLY)
FINANCIAL INFORMATION
BALANCE SHEETS
December 31,
1997 1996
(In Thousands)
ASSETS
Cash $ 6,902 $ 1,968
Investment in bank subsidiary 37,259 17,825
Securities available for sale 683 151
Other assets 356 326
$45,200 $20,270
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities $ 1,099 $ 566
Stockholders' equity 44,101 19,704
$45,200 $20,270
STATEMENTS OF INCOME
December 31,
1997 1996
(In Thousands)
Interest and dividend income $ 284 $ 5
Other expenses (130) $ (72)
Federal income tax (expense) benefit (42) 23
Income (loss) before equity
in undistributed net
income of bank subsidiary 112 (44)
Equity in undistributed net income
of bank subsidiary 3,189 1,947
Net income $ 3,301 $1,903
STATEMENTS OF CASH FLOWS
December 31,
1997 1996
(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 3,301 $1,903
Undistributed earnings of bank subsidiary (3,189) (1,947)
(Increase) in other assets (9) (240)
Increase in liabilities 347 430
Net cash provided by operating activities 450 146
CASH FLOWS USED IN INVESTING ACTIVITIES
Purchases of securities available for sale (500) (151)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of stock options 59 18
Proceeds from dividend reinvestment and
stock purchase plan 248 -
Additional investment in bank subsidiary (15,500) -
Net proceeds from stock offering 20,869 -
Cash payments for fractional shares in
connection with stock dividend - (1)
Cash dividends (692) (397)
Net cash provided by (used in)
financing activities 4,984 (380)
Net increase (decrease) in cash 4,934 (385)
Cash:
Beginning 1,968 2,353
Ending $ 6,902 $1,968
<PAGE>
ANNEX A
AGREEMENT AND PLAN
OF CONSOLIDATION
between
BCB FINANCIAL SERVICES CORPORATION
and
HERITAGE BANCORP, INC.
November 18, 1997
<PAGE>
AGREEMENT
THIS AGREEMENT AND PLAN OF CONSOLIDATION, dated as of
November 18, 1997, is made by and between BCB FINANCIAL SERVICES
CORPORATION ("BCB"), a Pennsylvania corporation, having its
principal place of business in Reading, Pennsylvania, and
HERITAGE BANCORP, INC. ("Heritage"), a Pennsylvania corporation,
having its principal place of business in Pottsville,
Pennsylvania.
BACKGROUND
1. BCB and Heritage desire to consolidate into a new
as yet to be named Pennsylvania business corporation (the
"Holding Company"), in accordance with the applicable laws of the
Commonwealth of Pennsylvania, and in accordance with the plan of
consolidation set forth herein.
2. BCB and Heritage desire that the consolidation of
BCB and Heritage constitute a reorganization within the meaning
of Section 368(a) of the Internal Revenue Code of 1986, as
amended, and be accounted for as a pooling-of-interests under
generally accepted accounting principles.
3. As an inducement to BCB's willingness to enter
into this Agreement, (a) certain directors and certain officers
of Heritage are concurrently executing a Letter Agreement in the
form attached hereto as Exhibit 1-A, and (b) Heritage is
concurrently granting to BCB an option to acquire, under certain
circumstances, Heritage's common stock (the "BCB Lock-Up Option")
pursuant to a Stock Option Agreement between BCB and Heritage in
the form attached hereto as Exhibit 2.
4. As an inducement to Heritage's willingness to
enter into this Agreement, (a) certain directors and certain
officers of BCB are concurrently executing a Letter Agreement in
the form attached hereto as Exhibit 1-B, and (b) BCB is
concurrently granting to Heritage an option to acquire, under
certain circumstances, BCB's common stock (the "Heritage Lock-Up
Option") pursuant to a Stock Option Agreement between Heritage
and BCB in the form attached hereto as exhibit 3.
5. BCB and Heritage desire to provide the terms and
conditions governing the transactions contemplated herein.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and of
the mutual covenants, agreements, representations and warranties
herein contained, the parties hereto, intending to be legally
bound, do hereby agree as follows:
ARTICLE I
THE CONSOLIDATION
Section 1.01 Definitions. As used in this Agreement,
the following terms shall have the indicated meanings (such
meanings to be equally applicable to both the singular and plural
forms of the terms defined):
Affiliate means, with respect to any Person, any
Person who directly, or indirectly, through one or more
intermediaries, controls, or is controlled by, or is under
common control with, such Person and, without limiting the
generality of the foregoing, includes any executive officer
or director of such Person and any Affiliate of such
executive officer or director.
Agreement means this agreement, and any amendment
or supplement hereto, which constitutes a "plan of
consolidation" between BCB and Heritage.
Applications means the applications for regulatory
approval which are required by the transactions contemplated
hereby.
Articles of Consolidation means the articles of
consolidation to be executed by BCB and Heritage and to be
filed in the PDS, in accordance with the applicable laws of
the Commonwealth of Pennsylvania in the form attached hereto
as Exhibit 4.
BCB Common Stock has the meaning given to that
term in Section 3.02(a) of this Agreement.
BCB Disclosure Schedule means a disclosure
schedule delivered by BCB to Heritage pursuant to
Article III of this Agreement.
BCB Exchange Ratio shall have the meaning given to
such term in Section 1.02(e)(i)(A).
BCB Financials means (i) the audited consolidated
financial statements of BCB as of December 31, 1996 and for
the three years ended December 31, 1996, including the notes
thereto, and (ii) the unaudited interim consolidated
financial statements of BCB as of each calendar quarter
thereafter included in Securities Documents filed by BCB.
BCB Market Price means, as of any date, the
average between the closing high bid and low asked prices of
a share of BCB Common Stock on the Nasdaq National Market
System (as reported in The Wall Street Journal, or if not
reported therein, in another authoritative source).
BCB Market Value means the average of the BCB
Market Prices for the twenty (20) consecutive trading days
ending on the trading day preceding the Determination Date.
BCB Lock-Up Option means the option granted to BCB
to acquire shares of Heritage Common Stock referenced in the
recitals to this Agreement.
BCB Options means options to purchase shares of
BCB Common Stock granted pursuant to the BCB Stock Option
Plans.
BCB Regulatory Reports means the annual and
quarterly reports of BCB filed with the FRB since
December 31, 1996 through the Closing Date, and the
financial reports of Berks County Bank and accompanying
schedules for each calendar quarter, beginning with the
quarter ended December 31, 1996, through the Closing Date.
BCB Stock Option Plans means the BCB 1988 Stock
Option Plan, the BCB 1989 Stock Option Plan, the BCB 1994
Stock Option Plan and the BCB 1996 Stock Option Plan.
BCB Subsidiaries means any corporation, 50% or
more of the capital stock of which is owned, either directly
or indirectly, by BCB, except any corporation the stock of
which is held in the ordinary course of the lending
activities of a bank.
BCL means the Pennsylvania Business Corporation
Law of 1988, as amended.
BHCA means the Bank Holding Company Act of 1956,
as amended.
Closing Date means the later of April 1, 1998 or
the fifth business day following the satisfaction or waiver,
to the extent permitted hereunder, of the conditions to the
consummation of the Consolidation specified in Article V of
this Agreement (other than the delivery of certificates,
opinions and other instruments and documents to be delivered
at the Closing), or such other date as BCB and Heritage may
mutually agree.
Consolidation means the consolidation of BCB and
Heritage into the Holding Company, contemplated by this
Agreement.
Dissenting Shares shall have the meaning set forth
in Section 1.02(e)(i)(E) and Section 1.02(e)(ii)(E) hereof.
DOJ means the United States Department of Justice.
Effective Date means the date upon which the
Articles of Consolidation shall be filed in the PDS, and
shall be the same as the Closing Date.
Environmental Law means any federal, state, local
or foreign law, statute, ordinance, rule, regulation, code,
license, permit, authorization, approval, consent, order,
judgment, decree, injunction or agreement with any
Regulatory Authority relating to (i) the protection,
preservation or restoration of the environment (including,
without limitation, air, water vapor, surface water,
groundwater, drinking water supply, surface soil, subsurface
soil, plant and animal life or any other natural resource),
and/or (ii) the use, storage, recycling, treatment,
generation, transportation, processing, handling, labeling,
production, release or disposal of any substance presently
listed, defined, designated or classified as hazardous,
toxic, radioactive or dangerous, or otherwise regulated,
whether by type or by quantity, including any material
containing any such substance as a component.
ERISA means the Employee Retirement Income
Security Act of 1974, as amended.
Exchange Act means the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated
from time to time thereunder.
FDIA means the Federal Deposit Insurance Act, as
amended.
FDIC means the Federal Deposit Insurance
Corporation.
FRB means the Board of Governors of the Federal
Reserve System.
GAAP means generally accepted accounting
principles as in effect at the relevant date.
Heritage Common Stock means the common stock of
Heritage described in Section 2.02(a).
Heritage Disclosure Schedule means a disclosure
schedule delivered by Heritage to BCB pursuant to Article II
of this Agreement.
Heritage DRIP means the Heritage Dividend
Reinvestment and Stock Purchase Plan.
Heritage ESOP means the Heritage Employee Stock
Ownership Plan with 401(k) Provisions.
Heritage Exchange Ratio shall have the meaning
given to such term in Section 1.02(e)(ii)(A).
Heritage Financials means (i) the audited
consolidated financial statements of Heritage as of
December 31, 1996 and for the three years ended December 31,
1996, including the notes thereto, and (ii) the unaudited
interim consolidated financial statements of Heritage as of
each calendar quarter thereafter included in Securities
Documents filed by Heritage.
Heritage Market Price means, as of any date, the
average between the closing high bid and low asked prices of
a share of Heritage Common Stock on the Nasdaq National
Market System (as reported in The Wall Street Journal, or if
not reported therein, in another authoritative source).
Heritage Market Value means the average of the
Heritage Market Prices for the twenty (20) consecutive
trading days ending on the trading day preceding the
Determination Date.
Heritage Lock-Up Option means the option granted
to Heritage to acquire shares of BCB Common Stock referenced
in the recitals to this Agreement.
Heritage Options means options to purchase shares
of Heritage Common Stock granted pursuant to the Heritage
Stock Option Plans.
Heritage Regulatory Reports means the annual and
quarterly reports of Heritage filed with the FRB since
December 31, 1996 through the Closing Date, and the
financial reports of Heritage National Bank to the OCC and
accompanying schedules for each calendar quarter, beginning
with the quarter ended December 31, 1996, through the
Closing Date.
Heritage Stock Option Plans means the 1995 Stock
Incentive Plan and the 1995 Stock Option Plan for Non-
Employee Directors and the outstanding options assumed by
Heritage that were issued under option plans of Bankers'
Financial Services Corporation.
Heritage Subsidiaries means any corporation, 50%
or more of the capital stock of which is owned, either
directly or indirectly, by Heritage, except any corporation
the stock of which is held in the ordinary course of the
lending activities of Heritage National Bank.
Holding Company Common Stock means the common
stock, $1.00 par value, of the Holding Company.
IRC means the Internal Revenue Code of 1986, as
amended.
IRS means the Internal Revenue Service.
Material Adverse Effect shall mean, with respect
to BCB or Heritage, respectively, any effect that is
material and adverse to its assets, financial condition or
results of operations on a consolidated basis, provided,
however, that Material Adverse Effect shall not be deemed to
include (a) any change in the value of the respective
investment and loan portfolios of BCB or Heritage resulting
from a change in interest rates generally, (b) any change
occurring after the date hereof in any federal or state law,
rule or regulation or in GAAP, which change affects banking
institutions generally, including any changes affecting the
Bank Insurance Fund and (c) actions or omissions of a party
(or any of its Subsidiaries) taken with the prior informed
written consent of the other party in contemplation of the
transactions contemplated hereby.
NASD means the National Association of Securities
Dealers, Inc.
OCC means the Office of the Comptroller of the
Currency.
PDS means the Department of State of the
Commonwealth of Pennsylvania.
Person means any individual, corporation,
partnership, joint venture, association, trust or "group"
(as that term is defined in Section 13(d)(3) of the Exchange
Act).
Prospectus/Proxy Statement means the prospectus/
proxy statement, together with any amendments and
supplements thereto, to be transmitted to holders of
Heritage Common Stock and BCB Common Stock in connection
with the transactions contemplated by this Agreement.
Registration Statement means the registration
statement on Form S-4, including any pre-effective or post-
effective amendments or supplements thereto, as filed with
the SEC under the Securities Act with respect to the Holding
Company Common Stock to be issued in connection with the
transactions contemplated by this Agreement.
Regulatory Agreement has the meanings given to
that term in Sections 2.11 and 3.11 of this Agreement.
Regulatory Authority means any banking agency or
department of any federal or state government, including
without limitation the FRB, the FDIC, the OCC, or the
respective staffs thereof.
Rights means warrants, options, rights,
convertible securities and other capital stock equivalents
which obligate an entity to issue its securities.
SEC means the Securities and Exchange Commission.
Securities Act means the Securities Act of 1933,
as amended, and the rules and regulations promulgated from
time to time thereunder.
Securities Documents means all registration
statements, schedules, statements, forms, reports, proxy
material, and other documents required to be filed under the
Securities Laws.
Securities Laws means the Securities Act, the
Exchange Act, the Investment Company Act of 1940, as
amended, the Investment Advisors Act of 1940, as amended,
the Trust Indenture Act of 1939, as amended, and in each
case the rules and regulations promulgated from time to time
thereunder.
Subsidiary means any corporation or partnership,
50% or more of the capital stock or partnership interests of
which is owned, either directly or indirectly, by another
entity, except any corporation or partnership the stock or
partnership interests of which is held in the ordinary
course of the lending activities of a bank.
Section 1.02 The Consolidation.
(a) Closing. The closing will take place at
10:00 a.m. on the Closing Date at the offices of Stevens & Lee,
111 North Sixth Street, Reading, Pennsylvania, unless another
time and place are agreed to by the parties hereto; provided, in
any case, that all conditions to closing set forth in Article V
(other than the delivery of certificates, opinions and other
instruments and documents to be delivered at the Closing) have
been satisfied or waived at or prior to the Closing Date. On the
Closing Date, Heritage and BCB shall cause the Articles of
Consolidation to be duly executed and to be filed in the PDS.
(b) The Consolidation. Subject to the terms and
conditions of this Agreement, on the Effective Date, Heritage and
BCB shall consolidate into the Holding Company in accordance with
the provisions of the BCL. The Holding Company shall be the
corporation formed as a result of the Consolidation, shall
continue its corporate existence under the laws of the
Commonwealth of Pennsylvania and shall have its headquarters at
601 Penn Street, Reading, Pennsylvania (the "BCB Operations
Center") or such other location in Reading, Pennsylvania as the
parties may agree. From and after the Effective Date, the
Consolidation shall have the effects set forth in Section 1929 of
the BCL.
(c) Holding Company's Articles of Incorporation
and Bylaws. On and after the Effective Date, the articles of
incorporation of the Holding Company shall be as set forth in the
Articles of Consolidation and the Bylaws of the Holding Company
shall be adopted on the Effective Date by the Holding Company's
Board of Directors and shall be in the form attached hereto as
Exhibit 5 until thereafter altered, amended or repealed.
(d) Board of Directors and Officers of the
Holding Company, Heritage National Bank and Berks County Bank
Board of Directors and Officers.
(i) On the Effective Date, the Board of
Directors of the Holding Company, as the continuing corporation
as a result of the Consolidation, shall consist of thirteen (13)
directors to be identified in the Articles of Consolidation,
seven of whom shall be appointed by the BCB Board of Directors
and six of whom shall be appointed by the Heritage Board of
Directors. Nelson R. Oswald shall be the Chairman of the Board
of Directors of the Holding Company and a designee of Heritage
shall be appointed Vice Chairman of the Board of Directors of the
Holding Company. Non-employee directors of the Holding Company
shall be paid an annual retainer of $2,000, a fee of $600 per
meeting attended and a fee of $300 per committee meeting
attended. In addition, any nonemployee Vice Chairman shall be
entitled to an additional annual retainer of $1,000 per year.
(ii) On the Effective Date, the executive
officers of the Holding Company shall be:
Nelson R. Oswald - Chairman and Chief
Executive Officer
Allen E. Kiefer - President & Chief
Operating Officer
Robert D. McHugh, Jr. - Executive Vice President
and Chief Financial
Officer
Richard A. Ketner - Executive Vice President
and Chief Administrative
Officer
(iii) The Board of Directors and officers of
Heritage National Bank shall remain unchanged except that
Nelson R. Oswald shall become an officer and member of the Board
of Directors of Heritage National Bank with the title of Vice
Chairman and Robert D. McHugh shall become the Executive Vice
President & Chief Financial Officer of Heritage National Bank.
Non-employee directors of Heritage National Bank shall be paid an
annual retainer of $2,000 (unless such director receives a
retainer for service as a director of the Holding Company), a fee
of $600 per meeting attended and a fee of $300 per committee
meeting attended.
(iv) The Board of Directors and officers of
Berks County Bank shall remain unchanged except that a designee
of Heritage shall become an officer (if such designee is an
employee) and a member of the Board of Directors of Berks County
Bank with the title of Vice Chairman and Richard A. Ketner shall
become an Executive Vice President of Berks County Bank.
Non-employee directors of Berks County Bank shall be paid an
annual retainer of $2,000 (unless such director receives a
retainer for service as a director of the Holding Company), a fee
of $600 per meeting attended and a fee of $300 per committee
meeting attended.
(e) Conversion of Shares.
(i) BCB Common Stock.
(A) Subject to the provisions of
subparagraphs (B), (C), (D) and (E) of this
Section 1.02(e)(i), each share of BCB Common Stock issued
and outstanding immediately prior to the Effective Date
(other than shares of BCB Common Stock, if any, then owned
by BCB or Heritage or any BCB Subsidiary) shall, on the
Effective Date, by reason of the Consolidation and without
any action on the part of the holder thereof, be converted
into and become a right to receive 1.3335 shares of fully
paid and nonassessable shares of Holding Company Common
Stock. The exchange ratio set forth in this Section
1.02(e)(i)(A) is hereinafter referred to as the "BCB
Exchange Ratio".
(B) Each share of BCB Common Stock
(other than trust account shares or shares acquired in
connection with debts previously contracted ("DPC shares"))
owned by Heritage or a Heritage Subsidiary on the Effective
Date, if any, shall be cancelled.
(C) Each share of BCB Common Stock
issued and held in the treasury of BCB or owned by any BCB
Subsidiary (other than trust account shares or DPC shares)
as of the Effective Date, if any, shall be cancelled, and no
cash, stock or other property shall be delivered in exchange
therefor.
(D) No fraction of a whole share of
Holding Company Common Stock and no scrip or certificates
therefor shall be issued in connection with the
Consolidation. Any former holder of BCB Common Stock who
would otherwise be entitled to receive a fraction of a share
of Holding Company Common Stock shall receive, in lieu
thereof, cash in an amount equal to such fraction of a share
multiplied by the closing price of the Holding Company
Common Stock on the Nasdaq National Market System on the
first day Holding Company Common Stock is traded after the
Effective Date.
(E) Each outstanding share of BCB
Common Stock the holder of which has perfected his right to
dissent under the BCL and has not effectively withdrawn or
lost such right as of the Effective Date shall not be
converted into or represent a right to receive shares of
Holding Company Common Stock hereunder, and the holder
thereof shall be entitled only to such rights as are granted
by the BCL. BCB shall give Heritage prompt notice upon
receipt by BCB of any such written demands for payment of
the fair value of such shares of BCB Common Stock
("Dissenting Shares") and of withdrawals of such demands and
any other instruments provided pursuant to the BCL (any
shareholder duly making such demand being hereinafter called
a "BCB Dissenting Shareholder"). If any BCB Dissenting
Shareholder shall effectively withdraw or lose (through
failure to perfect or otherwise) his right to such payment
at any time, such holder's shares of BCB Common Stock shall
be converted into the right to receive Holding Company
Common Stock in accordance with Section 1.02(e)(i)(A) of
this Agreement. Any payments made in respect of Dissenting
Shares shall be made by the Holding Company, as the
continuing corporation after the Consolidation.
(ii) Heritage Common Stock.
(A) Subject to the provisions of
subparagraphs (B), (C), (D) and (E) of this
Section 1.02(e)(ii), each share of Heritage Common Stock
issued and outstanding immediately prior to the Effective
Date (other than shares of Heritage Common Stock, if any,
then owned by Heritage or BCB or any Heritage Subsidiary)
shall, on the Effective Date, by reason of the Consolidation
and without any action on the part of the holder thereof, be
converted into and become a right to receive 1.05 shares of
fully paid and nonassessable shares of Holding Company
Common Stock. The exchange ratio set forth in this Section
1.02(e)(ii)(A) is hereinafter referred to as the "Heritage
Exchange Ratio."
(B) Each share of Heritage Common Stock
(other than trust account shares or DPC shares) owned by BCB
or a BCB Subsidiary on the Effective Date, if any, shall be
cancelled.
(C) Each share of Heritage Common Stock
issued and held in the treasury of Heritage or owned by any
Heritage Subsidiary (other than trust account shares or DPC
shares) as of the Effective Date, if any, shall be
cancelled, and no cash, stock or other property shall be
delivered in exchange therefor.
(D) No fraction of a whole share of
Holding Company Common Stock and no scrip or certificates
therefor shall be issued in connection with the
Consolidation. Any former holder of Heritage Common Stock
who would otherwise be entitled to receive a fraction of a
share of Holding Company Common Stock shall receive, in lieu
thereof, cash in an amount equal to such fraction of a share
multiplied by the closing price of the Holding Company
Common Stock on the Nasdaq National Market System on the
first day Holding Company Common Stock is traded after the
Effective Date.
(E) Each outstanding share of Heritage
Common Stock the holder of which has perfected his right to
dissent under the BCL and has not effectively withdrawn or
lost such right as of the Effective Date shall not be
converted into or represent a right to receive shares of
Holding Company Stock hereunder, and the holder thereof
shall be entitled only to such rights as are granted by the
BCL. Heritage shall give BCB prompt notice upon receipt by
Heritage of any such written demands for payment of the fair
value of such shares of Heritage Common Stock ("Dissenting
Shares") and of withdrawals of such demands and any other
instruments provided pursuant to the BCL (any shareholder
duly making such demand being hereinafter called a "Heritage
Dissenting Shareholder"). If any Heritage Dissenting
Shareholder shall effectively withdraw or lose (through
failure to perfect or otherwise) his right to such payment
at any time, such holder's shares of Heritage Common Stock
shall be converted into the right to receive Holding Company
Common Stock in accordance with Section 1.02(e)(ii) of this
Agreement. Any payments made in respect of Dissenting
Shares shall be made by the Holding Company, as the
continuing corporation after the Consolidation.
(f) Stock Options.
(i) On the Effective Date, each Heritage
Option and each BCB Option which is then outstanding,
whether or not exercisable, shall cease to represent a right
to acquire shares of Heritage Common Stock or BCB Common
Stock, as the case may be, and shall be converted
automatically into an option to purchase shares of Holding
Company Common Stock, and the Holding Company shall assume
each Heritage Option and BCB Option, in accordance with the
terms of the applicable Heritage Stock Option Plan or BCB
Stock Option Plan, as the case may be, and the stock option
agreement by which it is evidenced, except that from and
after the Effective Date, (i) the Holding Company and its
Board of Directors or a duly authorized committee thereof
shall be substituted for Heritage, BCB or their respective
Boards of Directors or duly authorized committee thereof
administering such Heritage Stock Option Plan or BCB Stock
Option Plan, as the case may be, (ii) each Heritage Option
and BCB Option assumed by the Holding Company may be
exercised solely for shares of the Holding Company Common
Stock, (iii) the number of shares of Holding Company Common
Stock subject to each BCB Option shall be equal to the
number of shares of BCB Common Stock subject to such BCB
Option immediately prior to the Effective Date multiplied by
the BCB Exchange Ratio, provided that any fractional shares
of Holding Company Common Stock resulting from such
multiplication shall be rounded down to the nearest share,
and (iv) the per share exercise price under each such BCB
Option shall be adjusted by dividing the per share exercise
price under each such BCB Option by the BCB Exchange Ratio,
provided that such exercise price shall be rounded up to the
nearest cent, (v) the number of shares of Holding Company
Common Stock subject to each Heritage Option shall be equal
to the number of shares of Heritage Common Stock subject to
such Heritage Option immediately prior to the Effective Date
multiplied by the Heritage Exchange Ratio, provided that any
fractional shares of Holding Company Common Stock resulting
from such multiplication shall be rounded down to the
nearest share, and (vi) the per share exercise price under
each such Heritage Option shall be adjusted by dividing the
per share exercise price under each such Heritage Option by
the Heritage Exchange Ratio, provided that such exercise
price shall be rounded up to the nearest cent.
Notwithstanding clauses (iii), (iv), (v) and (vi) of the
preceding sentence, each BCB Option or Heritage Option which
is an "incentive stock option" shall be adjusted as required
by Section 424 of the IRC, and the regulations promulgated
thereunder, so as not to constitute a modification,
extension or renewal of the option within the meaning of
Section 424(h) of the IRC. BCB and Heritage agree to take
all necessary steps to effect the foregoing provisions of
this Section 1.02(f).
(ii) As soon as practicable after the
Effective Date, the Holding Company shall deliver to each
participant in each Heritage Stock Option Plan and each BCB
Stock Option Plan an appropriate notice setting forth such
participant's rights pursuant thereto and the grants subject
to such Heritage Stock Option Plan or BCB Stock Option Plan
shall continue in effect on the same terms and conditions,
including without limitation the duration thereof, subject
to the adjustments required by Section 1.02(f)(i) hereof
after giving effect to the Consolidation. Within 30 days
after the Effective Date, the Holding Company shall file a
registration statement on Form S-3 or Form S-8, as the case
may be (or any successor or other appropriate forms), with
respect to the shares of Holding Company Common Stock
subject to such options and shall use its reasonable best
efforts to maintain the current status of the prospectus or
prospectuses contained therein for so long as such options
remain outstanding.
(g) Surrender and Exchange of Heritage and BCB
Stock Certificates.
(i) Exchange of Certificates. Each holder
of shares of Heritage Common Stock or BCB Common Stock who
surrenders to the Holding Company (or its agent) the
certificate or certificates representing such shares will be
entitled to receive, as soon as practicable after the
Effective Date, in exchange therefor a certificate or
certificates for the number of whole shares of Holding
Company Common Stock into which such holder's shares of
Heritage Common Stock or BCB Common Stock have been
converted pursuant to the Consolidation, together with a
check for cash in lieu of any fractional share in accordance
with Section 1.02(e)(i)(D) or Section 1.02(e)(ii)(D) hereof,
as the case may be.
(ii) Rights Evidenced by Certificates. Each
certificate for shares of Holding Company Common Stock
issued in exchange for certificates for Heritage Common
Stock or BCB Common Stock pursuant to Section 1.02(g)(i)
hereof will be dated the Effective Date and be entitled to
dividends and all other rights and privileges pertaining to
Holding Company Common Stock from and after the Effective
Date. Until surrendered, each certificate theretofore
evidencing shares of Heritage Common Stock or BCB Common
Stock, from and after the Effective Date, will evidence
solely the right to receive certificates for shares of
Holding Company Common Stock pursuant to Section 1.02(g)(i)
hereof and a check for cash in lieu of any fractional share
in accordance with Section 1.02(e)(i)(D) or Section
1.02(e)(ii)(D), as the case may be. If certificates for
shares of Heritage Common Stock or BCB Common Stock are
exchanged for Holding Company Common Stock at a date
following one or more record dates for the payment of
dividends or of any other distribution on the shares of
Holding Company Common Stock, the Holding Company will pay
cash in an amount equal to dividends theretofore payable on
such Holding Company Common Stock and pay or deliver any
other distribution to which holders of shares of Holding
Company Common Stock have theretofore become entitled. Upon
surrender of certificates for shares of Heritage Common
Stock or BCB Common Stock in exchange for certificates for
Holding Company Common Stock, the Holding Company also shall
pay any dividends to which such holder of Heritage Common
Stock, in the case of a holder of BCB Common Stock, may be
entitled as a result of the declaration of a dividend on the
Heritage Common Stock or BCB Common Stock by Heritage or BCB
in accordance with the terms of this Agreement with a record
date prior to the Effective Date and a payment date after
the Effective Date. No interest will accrue or be payable
in respect of dividends or cash otherwise payable under this
Section 1.02(g) upon surrender of certificates for shares of
Heritage Common Stock or BCB Common Stock. Notwithstanding
the foregoing, no party hereto will be liable to any holder
of Heritage Common Stock or any holder of BCB Common Stock,
for any amount paid in good faith to a public official or
agency pursuant to any applicable abandoned property,
escheat or similar law. Until such time as certificates for
shares of Heritage Common Stock or BCB Common Stock are
surrendered by a BCB or Heritage shareholder to the Holding
Company for exchange, the Holding Company shall have the
right to withhold dividends or any other distributions on
the shares of Holding Company Common Stock issuable to such
shareholder.
(iii) Exchange Procedures. Each certificate
for shares of Heritage Common Stock delivered for exchange
under this Section 1.02(g) must be endorsed in blank by the
registered holder thereof or be accompanied by a power of
attorney to transfer such shares endorsed in blank by such
holder. If more than one certificate is surrendered at one
time and in one transmittal package for the same shareholder
account, the number of whole shares of Holding Company
Common Stock for which certificates will be issued pursuant
to this Section 1.02(g) will be computed on the basis of the
aggregate number of shares represented by the certificates
so surrendered. If shares of Holding Company Common Stock
or payments of cash are to be issued or made to a person
other than the one in whose name the surrendered certificate
is registered, the certificate so surrendered must be
properly endorsed in blank, with signature(s) guaranteed, or
otherwise in proper form for transfer, and the person to
whom certificates for shares of Holding Company Common Stock
is to be issued or to whom cash is to be paid shall pay any
transfer or other taxes required by reason of such issuance
or payment to a person other than the registered holder of
the certificate for shares of Heritage Common Stock or BCB
Common Stock which are surrendered. As promptly as
practicable after the Effective Date, the Holding Company
shall send or cause to be sent to each shareholder of record
of Heritage Common Stock or BCB Common Stock transmittal
materials for use in exchanging certificates representing
Heritage Common Stock for certificates representing Holding
Company Common Stock into which the Heritage Common Stock or
BCB Common Stock have been converted in the Consolidation.
Certificates representing shares of Holding Company Common
Stock and checks for cash in lieu of fractional shares shall
be mailed to former shareholders of Heritage and BCB as soon
as reasonably possible but in no event later than thirty
(30) business days following the receipt of certificates
representing former shares of Heritage Common Stock or BCB
Common Stock duly endorsed or accompanied by the materials
referenced herein and delivered by certified mail, return
receipt requested (but in no event earlier than the second
business day following the Effective Date).
(iv) Closing of Stock Transfer Books;
Cancellation of Heritage and BCB Certificates. Upon the
Effective Date, the stock transfer books for Heritage Common
Stock and BCB Common Stock will be closed and no further
transfers of shares of Heritage Common Stock or BCB Common
Stock will thereafter be made or recognized. All
certificates for shares of Heritage Common Stock and BCB
Common Stock surrendered pursuant to this Section 1.02(g)
will be cancelled by the Holding Company.
(h) Anti-Dilution Provisions. If, Heritage or
BCB has, at any time after the date hereof and before the
Effective Date, (A) issued a dividend in shares of Heritage
Common Stock or BCB Common Stock, (B) combined the outstanding
shares of Heritage Common Stock or BCB Common Stock into a
smaller number of shares, (C) subdivided the outstanding shares
of Heritage Common Stock or BCB Common Stock, or (D) reclassified
the shares of Heritage Common Stock or BCB Common Stock, then the
number of shares of Holding Company Common Stock to be delivered
to Heritage or BCB shareholders who are entitled to receive
shares of Holding Company Common Stock in exchange for shares of
Heritage Common Stock or BCB Common Stock shall be adjusted so
that each Heritage or BCB shareholder shall be entitled to
receive such number of shares of Holding Company Common Stock as
such shareholder would have been entitled to receive if the
Effective Date had occurred prior to the happening of such event.
(By way of illustration, if BCB or Heritage shall declare a stock
dividend of 7% payable with respect to a record date on or prior
to the Effective Date and the conditions set forth above are
satisfied, the BCB Exchange Ratio or the Heritage Exchange Ratio,
as the case may be, shall be adjusted downward by 7%).
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF HERITAGE
Heritage hereby represents and warrants to BCB that,
except as specifically set forth in the Heritage Disclosure
Schedule delivered to BCB by Heritage on the date hereof:
Section 2.01 Organization.
(a) Heritage is a corporation duly organized,
validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania. Heritage is a bank holding company
duly registered under the BHCA. Heritage has the corporate power
and authority to carry on its business and operations as now
being conducted and to own and operate the properties and assets
now owned and being operated by it. Each Heritage Subsidiary is
duly organized, validly existing, and in good standing under the
laws of the jurisdiction of its incorporation and each possesses
full corporate power and authority to carry on its respective
business and to own, lease and operate its properties as
presently conducted. Neither Heritage nor any Heritage
Subsidiary is required by the conduct of its business or the
ownership or leasing of its assets to qualify to do business as a
foreign corporation in any jurisdiction other than the
Commonwealth of Pennsylvania, except where the failure to be so
qualified would not have a Material Adverse Effect on Heritage.
(b) Heritage National Bank is a national bank
duly organized and validly existing under the laws of the United
States. Heritage National Bank has the corporate power and
authority to carry on its business and operations as now being
conducted and to own and operate the properties and assets now
owned and being operated by it.
(c) There are no Heritage Subsidiaries other than
Heritage National Bank.
(d) The deposits of Heritage National Bank are
insured by the FDIC to the extent provided in the FDIA.
(e) The respective minute books of Heritage and
Heritage National Bank and each other Heritage Subsidiary
accurately record, in all material respects, all material
corporate actions of their respective shareholders and boards of
directors (including committees).
(f) Prior to the date of this Agreement, Heritage
has delivered to BCB true and correct copies of the articles of
incorporation and bylaws of Heritage and the charter and bylaws
of Heritage National Bank as in effect on the date hereof.
Section 2.02 Capitalization.
(a) The authorized capital stock of Heritage
consists of (a) 10,000,000 shares of common stock, $5.00 par
value ("Heritage Common Stock"), of which, at the date of this
agreement, 243,135 shares were issued and held by Heritage as
treasury stock, 4,758,999 shares are outstanding, validly issued,
fully paid and nonassessable and free of preemptive rights, and
(b) 10,000,000 shares of preferred stock, $25.00 par value, none
of which are issued or outstanding. Neither Heritage nor
Heritage National Bank nor any other Heritage Subsidiary has or
is bound by any subscription, option, warrant, call, commitment,
agreement, plan or other Right of any character relating to the
purchase, sale or issuance or voting of, or right to receive
dividends or other distributions on any shares of Heritage Common
Stock, Heritage preferred stock or any other security of Heritage
or any securities representing the right to vote, purchase or
otherwise receive any shares of Heritage Common Stock, Heritage
preferred stock or any other security of Heritage, other than
(i) shares issuable under the BCB Option, (ii) 93,052 shares of
Heritage Common Stock issuable under the Heritage Stock Option
Plans, and (iii) pursuant to the Heritage ESOP and the Heritage
DRIP.
(b) The authorized capital stock of Heritage
National Bank consists of 270,000 shares of common stock, par
value $5.00 per share ("Heritage Bank Common Stock"), of which
270,000 shares are outstanding, validly issued, fully paid,
nonassessable, free of preemptive rights and owned by Heritage.
Either Heritage or Heritage National Bank owns all of the
outstanding shares of capital stock of each Heritage Subsidiary
free and clear of all liens, security interests, pledges,
charges, encumbrances, agreements and restrictions of any kind or
nature.
(c) Except as set forth in the Heritage
Disclosure Schedule, neither (i) Heritage, (ii) Heritage National
Bank nor (iii) any other Heritage Subsidiary, owns any equity
interest, directly or indirectly, other than treasury stock, in
any other company or controls any other company, except for
equity interests held in the investment portfolios of Heritage
Subsidiaries, equity interests held by Heritage Subsidiaries in a
fiduciary capacity, and equity interests held in connection with
the commercial loan activities of Heritage Subsidiaries. Except
as set forth in the Heritage Disclosure Schedule, there are no
subscriptions, options, warrants, calls, commitments, agreements
or other Rights outstanding and held by Heritage or Heritage
National Bank with respect to any other company's capital stock
or the equity of any other person.
(d) To the best of Heritage's knowledge, except
as disclosed in Heritage's proxy statement dated March 10, 1997,
no person or "group" (as that term is used in Section 13(d)(3) of
the Exchange Act), is the beneficial owner (as defined in
Section 13(d) of the Exchange Act) of 5% or more of the
outstanding shares of Heritage Common Stock.
Section 2.03 Authority; No Violation.
(a) Heritage has full corporate power and
authority to execute and deliver this Agreement and to complete
the transactions contemplated hereby. The execution and delivery
of this Agreement by Heritage and the completion by Heritage of
the transactions contemplated hereby have been duly and validly
approved by the Board of Directors of Heritage and, except for
approval by the shareholders of Heritage as required under the
BCL, Heritage's articles of incorporation and bylaws and Nasdaq
requirements applicable to it, no other corporate proceedings on
the part of Heritage are necessary to complete the transactions
contemplated hereby. This Agreement has been duly and validly
executed and delivered by Heritage and, subject to approval of
the shareholders of Heritage and receipt of the required
approvals from Regulatory Authorities described in Section 3.04
hereof, constitutes the valid and binding obligation of Heritage,
enforceable against Heritage in accordance with its terms,
subject to applicable bankruptcy, insolvency and similar laws
affecting creditors' rights generally and subject, as to
enforceability, to general principles of equity.
(b) (A) The execution and delivery of this
Agreement by Heritage, (B) subject to receipt of approvals from
the Regulatory Authorities referred to in Section 3.04 hereof and
Heritage's and BCB's compliance with any conditions contained
therein, the completion of the transactions contemplated hereby,
and (C) compliance by Heritage with any of the terms or
provisions hereof, will not (i) conflict with or result in a
breach of any provision of the articles of incorporation or other
organizational document or bylaws of Heritage or any Heritage
Subsidiary; (ii) violate any statute, code, ordinance, rule,
regulation, judgment, order, writ, decree or injunction
applicable to Heritage or any Heritage Subsidiary or any of their
respective properties or assets; or (iii) violate, conflict with,
result in a breach of any provisions of, constitute a default (or
an event which, with notice or lapse of time, or both, would
constitute a default) under, result in the termination of,
accelerate the performance required by, or result in a right of
termination or acceleration or the creation of any lien, security
interest, charge or other encumbrance upon any of the properties
or assets of Heritage or any Heritage Subsidiary under, any of
the terms, conditions or provisions of any note, bond, mortgage,
indenture, deed of trust, license, lease, agreement, commitment
or other instrument or obligation to which Heritage or any
Heritage Subsidiary is a party, or by which they or any of their
respective properties or assets may be bound or affected, except
for such violations, conflicts, breaches or defaults under
clause (ii) or (iii) hereof which, either individually or in the
aggregate, will not have a Material Adverse Effect on Heritage.
Section 2.04 Consents. Except for the consents,
approvals, filings and registrations from or with the Regulatory
Authorities referred to in Section 3.04 hereof and compliance
with any conditions contained therein, and the approval of this
Agreement by the shareholders of Heritage and except as disclosed
in the Heritage Disclosure Schedule, no consents or approvals of,
or filings or registrations with, any public body or authority
are necessary, and no consents or approvals of any third parties
are necessary, or will be, in connection with (a) the execution
and delivery of this Agreement by Heritage, and (b) the
completion by Heritage of the transactions contemplated hereby.
As of the date hereof, Heritage has no reason to believe that
(i) any required consents or approvals will not be received or
will be received with conditions, limitations or restrictions
unacceptable to it or which would adversely impact Heritage's
ability to complete the transactions contemplated by this
Agreement or that (ii) any public body or authority, the consent
or approval of which is not required or any filing with which is
not required, will object to the completion of the transactions
contemplated by this Agreement.
Section 2.05 Financial Statements.
(a) Heritage has made the Heritage Regulatory
Reports available to BCB for inspection. The Heritage Regulatory
Reports have been, or will be, prepared in all material respects
in accordance with applicable regulatory accounting principles
and practices throughout the periods covered by such statements,
and fairly present, or will fairly present in all material
respects, the financial position, results of operations and
changes in shareholders' equity of Heritage as of and for the
periods ended on the dates thereof, in accordance with applicable
regulatory accounting principles applied on a consistent basis.
(b) Heritage has previously delivered, or will
deliver, to BCB the Heritage Financials. The Heritage Financials
have been, or will be, prepared in accordance with GAAP applied
on a consistent basis throughout the periods covered by such
statements, except as noted therein, and fairly present, or will
fairly present, the consolidated financial position, results of
operations and cash flows of Heritage as of and for the periods
ending on the dates thereof, in accordance with GAAP applied on a
consistent basis, except as noted therein.
(c) At the date of each balance sheet included in
the Heritage Financials or the Heritage Regulatory Reports,
neither Heritage nor Heritage National Bank (as the case may be)
had, or will have any liabilities, obligations or loss
contingencies of any nature (whether absolute, accrued,
contingent or otherwise) of a type required to be reflected in
such Heritage Financials or Heritage Regulatory Reports or in the
footnotes thereto which are not fully reflected or reserved
against therein or fully disclosed in a footnote thereto, except
for liabilities, obligations and loss contingencies which are not
material in the aggregate and which are incurred in the ordinary
course of business, consistent with past practice and except for
liabilities, obligations and loss contingencies which are within
the subject matter of a specific representation and warranty
herein and subject, in the case of any unaudited statements, to
normal, recurring audit adjustments and the absence of footnotes.
Section 2.06 Taxes.
(a) Heritage and the Heritage Subsidiaries are
members of the same affiliated group within the meaning of IRC
Section 1504(a). Heritage has duly filed, and will file, all
federal, state and local tax returns required to be filed by or
with respect to Heritage and all Heritage Subsidiaries on or
prior to the Closing Date (all such returns being accurate and
correct in all material respects) and has duly paid or will pay,
or made or will make, provisions for the payment of all federal,
state and local taxes which have been incurred by or are due or
claimed to be due from Heritage and any Heritage Subsidiary by
any taxing authority or pursuant to any tax sharing agreement or
arrangement (written or oral) on or prior to the Closing Date
other than taxes which (i) are not delinquent or (ii) are being
contested in good faith.
(b) No consent pursuant to IRC Section 341(f) has
been filed (or will be filed prior to the Closing Date) by or
with respect to Heritage or any Heritage Subsidiary.
Section 2.07 No Material Adverse Effect. Heritage has
not suffered any Material Adverse Effect since September 30,
1997.
Section 2.08 Contracts.
(a) Except as described in Heritage's proxy
statement dated March 10, 1997, and Annual Reports on Form 10-K
for the years ended December 31, 1994, 1995 and 1996, previously
delivered to BCB, in the footnotes to the audited consolidated
financial statements of Heritage as of December 31, 1996, and for
the three years ended December 31, 1996, or in the Heritage
Disclosure Schedule, neither Heritage nor any Heritage Subsidiary
is a party to or subject to: (i) any employment, consulting or
severance contract or arrangement with any past or present
officer, director or employee of Heritage or any Heritage
Subsidiary, except for "at will" arrangements; (ii) any plan,
arrangement or contract providing for bonuses, pensions, options,
deferred compensation, retirement payments, profit sharing or
similar arrangements for or with any past or present officers,
directors or employees of Heritage or any Heritage Subsidiary;
(iii) any collective bargaining agreement with any labor union
relating to employees of Heritage or any Heritage Subsidiary;
(iv) any agreement which by its terms limits the payment of
dividends by any Heritage Subsidiary; (v) any instrument
evidencing or related to indebtedness for borrowed money whether
directly or indirectly, by way of purchase money obligation,
conditional sale, lease purchase, guaranty or otherwise, in
respect of which Heritage or any Heritage Subsidiary is an
obligor to any person, which instrument evidences or relates to
indebtedness other than deposits, repurchase agreements, Federal
Home Loan Bank advances, bankers acceptances and "treasury tax
and loan" accounts established in the ordinary course of business
and transactions in "federal funds" or which contains financial
covenants or other restrictions (other than those relating to the
payment of principal and interest when due) which would be
applicable on or after the Closing Date to the Holding Company or
any Holding Company Subsidiary; or (vi) any contract (other than
this Agreement) limiting the freedom of any Heritage Subsidiary
to engage in any type of banking or bank-related business
permissible under law.
(b) True and correct copies of agreements, plans,
arrangements and instruments referred to in Section 2.08(a),
described in the Heritage proxy statement dated March 10, 1997 or
in a footnote to the Heritage Financials, have been provided or
been made available to BCB on or before the date hereof, and are
in full force and effect on the date hereof and neither Heritage
nor any Heritage Subsidiary (nor, to the knowledge of Heritage,
any other party to any such contract, plan, arrangement or
instrument) has breached any provision of, or is in default in
any respect under any term of, any such contract, plan,
arrangement or instrument which breach has resulted in or will
result in a Material Adverse Effect with respect to Heritage.
Except as set forth in the Heritage Disclosure Schedule, no party
to any material contract, plan, arrangement or instrument will
have the right to terminate any or all of the provisions of any
such contract, plan, arrangement or instrument as a result of the
transactions contemplated by this Agreement. Except as set forth
in the Heritage Disclosure Schedule, none of the employees
(including officers) of Heritage or any Heritage Subsidiary
possess the right to terminate their employment as a result of
the execution of this Agreement. Except as set forth in the
Heritage Disclosure Schedule, no plan, employment agreement,
termination agreement, or similar agreement or arrangement to
which Heritage or any Heritage Subsidiary is a party or under
which Heritage or any Heritage Subsidiary may be liable contains
provisions which permit an employee or independent contractor to
terminate it without cause and continue to accrue future benefits
thereunder. Except as set forth in the Heritage Disclosure
Schedule, no such agreement, plan or arrangement (i) provides for
acceleration in the vesting of benefits or payments due
thereunder upon the occurrence of a change in ownership or
control of Heritage or any Heritage Subsidiary absent the
occurrence of a subsequent event; (ii) provides for benefits
which may cause the disallowance of a federal income tax
deduction under IRC Section 280G; or (iii) requires Heritage or
any Heritage Subsidiary to provide a benefit in the form of
Heritage Common Stock or determined by reference to the value of
Heritage Common Stock.
Section 2.09 Ownership of Property; Insurance
Coverage.
(a) Heritage and the Heritage Subsidiaries have
good and, as to real property, marketable title to all assets and
properties owned by Heritage or any Heritage Subsidiary in the
conduct of their businesses, whether such assets and properties
are real or personal, tangible or intangible, including assets
and property reflected in the balance sheets contained in the
Heritage Regulatory Reports and in the Heritage Financials or
acquired subsequent thereto (except to the extent that such
assets and properties have been disposed of for fair value, in
the ordinary course of business, since the date of such balance
sheets), subject to no encumbrances, liens, mortgages, security
interests or pledges, except (i) those items which secure
repurchase agreements and liabilities for borrowed money,
(ii) statutory liens for amounts not yet delinquent or which are
being contested in good faith and (iii) items permitted under
Article IV. Heritage and the Heritage Subsidiaries, as lessee,
have the right under valid and subsisting leases of real and
personal properties used by Heritage and its Subsidiaries in the
conduct of their businesses to occupy or use all such properties
as presently occupied and used by each of them. Such existing
leases and commitments to lease constitute or will constitute
operating leases for both tax and financial accounting purposes
and the lease expense and minimum rental commitments with respect
to such leases and lease commitments are as disclosed in the
notes to the Heritage Financials.
(b) With respect to all agreements pursuant to
which Heritage or any Heritage Subsidiary has purchased
securities subject to an agreement to resell, if any, Heritage or
such Heritage Subsidiary, as the case may be, has a valid,
perfected first lien or security interest in the securities or
other collateral securing the repurchase agreement, and the value
of such collateral equals or exceeds the amount of the debt
secured thereby.
(c) Heritage and the Heritage Subsidiaries
currently maintain insurance considered by Heritage to be
reasonable for their respective operations and similar in scope
and coverage to that maintained by other businesses similarly
engaged. Neither Heritage nor any Heritage Subsidiary has
received notice from any insurance carrier that (i) such
insurance will be cancelled or that coverage thereunder will be
reduced or eliminated, or (ii) premium costs with respect to such
policies of insurance will be substantially increased. There are
presently no material claims pending under such policies of
insurance and no notices have been given by Heritage or Heritage
National Bank under such policies. All such insurance is valid
and enforceable and in full force and effect, and within the last
three years Heritage has received each type of insurance coverage
for which it has applied and during such periods has not been
denied indemnification for any material claims submitted under
any of its insurance policies.
Section 2.10 Legal Proceedings. Except as disclosed
in the Heritage Disclosure Schedule, neither Heritage nor any
Heritage Subsidiary is a party to any, and there are no pending
or, to the best of Heritage's knowledge, threatened legal,
administrative, arbitration or other proceedings, claims (whether
asserted or unasserted), actions or governmental investigations
or inquiries of any nature (i) against Heritage or any Heritage
Subsidiary, (ii) to which Heritage or any Heritage Subsidiary's
assets are or may be subject, (iii) challenging the validity or
propriety of any of the transactions contemplated by this
Agreement, or (iv) which could adversely affect the ability of
Heritage to perform under this Agreement, except for any
proceedings, claims, actions, investigations or inquiries
referred to in clauses (i) or (ii) which, if adversely
determined, individually or in the aggregate, could not be
reasonably expected to have a Material Adverse Effect on
Heritage.
Section 2.11 Compliance With Applicable Law.
(a) Heritage and Heritage Subsidiaries hold all
licenses, franchises, permits and authorizations necessary for
the lawful conduct of their businesses under, and have complied
in all material respects with, applicable laws, statutes, orders,
rules or regulations of any federal, state or local governmental
authority relating to them, other than where such failure to hold
or such noncompliance will neither result in a limitation in any
material respect on the conduct of their businesses nor otherwise
have a Material Adverse Effect on Heritage.
(b) Except as disclosed in the Heritage
Disclosure Schedule, neither Heritage nor any Heritage Subsidiary
has received any notification or communication from any
Regulatory Authority (i) asserting that Heritage or any Heritage
Subsidiary is not in compliance with any of the statutes,
regulations or ordinances which such Regulatory Authority
enforces; (ii) threatening to revoke any license, franchise,
permit or governmental authorization which is material to
Heritage or any Heritage Subsidiary; (iii) requiring or
threatening to require Heritage or any Heritage Subsidiary, or
indicating that Heritage or any Heritage Subsidiary may be
required, to enter into a cease and desist order, agreement or
memorandum of understanding or any other agreement restricting or
limiting, or purporting to restrict or limit, in any manner the
operations of Heritage or any Heritage Subsidiary, including
without limitation any restriction on the payment of dividends;
or (iv) directing, restricting or limiting, or purporting to
direct, restrict or limit, in any manner the operations of
Heritage or any Heritage Subsidiary, including without limitation
any restriction on the payment of dividends (any such notice,
communication, memorandum, agreement or order described in this
sentence is hereinafter referred to as a "Regulatory Agreement").
Neither Heritage nor any Heritage Subsidiary has consented to or
entered into any Regulatory Agreement, except as heretofore
disclosed to BCB.
Section 2.12 Information to be Supplied. The
information to be supplied by Heritage for inclusion in the
Registration Statement (including the Prospectus/Proxy Statement)
will not, at the time the Registration Statement is declared
effective pursuant to the Securities Act and as of the date the
Prospectus/Proxy Statement is mailed to shareholders of BCB and
Heritage and up to and including the date(s) of the meetings of
shareholders of Heritage and BCB to which such Prospectus/Proxy
Statement relates, contain any untrue statement of a material
fact or omit to state any material fact necessary in order to
make the statements therein not misleading. The information
supplied, or to be supplied, by Heritage for inclusion in the
Applications will, at the time such documents are filed with any
Regulatory Authority and up to and including the date(s) of the
obtainment of any required regulatory approvals or consents, be
accurate in all material aspects.
Section 2.13 ERISA. Heritage has previously delivered
or made available to BCB true and complete copies of all employee
pension benefit plans which it currently maintains within the
meaning of ERISA Section 3(2), including profit sharing plans,
employee stock ownership plans, deferred compensation and
supplemental income plans, supplemental executive retirement
plans, severance plans, policies and agreements, group insurance
plans, and all other employee welfare benefit plans within the
meaning of ERISA Section 3(1) (including, if applicable, vacation
pay, sick leave, short-term disability, long-term disability, and
medical plans) and all other employee benefit plans, policies,
agreements and arrangements, all of which are set forth in the
Heritage Disclosure Schedule, maintained or contributed to for
the benefit of the employees or former employees (including
retired employees) and any beneficiaries thereof or directors or
former directors of Heritage or any Heritage Subsidiary, together
with (i) the most recent actuarial (if any) and financial reports
relating to those plans which constitute "qualified plans" under
IRC Section 401(a), (ii) the most recent annual reports relating
to such plans filed by them, respectively, with any government
agency, and (iii) all rulings and determination letters which
pertain to any such plans. To the best of Heritage's knowledge,
neither Heritage, any Heritage Subsidiary nor any pension plan
maintained by Heritage or any Heritage Subsidiary, has incurred,
directly or indirectly, within the past six (6) years any
liability under Title IV of ERISA (including to the Pension
Benefit Guaranty Corporation) or to the IRS with respect to any
pension plan qualified under IRC Section 401(a) which liability
has resulted in or will result in a Material Adverse Effect with
respect to Heritage, except liabilities to the Pension Benefit
Guaranty Corporation pursuant to ERISA Section 4007, all of which
have been fully paid, nor has any reportable event under ERISA
Section 4043 occurred with respect to any such pension plan.
With respect to each of such plans that is subject to Title IV of
ERISA, the fair market value of the assets under such plan
exceeds the present value of the accrued benefits liability as of
the end of the most recent plan year with respect to such plan
calculated on the basis of the actual assumptions used in the
most recent actuarial valuation for such plan. Neither Heritage
nor any Heritage Subsidiary has incurred or is subject to any
liability under ERISA Section 4201 for a complete or partial
withdrawal from a multi-employer plan. To the best of Heritage's
knowledge, all "employee benefit plans," as defined in ERISA
Section 3(3), comply and within the past six (6) years have
complied in all material respects with (i) relevant provisions of
ERISA and (ii) in the case of plans intended to qualify for
favorable income tax treatment, provisions of the IRC relevant to
such treatment. To the best of Heritage's knowledge, no
prohibited transaction (which shall mean any transaction
prohibited by ERISA Section 406 and not exempt under ERISA
Section 408 or any transaction prohibited under IRC Section 4975)
has occurred within the past six (6) years with respect to any
employee benefit plan maintained by Heritage or any Heritage
Subsidiary that would result in the imposition, directly or
indirectly, of an excise tax under IRC Section 4975 or other
penalty under ERISA or the IRC, which, individually or in the
aggregate, has resulted in or will result in a Material Adverse
Effect with respect to Heritage. Heritage and the Heritage
Subsidiaries comply with the continuation coverage rules
applicable to its group health plan(s) for covered employees and
"qualified beneficiaries" of covered employees (as defined in IRC
Section 4980B(g)) in accordance with the provisions of IRC
Section 4980B(f). Such group health plans are in compliance with
Section 1862(b)(1) of the Social Security Act. Neither Heritage
nor any Heritage Subsidiary is aware of any existing or
contemplated audit of any of its employee benefit plans by the
Internal Revenue Service or U.S. Department of Labor.
Section 2.14 Brokers, Finders and Financial Advisors.
Except for Heritage's engagement of McConnell, Budd & Downes,
Inc., in connection with the transactions contemplated by this
Agreement, neither Heritage nor any Heritage Subsidiary, nor any
of their respective officers, directors, employees or agents, has
employed any broker, finder or financial advisor in connection
with the transactions contemplated by this Agreement or in
connection with any transaction other than the Consolidation, or,
except for its commitments disclosed in the Heritage Disclosure
Schedule, incurred any liability or commitment for any fees or
commissions to any such person in connection with the
transactions contemplated by this Agreement or in connection with
any transaction other than the Consolidation, which has not been
reflected in the Heritage Financials. The Heritage Disclosure
Schedule shall contain as an exhibit the engagement letter
between Heritage and McConnell, Budd & Downes, Inc.
Section 2.15 Securities Documents. Heritage has
delivered to BCB copies of its (i) annual reports on SEC
Form 10-K for the years ended December 31, 1996, 1995 and 1994,
(ii) a quarterly report on SEC Form 10-Q for the quarters ended
March 31, 1997 and June 30, 1997, and (iii) proxy materials used
in connection with its meetings of shareholders held in 1997,
1996 and 1995. Such reports and such proxy materials complied,
at the time filed with the SEC, in all material respects, with
the Exchange Act and all applicable rules and regulations of the
SEC.
Section 2.\L Environmental Matters. To the knowledge
of Heritage, neither Heritage nor any Heritage Subsidiary, nor
any properties owned or operated by Heritage or any Heritage
Subsidiary has been or is in violation of or liable under any
Environmental Law which violation or liability, individually or
in the aggregate, resulted in, or will result, in a Material
Adverse Effect with respect to Heritage. There are no actions,
suits or proceedings, or demands, claims, notices or
investigations (including without limitation notices, demand
letters or requests for information from any environmental
agency) instituted or pending, or to the knowledge of Heritage,
threatened, relating to the liability of any property owned or
operated by Heritage or any Heritage Subsidiary under any
Environmental Law.
Section 2.17 Allowance for Loan Losses. The allowance
for loan losses reflected, and to be reflected, in the Heritage
Regulatory Reports, and shown, and to be shown, on the balance
sheets contained in the Heritage Financials have been, and will
be, established in accordance with the requirements of GAAP and
all applicable regulatory criteria.
Section 2.18 Related Party Transactions. Except as
disclosed (i) in the Heritage Disclosure Schedule, (ii) in the
Heritage proxy statement dated March 10, 1997 or (iii) in the
footnotes to the Heritage Financials, Heritage is not a party to
any transaction (including any loan or other credit accommodation
but excluding deposits in the ordinary course of business) with
any Affiliate of Heritage (except an Heritage Subsidiary); and
all such transactions (a) were made in the ordinary course of
business, (b) were made on substantially the same terms,
including interest rates and collateral, as those prevailing at
the time for comparable transactions with other Persons, and
(c) did not involve more than the normal risk of collectability
or present other unfavorable features. Except as set forth on
the Heritage Disclosure Schedule, no loan or credit accommodation
to any Affiliate of Heritage is presently in default or, during
the three year period prior to the date of this Agreement, has
been in default or has been restructured, modified or extended.
Neither Heritage nor Heritage National Bank has been notified
that principal and interest with respect to any such loan or
other credit accommodation will not be paid when due or that the
loan grade classification accorded such loan or credit
accommodation by Heritage National Bank is inappropriate.
Section 2.19 Loans. Each loan reflected as an asset
in the Heritage Financial Statements (i) is evidenced by notes,
agreements or other evidences of indebtedness which are true,
genuine and correct (ii) to the extent secured, has been secured
by valid liens and security interests which have been perfected,
and (ii) is the legal, valid and binding obligation of the
obligor named therein, enforceable in accordance with its terms,
subject to bankruptcy, insolvency, fraudulent conveyance and
other laws of general applicability relating to or affecting
creditors' rights and to general equity principles, in each case
other than loans as to which the failure to satisfy the foregoing
standards would not have a Material Adverse Effect on Heritage.
Section 2.20 Accounting for the Consolidation;
Reorganization. As of the date hereof, Heritage does not have
any reason to believe that the Consolidation will fail to qualify
(i) for pooling-of-interests accounting treatment under GAAP, or
(ii) as a reorganization under Section 368(a) of the IRC.
Section 2.21 Fairness Opinion. Heritage has received
an oral opinion from McConnell Budd & Downes, Inc., to the
effect that, as of the date hereof, the exchange ratio to be
received by shareholders of Heritage pursuant to this Agreement
is fair, from a financial point of view, to such shareholders.
Section 2.22 Quality of Representations. The
representations made by Heritage in this Agreement are true,
correct and complete in all material respects, and do not omit
statements necessary to make them not misleading under all facts
and circumstances.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BCB
BCB hereby represents and warrants to Heritage that,
except as set forth in the BCB Disclosure Schedule delivered by
BCB to Heritage on or prior to the date hereof:
Section 3.01 Organization.
(a) BCB is a corporation duly organized, validly
existing and in good standing under the laws of the Commonwealth
of Pennsylvania. BCB is a bank duly registered under the BHCA.
BCB has the corporate power and authority to carry on its
business and operations as now being conducted and to own and
operate the properties and assets now owned and being operated by
it. Each BCB Subsidiary is duly organized, validly existing, and
in good standing under the laws of the jurisdiction of its
incorporation and each possesses full corporate power and
authority to carry on its respective business and to own, lease
and operate its properties as presently conducted. Neither BCB
nor any BCB Subsidiary is required by the conduct of its business
or the ownership or leasing of its assets to qualify to do
business as a foreign corporation in any jurisdiction other than
the Commonwealth of Pennsylvania, except where the failure to be
so qualified would not have a Material Adverse Effect on BCB.
(b) Berks County Bank is a state-chartered bank,
duly organized and validly existing under the laws of the
Commonwealth of Pennsylvania. Berks County Bank has the
corporate power and authority to carry on its business and
operations as now being conducted and to own and operate the
properties and assets now owned and being operated by it.
(c) There are no BCB Subsidiaries other than
Berks County Bank and Berks Mortgage Company.
(d) The deposits of Berks County Bank are insured
by the FDIC to the extent provided in the FDIA.
(e) The respective minute books of BCB and Berks
County Bank and each other BCB Subsidiary accurately record, in
all material respects, all material corporate actions of their
respective shareholders and boards of directors (including
committees).
(f) Prior to the date of this Agreement, BCB has
delivered to Heritage true and correct copies of the articles of
incorporation and the bylaws of BCB and Berks County Bank,
respectively, as in effect on the date hereof.
Section 3.02 Capitalization.
(a) The authorized capital stock of BCB consists
of (a) 20,000,000 shares of common stock, $2.50 par value ("BCB
Common Stock"), of which, at the date of this Agreement, no
shares were issued and held by BCB as treasury stock and
3,469,930 shares are outstanding, validly issued, fully paid and
nonassessable and free of preemptive rights. Neither BCB nor
Berks County Bank nor any other BCB Subsidiary has or is bound by
any subscription, option, warrant, call, commitment, agreement,
plan or other Right of any character relating to the purchase,
sale or issuance or voting of, or right to receive dividends or
other distributions on any shares of BCB Common Stock or any
other security of BCB or any securities representing the right to
vote, purchase or otherwise receive any shares of BCB Common
Stock or any other security of BCB, other than (i) the shares
issuable under the Heritage Option, (ii) options to acquire
138,942 shares of BCB Common Stock under BCB Stock Option Plans
and (iii) the BCB dividend reinvestment and stock purchase plan.
(b) The authorized capital stock of Berks County
Bank consists of 3,000,000 shares of common stock, par value
$5.00 per share ("BCB Bank Common Stock"), of which 1,407,098
shares are outstanding, validly issued, fully paid,
nonassessable, free of preemptive rights and owned by BCB.
Either BCB or Berks County Bank owns all of the outstanding
shares of capital stock of each BCB Subsidiary free and clear of
all liens, security interests, pledges, charges, encumbrances,
agreements and restrictions of any kind or nature.
(c) Except as set forth in the BCB Disclosure
Schedule, neither (i) BCB, (ii) Berks County Bank nor (iii) any
other BCB Subsidiary, owns any equity interest, directly or
indirectly, other than treasury stock, in any other company or
controls any other company, except for equity interests held in
the investment portfolios of BCB Subsidiaries, equity interests
held by BCB Subsidiaries in a fiduciary capacity, and equity
interests held in connection with the commercial loan activities
of BCB Subsidiaries. There are no subscriptions, options,
warrants, calls, commitments, agreements or other Rights
outstanding and held by BCB or Berks County Bank with respect to
any other company's capital stock or the equity of any other
person.
(d) To the best of BCB's knowledge, except as
disclosed in BCB's proxy statement dated March 14, 1997, no
person or "group" (as that term is used in Section 13(d)(3) of
the Exchange Act) is the beneficial owner (as defined in
Section 13(d) of the Exchange Act) of 5% or more of the
outstanding shares of BCB Common Stock.
Section 3.03 Authority; No Violation.
(a) BCB has full corporate power and authority to
execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of
this Agreement by BCB and the completion by BCB of the
transactions contemplated hereby have been duly and validly
approved by the Board of Directors of BCB and, except for
approval of the shareholders of BCB as required by the BCL, BCB's
articles of incorporation and bylaws and Nasdaq requirements
applicable to it, no other corporate proceedings on the part of
BCB are necessary to complete the transactions contemplated
hereby. This Agreement has been duly and validly executed and
delivered by BCB and, subject to approval by the shareholders of
BCB and receipt of the required approvals of Regulatory
Authorities described in Section 3.04 hereof, constitutes the
valid and binding obligation of BCB, enforceable against BCB in
accordance with its terms, subject to applicable bankruptcy,
insolvency and similar laws affecting creditors' rights generally
and subject, as to enforceability, to general principles of
equity.
(b) (A) The execution and delivery of this
Agreement by BCB, (B) subject to receipt of approvals from the
Regulatory Authorities referred to in Section 3.04 hereof and
Heritage's and BCB's compliance with any conditions contained
therein, the completion of the transactions contemplated hereby,
and (C) compliance by BCB with any of the terms or provisions
hereof, will not (i) conflict with or result in a breach of any
provision of the articles of incorporation or other
organizational document or bylaws of BCB or any BCB Subsidiary;
(ii) violate any statute, code, ordinance, rule, regulation,
judgment, order, writ, decree or injunction applicable to BCB or
any BCB Subsidiary or any of their respective properties or
assets; or (iii) violate, conflict with, result in a breach of
any provisions of, constitute a default (or an event which, with
notice or lapse of time, or both, would constitute a default),
under, result in the termination of, accelerate the performance
required by, or result in a right of termination or acceleration
or the creation of any lien, security interest, charge or other
encumbrance upon any of the properties or assets of BCB or any
BCB Subsidiary under, any of the terms, conditions or provisions
of any note, bond, mortgage, indenture, deed of trust, license,
lease, agreement or other investment or obligation to which BCB
or any BCB Subsidiary is a party, or by which they or any of
their respective properties or assets may be bound or affected,
except for such violations, conflicts, breaches or defaults under
clause (ii) or (iii) hereof which, either individually or in the
aggregate, will not have a Material Adverse Effect on BCB.
Section 3.04 Consents. Except for consents,
approvals, filings and registrations from or with the FRB, the
DOJ, the SEC, the PDS, the NASD and state "blue sky" authorities,
and compliance with any conditions contained therein, and the
approval of this Agreement by the shareholders of BCB, and except
as disclosed in the BCB Disclosure Schedule, no consents or
approvals of, or filings or registrations with, any public body
or authority are necessary, and no consents or approvals of any
third parties are necessary, or will be, in connection with
(a) the execution and delivery of this Agreement by BCB, and
(b) the completion by BCB of the transactions contemplated
hereby. As of the date hereof, BCB has no reason to believe that
(i) any required consents or approvals will not be received or
will be received with conditions, limitations or restrictions
unacceptable to it or which would adversely impact BCB's ability
to complete the transactions contemplated by this Agreement or
that (ii) any public body or authority, the consent or approval
of which is not required or any filing with which is not
required, will object to the completion of the transactions
contemplated by this Agreement.
Section 3.05 Financial Statements.
(a) BCB has made the BCB Regulatory Reports
available to Heritage for inspection. The BCB Regulatory Reports
have been, or will be, prepared in all material respects in
accordance with applicable regulatory accounting principles and
practices throughout the periods covered by such statements, and
fairly present, or will fairly present in all material respects,
the financial position, results of operations, and changes in
shareholders' equity of BCB as of and for the periods ended on
the dates thereof, in accordance with applicable regulatory
accounting principles applied on a consistent basis.
(b) BCB has previously delivered, or will
deliver, to Heritage the BCB Financials. The BCB Financials have
been, or will be, prepared in accordance with GAAP applied on a
consistent basis throughout the periods covered by such
statements, except as noted therein, and fairly present, or will
fairly present, the consolidated financial position, results of
operations and cash flows of BCB as of and for the periods ending
on the dates thereof, in accordance with GAAP applied on a
consistent basis, except as noted therein.
(c) At the date of each balance sheet included in
the BCB Financials or BCB Regulatory Reports, neither BCB or
Berks County Bank did not have any liabilities, obligations or
loss contingencies of any nature (whether absolute, accrued,
contingent or otherwise) of a type required to be reflected in
such BCB Financials or BCB Regulatory Reports or in the footnotes
thereto which are not fully reflected or reserved against therein
or disclosed in a footnote thereto, except for liabilities,
obligations or loss contingencies which are not material in the
aggregate and which are incurred in the ordinary course of
business, consistent with past practice, and except for
liabilities, obligations or loss contingencies which are within
the subject matter of a specific representation and warranty
herein and subject, in the case of any unaudited statements, to
normal recurring audit adjustments and the absence of footnotes.
Section 3.06 Taxes.
(a) BCB and the BCB Subsidiaries are members of
the same affiliated group within the meaning of IRC Section
1504(a). BCB has duly filed, and will file, all federal, state
and local tax returns required to be filed by or with respect to
BCB and all BCB Subsidiaries on or prior to the Closing Date (all
such returns being accurate and correct in all material respects)
and has duly paid or will pay, or made or will make, provisions
for the payment of all federal, state and local taxes which have
been incurred by or are due or claimed to be due from BCB and any
BCB Subsidiary by any taxing authority or pursuant to any tax
sharing agreement or arrangement (written or oral) on or prior to
the Closing Date other than taxes which (i) are not delinquent or
(ii) are being contested in good faith.
(b) No consent pursuant to IRC Section 341(f) has
been filed (or will be filed prior to the Closing Date) by or
with respect to BCB or any BCB Subsidiary.
Section 3.07 No Material Adverse Effect. BCB has not
suffered any Material Adverse Effect since September 30, 1997.
Section 3.08 Contracts.
(a) Except as described in BCB's proxy statement
dated March 14, 1997 and Annual Reports on Form 10-KSB for the
years ended December 31, 1994, 1995 and 1996, previously
delivered to Heritage, in the footnotes to the audited
consolidated financial statements of BCB as of December 31, 1996,
and for the three years ended December 31, 1996, or in the BCB
Disclosure Schedule, neither BCB nor any BCB Subsidiary is a
party to or subject to: (i) any employment, consulting or
severance contract or arrangement with any past or present
officer, director or employee of BCB or any BCB Subsidiary,
except for "at will" arrangements; (ii) any plan, arrangement or
contract providing for bonuses, pensions, options, deferred
compensation, retirement payments, profit sharing or similar
arrangements for or with any past or present officers, directors
or employees of BCB or any BCB Subsidiary; (iii) any collective
bargaining agreement with any labor union relating to employees
of BCB or any BCB Subsidiary; (iv) any agreement which by its
terms limits the payment of dividends by any BCB Subsidiary;
(v) any instrument evidencing or related to indebtedness for
borrowed money whether directly or indirectly, by way of purchase
money obligation, conditional sale, lease purchase, guaranty or
otherwise, in respect of which BCB or any BCB Subsidiary is an
obligor to any person, which instrument evidences or relates to
indebtedness other than deposits, repurchase agreements, Federal
Home Loan Bank advances, bankers acceptances and "treasury tax
and loan" accounts established in the ordinary course of business
and transactions in "federal funds" or which contains financial
covenants or other restrictions (other than those relating to the
payment of principal and interest when due) which would be
applicable on or after the Closing Date to the Holding Company or
any Holding Company Subsidiary; or (vi) any contract (other than
this Agreement) limiting the freedom of any BCB Subsidiary to
engage in any type of banking or bank-related business
permissible under law.
(b) True and correct copies of agreements, plans,
arrangements and instruments referred to in Section 3.08(a),
described in the BCB proxy statement dated March 14, 1997 or in a
footnote to the BCB Financials, have been provided or been made
available to Heritage on or before the date hereof, and are in
full force and effect on the date hereof and neither BCB nor any
BCB Subsidiary (nor, to the knowledge of Heritage, any other
party to any such contract, plan, arrangement or instrument) has
breached any provision of, or is in default in any respect under
any term of, any such contract, plan, arrangement or instrument
which breach has resulted in or will result in a Material Adverse
Effect with respect to BCB. Except as set forth in the BCB
Disclosure Schedule, no party to any material contract, plan,
arrangement or instrument will have the right to terminate any or
all of the provisions of any such contract, plan, arrangement or
instrument as a result of the transactions contemplated by this
Agreement. Except as set forth in the BCB Disclosure Schedule,
none of the employees (including officers) of BCB or any BCB
Subsidiary possess the right to terminate their employment as a
result of the execution of this Agreement. Except as set forth
in the BCB Disclosure Schedule, no plan, employment agreement,
termination agreement, or similar agreement or arrangement to
which BCB or any BCB Subsidiary is a party or under which BCB or
any BCB Subsidiary may be liable contains provisions which permit
an employee or independent contractor to terminate it without
cause and continue to accrue future benefits thereunder. Except
as set forth in the BCB Disclosure Schedule, no such agreement,
plan or arrangement (i) provides for acceleration in the vesting
of benefits or payments due thereunder upon the occurrence of a
change in ownership or control of BCB or any BCB Subsidiary
absent the occurrence of a subsequent event; (ii) provides for
benefits which may cause the disallowance of a federal income tax
deduction under IRC Section 280G; or (iii) requires BCB or any
BCB Subsidiary to provide a benefit in the form of BCB Common
Stock or determined by reference to the value of BCB Common
Stock.
Section 3.09 Ownership of Property; Insurance
Coverage.
(a) BCB and the BCB Subsidiaries have good and,
as to real property, marketable title to all assets and
properties owned by BCB or any of its Subsidiaries in the conduct
of their businesses, whether such assets and properties are real
or personal, tangible or intangible, including assets and
property reflected in the balance sheets contained in the BCB
Regulatory Reports and in the BCB Financials or acquired
subsequent thereto (except to the extent that such assets and
properties have been disposed of for fair value, in the ordinary
course of business, since the date of such balance sheets),
subject to no encumbrances, liens, mortgages, security interests
or pledges, except (i) those items that secure repurchase
agreements and liabilities for borrowed money, (ii) statutory
liens for amounts not yet delinquent or which are being contested
in good faith, and (iii) items permitted under Article IV. BCB
and the BCB Subsidiaries, as lessee, have the right under valid
and subsisting leases of real and personal properties used by BCB
and its Subsidiaries in the conduct of their businesses to occupy
and use all such properties as presently occupied and used by
each of them. Except as set forth in the BCB Disclosure
Schedule, such existing leases and commitments to lease
constitute or will constitute operating leases for both tax and
financial accounting purposes and the lease expense and minimum
rental commitments with respect to such leases and lease
commitments are as disclosed in the notes to the BCB Financials.
(b) With respect to all agreements pursuant to
which BCB or any BCB Subsidiary has purchased securities subject
to an agreement to resell, if any, BCB or such BCB Subsidiary, as
the case may be, has a valid, perfected first lien or security
interest in the securities or other collateral securing the
repurchase agreement, and the value of such collateral equals or
exceeds the amount of the debt secured thereby.
(c) BCB and the BCB Subsidiaries currently
maintain insurance in amounts considered by BCB to be reasonable
for their respective operations, and such insurance is similar in
scope and coverage to that maintained by other businesses
similarly engaged. Neither BCB nor any BCB Subsidiary has
received notice from any insurance carrier that (i) such
insurance will be cancelled or that coverage thereunder will be
reduced or eliminated or (ii) premium costs with respect to such
insurance will be substantially increased. There are presently
no material claims pending under such policies of insurance and
no notices have been given by BCB or Berks County Bank under such
policies. All such insurance is valid and enforceable and in
full force and effect, and within the last three years BCB has
received each type of insurance coverage for which it has applied
and during such periods has not been denied indemnification for
any material claims submitted under any of its insurance
policies.
Section 3.10 Legal Proceedings. Except as set forth
in the BCB Disclosure Schedule, neither BCB nor any BCB
Subsidiary is a party to any, and there are no pending or, to the
best of BCB's knowledge, threatened legal, administrative,
arbitration or other proceedings, claims, actions or governmental
investigations or inquiries of any nature (i) against BCB or any
BCB Subsidiary, (ii) to which BCB's or any BCB Subsidiary's
assets are or may be subject, (iii) challenging the validity or
propriety of any of the transactions contemplated by this
Agreement, or (iv) which could adversely affect the ability of
BCB to perform under this Agreement, except for any proceedings,
claims, actions, investigations or inquiries referred to in
clauses (i) or (ii) which, individually or in the aggregate,
could not be reasonably expected to have a Material Adverse
Effect on BCB.
Section 3.11 Compliance With Applicable Law.
(a) BCB and the BCB Subsidiaries hold all
licenses, franchises, permits and authorizations necessary for
the lawful conduct of their businesses under, and have complied
in all material respects with, applicable laws, statutes, orders,
rules or regulations of any federal, state or local governmental
authority relating to them, other than where such failure to hold
or such noncompliance will neither result in a limitation in any
material respect on the conduct of their businesses nor otherwise
have a Material Adverse Effect on BCB.
(b) Neither BCB nor any BCB Subsidiary has
received any notification or communication from any Regulatory
Authority (i) asserting that BCB or any BCB Subsidiary is not in
compliance with any of the statutes, regulations or ordinances
which such Regulatory Authority enforces; (ii) threatening to
revoke any license, franchise, permit or governmental
authorization which is material to BCB or any BCB Subsidiary;
(iii) requiring or threatening to require BCB or any BCB
Subsidiary, or indicating that BCB or any BCB Subsidiary may be
required, to enter into a cease and desist order, agreement or
memorandum of understanding or any other agreement restricting or
limiting, or purporting to restrict or limit, in any manner the
operations of BCB or any BCB Subsidiary, including without
limitation any restriction on the payment of dividends; or
(iv) directing, restricting or limiting, or purporting to direct,
restrict or limit, in any manner the operations of BCB or any BCB
Subsidiary, including without limitation any restriction on the
payment of dividends (any such notice, communication, memorandum,
agreement or order described in this sentence is hereinafter
referred to as a "Regulatory Agreement"). Neither BCB nor any
BCB Subsidiary has consented to or entered into any Regulatory
Agreement, except as heretofore disclosed to Heritage.
Section 3.12 Information to be Supplied. The
information to be supplied by BCB for inclusion in the
Registration Statement (including the Prospectus/Proxy Statement)
will not, at the time the Registration Statement is declared
effective pursuant to the Securities Act and as of the date the
Prospectus/Proxy Statement is mailed to shareholders of BCB and
Heritage and up to and including the date(s) of the meetings of
shareholders of BCB and Heritage to which such Prospectus/Proxy
Statement relates, contain any untrue statement of a material
fact or omit to state any material fact necessary in order to
make the statements therein not misleading. The information
supplied, or to be supplied, by BCB for inclusion in the
Applications will, at the time such documents are filed with any
Regulatory Authority and up to and including the date(s) of the
obtainment of any required regulatory approvals or consents, be
accurate in all material aspects.
Section 3.13 ERISA. BCB has previously delivered or
made available to Heritage true and complete copies of the
employee pension benefit plans which it currently maintains
within the meaning of ERISA Section 3(2), including profit
sharing plans, stock purchase plans, deferred compensation and
supplemental income plans, supplemental executive retirement
plans, severance plans, policies and agreements, group insurance
plans, and all other employee welfare benefit plans within the
meaning of ERISA Section 3(1) (including, if applicable, vacation
pay, sick leave, short-term disability, long-term disability, and
medical plans), and all other employee benefit plans, policies,
agreements and arrangements, all of which are set forth on the
BCB Disclosure Schedule, maintained or contributed to for the
benefit of the employees or former employees (including retired
employees) and any beneficiaries thereof or directors or former
directors of BCB or any BCB Subsidiary, together with (i) the
most recent actuarial (if any) and financial reports relating to
those plans which constitute "qualified plans" under IRC Section
401(a), (ii) the most recent annual reports relating to such
plans filed by them, respectively, with any government agency,
and (iii) all rulings and determination letters which pertain to
any such plans. To the best of BCB's knowledge, neither BCB, any
BCB Subsidiary, nor any pension plan maintained by BCB or any BCB
Subsidiary, has incurred, directly or indirectly, within the past
six (6) years any liability under Title IV of ERISA (including to
the Pension Benefit Guaranty Corporation) or to the IRS with
respect to any pension plan qualified under IRC Section 401(a)
which liability has resulted in or will result in a Material
Adverse Effect with respect to BCB, except liabilities to the
Pension Benefit Guaranty Corporation pursuant to ERISA
Section 4007, all of which have been fully paid, nor has any
reportable event under ERISA Section 4043 occurred with respect
to any such pension plan. With respect to each of such plans
that is subject to Title IV of ERISA, the fair market value of
the assets under such plan exceeds the present value of the
accrued benefits liability as of the end of the most recent plan
year with respect to such plan calculated on the basis of the
actual assumptions used in the most recent actuarial valuation
for such plan. Neither BCB nor any BCB Subsidiary has incurred
or is subject to any liability under ERISA Section 4201 for a
complete or partial withdrawal from a multi-employer plan. To
the best of BCB's knowledge, all "employee benefit plans," as
defined in ERISA Section 3(3), comply and within the past six
(6) years have complied in all material respects with
(i) relevant provisions of ERISA, and (ii) in the case of plans
intended to qualify for favorable income tax treatment,
provisions of the IRC relevant to such treatment. To the best of
BCB's knowledge, no prohibited transaction (which shall mean any
transaction prohibited by ERISA Section 406 and not exempt under
ERISA Section 408 or any transaction prohibited under IRC
Section 4975) has occurred within the past six (6) years with
respect to any employee benefit plan maintained by BCB or any BCB
Subsidiary that would result in the imposition, directly or
indirectly, of an excise tax under IRC Section 4975 or other
penalty under ERISA or the IRC, which individually or in the
aggregate, has resulted in or will result in a Material Adverse
Effect with respect to BCB. BCB and the BCB Subsidiaries comply
with the continuation coverage rules applicable to its group
health plan(s) for covered employees and "qualified
beneficiaries" of covered employees (as defined in IRC Section
4980B(g)), in accordance with the provisions of IRC Section
4980B(f). Such group health plans are in compliance with Section
1862(b)(1) of the Social Security Act. Neither BCB nor any BCB
Subsidiary is aware of any existing or contemplated audit of any
of its employee benefit plans by the Internal Revenue Service or
U.S. Department of Labor.
Section 3.14 Brokers, Finders and Financial Advisors.
Except for BCB's engagement of Janney Montgomery Scott Inc. in
connection with the transactions contemplated by this Agreement,
neither BCB nor any BCB Subsidiary, nor any of their respective
officers, directors, employees or agents, has employed any
broker, finder or financial advisor in connection with the
transactions contemplated by this Agreement or in connection with
any transaction other than the Consolidation, or, except for its
commitments disclosed in the BCB Disclosure Schedule, incurred
any liability or commitment for any fees or commissions to any
such person in connection with the transactions contemplated by
this Agreement or in connection with any transaction other than
the Consolidation, which has not been reflected in the BCB
Financials. The BCB Disclosure Schedule shall contain as an
exhibit the engagement letter between BCB and Janney Montgomery
Scott Inc.
Section 3.15 Securities Documents. BCB has delivered
to Heritage copies of its (i) annual reports on SEC Form 10-KSB
for the years ended December 31, 1996, 1995 and 1994,
(ii) quarterly reports on SEC Form 10-QSB for the quarters ended
March 31, 1997, June 30, 1997 and September 30, 1997 and
(iii) proxy materials used in connection with its annual meetings
of shareholders held in 1997, 1996 and 1995. Such reports and
such proxy materials complied, at the time filed with the SEC, in
all material respects, with the Exchange Act and the applicable
rules and regulations of the SEC.
Section 3.16 Environmental Matters. To the knowledge
of BCB, neither BCB nor any BCB Subsidiary, nor any properties
owned or operated by BCB or any BCB Subsidiary has been or is in
violation of or liable under any Environmental Law which
violation or liability, individually or in the aggregate,
resulted in or will result in a Material Adverse Effect with
respect to BCB. There are no actions, suits or proceedings, or
demands, claims, notices or investigations (including without
limitation notices, demand letters or requests for information
from any environmental agency) instituted or pending, or to the
knowledge of BCB, threatened, relating to the liability of any
property owned or operated by BCB or any BCB Subsidiary under any
Environmental Law.
Section 3.17 Allowance for Loan Losses. The allowance
for loan losses reflected, and to be reflected, in the BCB
Regulatory Reports, and shown, and to be shown, on the balance
sheets contained in the BCB Financials have been, and will be,
established in accordance with the requirements of GAAP and all
applicable regulatory criteria.
Section 3.18 Related Party Transactions. Except as
disclosed (i) in the BCB Disclosure Schedule, (ii) in the BCB
proxy statement dated March 14, 1997 or (iii) in the footnotes to
the BCB Financials, BCB is not a party to any transaction
(including any loan or other credit accommodation but excluding
deposits in the ordinary course of business) with any Affiliate
of BCB (except a BCB Subsidiary); and all such transactions
(a) were made in the ordinary course of business, (b) were made
on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable
transactions with other Persons, and (c) did not involve more
than the normal risk of collectability or present other
unfavorable features. Except as set forth on the BCB Disclosure
Schedule, no loan or credit accommodation to any Affiliate of BCB
is presently in default or, during the three year period prior to
the date of this Agreement, has been in default or has been
restructured, modified or extended. Neither BCB nor Berks County
Bank has been notified that principal and interest with respect
to any such loan or other credit accommodation will not be paid
when due or that the loan grade classification accorded such loan
or credit accommodation by BCB Bank is inappropriate.
Section 3.19 Loans. Each loan reflected as an asset
in the BCB Financial Statements (i) is evidenced by notes,
agreements or other evidences of indebtedness which are true,
genuine and correct (ii) to the extent secured, has been secured
by valid liens and security interests which have been perfected,
and (ii) is the legal, valid and binding obligation of the
obligor named therein, enforceable in accordance with its terms,
subject to bankruptcy, insolvency, fraudulent conveyance and
other laws of general applicability relating to or affecting
creditors' rights and to general equity principles, in each case
other than loans as to which the failure to satisfy the foregoing
standards would not have a Material Adverse Effect on BCB.
Section 3.20 Accounting for the Consolidation;
Reorganization. As of the date hereof, BCB does not have any
reason to believe that the Consolidation will fail to qualify
(i) for pooling-of-interests treatment under GAAP, or (ii) as a
reorganization under Section 368(a) of the IRC.
Section 3.21 Fairness Opinion. BCB has received an
oral opinion from Janney Montgomery Scott Inc. to the effect
that, as of the date hereof, the exchange ratio to be received by
shareholders of BCB pursuant to this Agreement is fair, from a
financial point of view, to such shareholders.
Section 3.22 Quality of Representations. The
representations made by BCB in this Agreement are true, correct
and complete in all material respects and do not omit statements
necessary to make the representations not misleading under the
circumstances.
ARTICLE IV
COVENANTS OF THE PARTIES
Section 4.01 Conduct of Business.
(a) From the date of this Agreement to the
Closing Date, Heritage and BCB and their respective Subsidiaries
will conduct their business and engage in transactions, including
extensions of credit, only in the ordinary course and consistent
with past practice and policies, except as otherwise required or
contemplated by this Agreement or with the written consent of the
other party. Heritage and BCB will use their reasonable good
faith efforts, and will cause each of the Subsidiaries to use its
reasonable good faith efforts, to (i) preserve its business
organizations intact, (ii) maintain good relationships with
employees, and (iii) preserve for itself the goodwill of its
customers and others with whom business relationships exist.
From the date hereof to the Closing Date, except as otherwise
consented to or approved by the other party in writing or as
permitted or required by this Agreement, neither Heritage or BCB
will, or will permit any Subsidiary to:
(i) amend or change any provision of its
certificate or articles of incorporation, charter, or
bylaws;
(ii) change the number of authorized or
issued shares of its capital stock or issue any shares or
issue or grant any option, warrant, call, commitment,
subscription, Right or agreement of any character relating
to its authorized or issued capital stock or any securities
convertible into shares of such stock, or split, combine or
reclassify any shares of capital stock, or declare, set
aside or pay any dividend or other distribution in respect
of capital stock, or redeem or otherwise acquire any shares
of capital stock, except that (A) Heritage may issue up to
an aggregate of 93,052 shares of Heritage Common Stock upon
the valid exercise of Heritage Options, (B) Heritage may
grant in 1998 Heritage Options for up to an aggregate of
48,000 shares of Heritage Common Stock and may issue shares
(out of Treasury or new stock) upon the valid exercise
thereof, (C) Heritage may issue (out of Treasury or new
stock) or acquire shares of Heritage Common Stock in
connection with the Heritage ESOP consistent with past
practice, (D) Heritage may acquire shares of Heritage Common
Stock in connection with the payment of all or part of the
exercise price or tax withholdings of Heritage Stock Options
in connection with the valid exercise thereof, (E) Heritage
may issue shares of Heritage Common Stock pursuant to the
Heritage DRIP consistent with past practice, (F) Heritage
may issue shares of Heritage Common Stock pursuant to the
BCB Lock-Up Option, (G) Heritage may pay a quarterly cash
dividend not to exceed $0.14 per share of Heritage Common
Stock outstanding, (H) BCB may issue up to an aggregate of
138,942 shares of BCB Common Stock upon the valid exercise
of BCB Options, (I) BCB may acquire shares of BCB Common
Stock in connection with the payment of all or part of the
exercise price or tax withholdings of BCB Stock Options in
connection with the valid exercise thereof, (J) BCB may
issue shares of BCB Common Stock consistent with past
practice, pursuant to the BCB dividend reinvestment plan
consistent with past practice, (K) BCB may issue shares of
BCB Common Stock pursuant to the Heritage Lock-Up Option,
and (L) BCB may pay a quarterly cash dividend not to exceed
$.08 per share of BCB Common Stock outstanding; it being the
intent of the parties that, after the Effective Date, the
Holding Company pay a quarterly dividend of not less than
$.14 per quarter. Heritage and BCB agree to coordinate (on
a mutually agreeable basis) the declaration of dividends
(and the record of payment dates therefor) payable during
the period preceding and including the quarter in which the
Effective Date occurs so that shareholders of Heritage and
BCB will receive fair dividends and in no event shall
shareholders of either Heritage or BCB fail to receive a
fair dividend during any quarter up to and including the
quarter immediately following the Effective Date. Nothing
contained in this Section 4.01(a)(ii) or in any other
Section of this Agreement shall be construed to permit
Heritage or BCB shareholders to receive two dividends in any
quarter or to deny or prohibit them from receiving one
dividend in any quarter. Nothing contained herein shall be
deemed to affect the ability of an Heritage or BCB
Subsidiary to pay dividends on its capital stock subject to
applicable regulatory restrictions.
(iii) grant any severance or termination pay
(other than pursuant to written policies or written
agreements in effect on the date hereof and provided to the
other party prior to the date hereof) to, or, except as
expressly contemplated by this Agreement, enter into any new
or amend any existing employment agreement with, or increase
the compensation of, any employee, officer or director
except for routine periodic increases, that individually and
in the aggregate do not exceed 10% and that are otherwise in
accordance with past practice; provided, however, that
nothing herein shall prevent Heritage from establishing a
bonus pool in the aggregate amount of $100,000 to be paid to
certain officers and employees solely for the purpose of
inducing such officer or employee to continue working for
Heritage or the Holding Company through a date not more than
six (6) months after the Effective Date.
(iv) merge or consolidate any Subsidiary
with any other corporation; sell or lease all or any
substantial portion of the assets or business; make any
acquisition of all or any substantial portion of the
business or assets of any other person, firm, association,
corporation or business organization other than in
connection with the collection of any loan or credit
arrangement; enter into a purchase and assumption
transaction with respect to deposits and liabilities; permit
the revocation or surrender by any Subsidiary of its
certificate of authority to maintain, or file an application
for the relocation of, any existing branch office;
(v) sell or otherwise dispose of the capital
stock or sell or otherwise dispose of any of its assets or
the assets of any Subsidiary other than in the ordinary
course of business consistent with past practice; subject
any of its assets to a lien, pledge, security interest or
other encumbrance (other than in connection with government
deposits, repurchase agreements, bankers acceptances,
"treasury tax and loan" accounts established in the ordinary
course of business and transactions in Federal Home Loan
Bank advances and "federal funds" and the satisfaction of
legal requirements in the exercise of trust powers) other
than in the ordinary course of business consistent with past
practice; incur any indebtedness for borrowed money (or
guarantee any indebtedness for borrowed money), except in
the ordinary course of business consistent with past
practice;
(vi) take any action which would result in
any of its representations and warranties set forth in this
Agreement becoming untrue as of any date after the date
hereof except as otherwise contemplated or permitted by this
Agreement, or in any of the conditions set forth in
Article V hereof not being satisfied, except in each case as
may be required by applicable law;
(vii) change any method, practice or
principle of accounting, except as may be required from time
to time by GAAP (without regard to any optional early
adoption date) or any Regulatory Authority;
(viii) waive, release, grant or transfer any
rights of value or modify or change in any material respect
any existing material agreement to which it or any
Subsidiary is a party, other than in the ordinary course of
business consistent with past practice;
(ix) implement any pension, retirement,
profit sharing, bonus, welfare benefit or similar plan or
arrangement that was not in effect on the date of this
Agreement (except that BCB and Heritage each may adopt its
annual bonus plan in 1998 consistent with past practice),
or, except as required by law and except as set forth in
Section 4.10, materially amend any existing plan or
arrangement except to the extent such amendments do not
result in an increase in cost; provided, however, that
(A) Heritage may contribute to the Heritage pension plan an
amount not to exceed the minimum amount required under ERISA
or the IRC if such amount is usual and ordinary and
consistent with past practice and (B) Heritage may establish
the bonus pool contemplated by 4.01(a)(iii) and may continue
its company-wide bonus program for 1998 on a pro rata basis
through June 30, 1998 for all employees not selected to
participate in the Holding Company bonus plan for 1998
provided that such selected employees shall also participate
unless they participate in the Holding Company bonus plan on
a full year basis.
(x) purchase any security for its investment
portfolio not rated "AAA" or higher by Standard & Poor's
Corporation or "Aaa" by Moody's Investor Services, Inc.;
(xi) amend or otherwise modify the
underwriting and other lending guidelines and policies in
effect as of the date hereof or otherwise fail to conduct
its lending activities in the ordinary course of business
consistent with past practice;
(xii) enter into, renew, extend or modify
any other transaction with any Affiliate, other than deposit
and loan transactions in the ordinary course of business and
which are in compliance with the requirements of applicable
laws and regulations;
(xiii) enter into any interest rate swap,
floor or cap or similar commitment, agreement or
arrangement;
(xiv) except for the execution of this
Agreement, take any action that would give rise to a right
of payment to any individual under any employment agreement;
(xv) take any action that would preclude the
Consolidation from qualifying (A) for pooling-of-interests
accounting treatment under GAAP or (B) as a reorganization
within the meaning of Section 368 of the IRC, provided,
however, that nothing contained herein shall limit the
ability of either to comply with its obligations under the
BCB Option or the Heritage Option; or
(xvi) agree to do any of the foregoing.
For purposes of this Section 4.01, it shall not be
considered in the ordinary course of business for either party to
do any of the following: (i) except for expenditures associated
with new branches and the BCB Operations Center, make any capital
expenditure of $100,000 or more not disclosed on the Heritage or
BCB Disclosure Schedule, without the prior written consent of the
other party; (ii) make any sale, assignment, transfer, pledge,
hypothecation or other disposition of any assets having a book or
market value, whichever is greater, in the aggregate in excess of
$250,000, other than pledges of assets to secure Federal Home
Loan Bank advances or government deposits, to exercise trust
powers, sales of assets received in satisfaction of debts
previously contracted in the normal course of business, issuance
and sales of loans, or transactions in the investment securities
portfolio or repurchase agreements, in each case, in the ordinary
course of business; or (iii) except for expenditures associated
with new branches and the BCB Operations Center, undertake or
enter any lease, contract or other commitment for its account,
other than in the normal course of providing credit to customers
as part of its banking business, involving a payment of more than
$250,000 annually, or containing a material financial commitment
and extending beyond 12 months from the date hereof.
Notwithstanding the foregoing, BCB shall consult with Heritage
concerning proposed expenditures associated with new branches and
the BCB Operations Center.
Notwithstanding anything to the contrary contained
elsewhere in this Agreement, Heritage shall not be prohibited or
restricted in any way from taking any of the following actions:
(i) granting up to 48,000 additional Heritage Stock Options under
the Heritage Stock Option Plans; (ii) making Employer
contributions to the ESOP as provided by Section 4.10;
(iii) establishing the special bonus pool contemplated by
4.01(a)(iii) and continuing its company-wide bonus program for
1998 on a pro rata basis through June 30, 1998 as contemplated by
4.01(a)(ix).
Section 4.02 Access; Confidentiality.
(a) From the date of this Agreement through the
Closing Date, Heritage or BCB, as the case may be, shall afford
to, and shall cause each Heritage Subsidiary or BCB Subsidiary to
afford to, the other party and its authorized agents and
representatives, complete access to their respective properties,
assets, books and records and personnel, at reasonable hours and
after reasonable notice; and the officers of Heritage and BCB
will furnish any person making such investigation on behalf of
the other party with such financial and operating data and other
information with respect to the businesses, properties, assets,
books and records and personnel as the person making such
investigation shall from time to time reasonably request.
(b) Heritage and BCB each agree to conduct such
investigation and discussions hereunder in a manner so as not to
interfere unreasonably with normal operations and customer and
employee relationships of the other party.
(c) All information furnished to BCB by Heritage
or by Heritage to BCB previously in connection with the
transactions contemplated by this Agreement or pursuant hereto
shall be held in confidence to the extent required by, and in
accordance with, the confidentiality agreements, dated
September 8, 1997, between Heritage and BCB (the "Confidentiality
Agreement").
Section 4.03 Regulatory Matters and Consents.
(a) Heritage and BCB shall promptly prepare a
Prospectus/Proxy Statement to be mailed to their respective
shareholders in connection with the meetings of their respective
shareholders and transactions contemplated hereby, and to be
filed by BCB and Heritage on behalf of the Holding Company with
the SEC in the Registration Statement, which Prospectus/Proxy
Statement shall conform to all applicable legal requirements.
BCB shall, as promptly and as practicable following the
preparation thereof, file the Registration Statement with the SEC
and Heritage and BCB shall use all reasonable efforts to have the
Registration Statement declared effective under the Securities
Act as promptly and as practicable after such filing. BCB will
advise Heritage, promptly after BCB receives notice thereof, of
the time when the Registration Statement has become effective or
any supplement or amendment has been filed, of the issuance of
any stop order or the suspension of the qualification of the
shares of capital stock issuable pursuant to the Registration
Statement, or the initiation or threat of any proceeding for any
such purpose, or of any request by the SEC for the amendment or
supplement of the Registration Statement or for additional
information. BCB shall use its reasonable best efforts to
obtain, prior to the effective date of the Registration
Statement, all necessary state securities laws or "Blue Sky"
permits and approvals required to carry out the transactions
contemplated by this Agreement. BCB will provide Heritage with
as many copies of such Registration Statement and all amendments
thereto promptly upon the filing thereof as Heritage may
reasonably request.
(b) BCB and Heritage will prepare all
Applications to Regulatory Authorities and make all filings for,
and use their reasonable best efforts to obtain as promptly as
practicable after the date hereof, all necessary permits,
consents, approvals, waivers and authorizations of all Regulatory
Authorities necessary or advisable to consummate the transactions
contemplated by this Agreement.
(c) Each party will furnish the other with all
information concerning itself and its Subsidiaries as may be
reasonably necessary or advisable in connection with the
Registration Statement and any Application or filing made to any
Regulatory Authority in connection with the transactions
contemplated by this Agreement.
(d) BCB and Heritage shall have the right to
review in advance, and each will consult with the other on, all
information which appears in any filing made with or written
materials submitted to the SEC, any Regulatory Authority or any
third party in connection with the transactions contemplated by
this Agreement. In exercising the foregoing right, each of the
parties hereto shall act reasonably and as promptly as
practicable. The parties hereto agree that they will consult
with each other with respect to the obtaining of all permits,
consents, approvals and authorizations of the SEC, Regulatory
Authorities and third parties necessary or advisable to
consummate the transactions contemplated by this Agreement and
each party will keep the other apprised of the status of matters
relating to completion of the transactions contemplated hereby
and thereby.
(e) Each party will promptly furnish the other
with copies of all Applications and other written communications
to, or received from, any Regulatory Authority in respect of the
transactions contemplated hereby.
Section 4.04 Taking of Necessary Action. BCB and
Heritage shall each use its reasonable best efforts in good
faith, and each of them shall cause its Subsidiaries to use their
reasonable best efforts in good faith, to take or cause to be
taken all action necessary or desirable on its part so as to
permit completion of the Consolidation as soon as practicable
after the date hereof, including, without limitation,
(A) obtaining the consent or approval of each individual,
partnership, corporation, association or other business or
professional entity whose consent or approval is required or
desirable for consummation of the transactions contemplated
hereby (including assignment of leases without any change in
terms), provided that neither party or its Subsidiaries shall
agree to make any payments or modifications to agreements in
connection therewith without the prior written consent of the
other party, and (B) requesting the delivery of appropriate
opinions, consents and letters from its counsel and independent
auditors. No party hereto shall take, or cause, or to the best
of its ability permit to be taken, any action that would
substantially impair the prospects of completing the
Consolidation pursuant to this Agreement; provided that nothing
herein contained shall preclude BCB or Heritage from exercising
its rights under this Agreement or the Heritage Lock-Up Option or
BCB Lock-Up Option.
Section 4.05 Indemnification; Insurance.
(a) Indemnification. In the event of any
threatened or actual claim, action, suit, proceeding or
investigation, whether civil, criminal or administrative, in
which any person who is now, or has been at any time prior to the
date of this Agreement, or who becomes prior to the Effective
Date, a director or officer or employee of either party or any of
their respective Subsidiaries (the "Indemnified Parties") is, or
is threatened to be, made a party to a suit based in whole or in
part on, or arising in whole or in part out of, or pertaining to
(i) the fact that he is or was a director, officer or employee of
either party, any of their respective Subsidiaries or any of
their respective predecessors or (ii) this Agreement or any of
the transactions contemplated hereby, whether in any case
asserted or arising before or after the Effective Date, the
parties hereto agree to cooperate and use their best efforts to
defend against and respond thereto to the extent permitted by the
BCL and the Articles of Incorporation and Bylaws of such party.
On or after the Effective Date, the Holding Company shall
indemnify, defend and hold harmless all prior and then-existing
directors and officers of Heritage, BCB or their respective
Subsidiaries, against (i) all losses, claims, damages, costs,
expenses, liabilities or judgments or amounts that are paid in
settlement (with the prior approval of the Holding Company) of or
in connection with any claim, action, suit, proceeding or
investigation based in whole or in part on or arising in whole or
in part out of the fact that such person is or was a director,
officer or employee of Heritage, BCB or their respective
Subsidiaries, whether pertaining to any matter existing or
occurring at or prior to the Effective Date and whether asserted
or claimed prior to, or at or after, the Effective Date
("Indemnified Liabilities") and (ii) all Indemnified Liabilities
based in whole or in part on, or arising in whole or in part out
of, or pertaining to this Agreement or the transactions
contemplated hereby, to the same extent as such officer, director
or employee may be indemnified by Heritage, BCB or their
respective Subsidiaries, as the case may be, as of the date
hereof including the right to advancement of expenses, provided,
however, that any such officer, director or employee may not be
indemnified by the Holding Company if such indemnification is
prohibited by applicable law.
(b) Insurance. The Holding Company shall
maintain a directors' and officers' liability insurance policy
providing coverage amounts not less than the greater of coverage
amounts provided under the Heritage or BCB directors and
officers' liability insurance policy and on terms generally no
less favorable, including Heritage or BCB's existing policy if it
meets the foregoing standard. Such policy shall cover persons
who are currently covered by the Heritage and BCB insurance
policies for a period of six years after the Effective Date.
(c) Assumption. In the event that the Holding
Company or any of its respective successors or assigns
(i) consolidates with or merges into any other person and shall
not be the continuing or surviving corporation or entity of such
consolidation or consolidation or (ii) transfers all or
substantially all of its properties and assets to any Person,
then, and in each such case the successors and assigns of such
entity shall assume the obligations set forth in this
Section 4.05.
Section 4.06 No Other Bids and Related Matters. So
long as this Agreement remains in effect, neither party shall and
shall not authorize or permit any of its directors, officers,
employees or agents, to directly or indirectly (i) respond to,
solicit, initiate or encourage any inquiries relating to, or the
making of any proposal which relates to, an Acquisition
Transaction (as defined below), (ii) recommend or endorse an
Acquisition Transaction, (iii) participate in any discussions or
negotiations regarding an Acquisition Transaction, (iv) provide
any third party (other than the other party to this Agreement or
an affiliate of such party) with any nonpublic information in
connection with any inquiry or proposal relating to an
Acquisition Transaction or (v) enter into an agreement with any
other party with respect to an Acquisition Transaction.
Notwithstanding the foregoing, (i) the Board of Directors of
Heritage or BCB may respond to unsolicited inquiries relating to
an Acquisition Transaction or (ii) the Board of Directors of
Heritage or BCB may recommend or endorse an Acquisition
Transaction, in each case, if it receives an unqualified written
opinion of outside counsel that the failure to do so would
constitute a breach of their fiduciary duty. Each party hereto
will immediately cease and cause to be terminated any existing
activities, discussions or negotiations previously conducted with
any parties other than the other party hereto with respect to any
of the foregoing, and will take all actions necessary or
advisable to inform the appropriate individuals or entities
referred to in this sentence of the obligations undertaken in
this Section 4.06. Each party hereto will notify the other party
hereto orally (within one day) and in writing (as promptly as
practicable) if any inquiries or proposals relating to an
Acquisition Transaction are received or any such negotiations or
discussions are sought to be initiated or continued. As used in
this Agreement, "Acquisition Transaction" shall mean one of the
following transactions with a party other than the other party
hereto (i) a merger or consolidation, or any similar transaction,
(ii) a purchase, lease or other acquisition of all or a
substantial portion of the assets or liabilities of a party
hereto or (iii) a purchase or other acquisition (including by way
of share exchange, tender offer, exchange offer or otherwise) of
a substantial interest in any class or series of its equity
securities (other than as permitted by Section 4.01(a)(ii)
hereof) or its Subsidiary.
Section 4.07 Duty to Advise; Duty to Update Disclosure
Schedule. Each party shall promptly advise the other party of
any change or event having a Material Adverse Effect on it or
which it believes would or would be reasonably likely to cause or
constitute a material breach of any of its representations,
warranties or covenants set forth herein. Each party shall
update its respective Disclosure Schedule as promptly as
practicable after the occurrence of an event or fact which, if
such event or fact had occurred prior to the date of this
Agreement, would have been disclosed in such Disclosure Schedule.
The delivery of such updated Disclosure Schedule shall not
relieve a party from any breach or violation of this Agreement
and shall not have any effect for the purposes of determining the
satisfaction of the condition set forth in Section 5.01(c).
Section 4.08 Current Information.
(a) Ongoing Communications. During the period
from the date of this Agreement to the Effective Date, each party
shall, upon the request of the other party, cause one or more of
its designated representatives to confer on a monthly or more
frequent basis with representatives of the other party regarding
its financial condition, operations and business and matters
relating to the completion of the transactions contemplated
hereby. As soon as reasonably available, but in no event more
than 45 days after the end of each calendar quarter ending after
the date of this Agreement (other than the last quarter of each
fiscal year ending December 31) Heritage and BCB will deliver to
the other party its quarterly report on Form 10-Q under the
Exchange Act, and, as soon as reasonably available, but in no
event more than 90 days after the end of each fiscal year ended
December 31, Heritage and BCB will deliver to the other party its
Annual Report on Form 10-K.
(b) Board Minutes. Each party shall provide to
the other party a copy of the minutes of any meeting of the Board
of Directors of such party or any Subsidiary thereof, or any
committee thereof, or any senior management committee, promptly
after such minutes are approved at a subsequent meeting of the
board or committee, but in any event within 40 days of the
meeting of such board or committee to which such minutes relate,
except that with respect to any meeting held within 30 days of
the Closing Date, such minutes shall be provided prior to the
Closing Date.
Section 4.09 Undertakings by BCB and Heritage. From
and after the date of this Agreement, each party shall:
(a) Phase I Environmental Audit. Permit the
other party, if such party elects to do so, at its own expense,
to cause a "phase I environmental audit" to be performed at any
physical location owned or occupied by it or any of its
Subsidiaries on the date hereof;
(b) Timely Review. If requested by the other
party at the other party's sole expense, cause its independent
certified public accountants to perform a review of its unaudited
consolidated financial statements as of the end of any calendar
quarter, in accordance with Statement of Auditing Standards No.
71, and to issue its report on such financial statements as soon
as is practicable thereafter;
(c) Outside Service Bureau Contracts. If
requested to do so by the other party, use its reasonable best
efforts to obtain an extension of any contract with an outside
service bureau or other vendor of services or any Subsidiary, on
terms and conditions mutually acceptable to each party;
(d) List of Nonperforming Assets. Provide each
party, within fifteen (15) days after the monthly meeting of its
Loan Review Committee, a written list of nonperforming assets as
of the end of such month; and
(e) Shareholders Meetings. Take all action
necessary to properly call and convene a special meeting of its
shareholders as soon as practicable after the date hereof to
consider and vote upon this Agreement and the transactions
contemplated hereby. Subject to the provisions of Section 4.06,
the Board of Directors of Heritage and the Board of Directors of
BCB will recommend that the shareholders of Heritage (including
Heritage National Bank, in its fiduciary capacity) and BCB,
respectively, approve this Agreement and the transactions
contemplated hereby. If required by the other party, a party
shall retain a proxy solicitor in connection with the
solicitation of the approval of its shareholders of this
Agreement and the transactions contemplated hereby.
(f) Public Announcements. Cooperate and cause
its respective officers, directors, employees and agents to
cooperate in good faith, consistent with their respective legal
obligations, in the preparation and distribution of, and agree
upon the form, substance and timing of, any press release related
to this Agreement and the transactions contemplated hereby, and
any other public disclosures related thereto, including without
limitation, communications to shareholders and internal
announcements and customer disclosures, but nothing contained
herein shall prohibit either party from making any disclosure
which its counsel deems necessary under applicable law;
(g) Maintenance of Insurance. Maintain, and
cause their respective Subsidiaries to maintain, insurance in
such amounts as are reasonable to cover such risks as are
customary in relation to the character and location of its
properties and the nature of its business;
(h) Maintenance of Books and Records. Maintain,
and cause their respective Subsidiaries to maintain, books of
account and records in accordance with GAAP applied on a basis
consistent with those principles used in preparing the financial
statements heretofore delivered;
(i) Delivery of Securities Documents. Deliver to
the other, copies of all Securities Documents simultaneously with
the filing thereof; and
(j) Taxes. File all federal, state, and local
tax returns required to be filed by them or their respective
Subsidiaries on or before the date such returns are due
(including any extensions) and pay all taxes shown to be due on
such returns on or before the date such payment is due.
Section 4.10 Employee Benefits.
(a) Employee Benefits. On and after the
Effective Date, the fringe benefits (including miscellaneous
benefits) and welfare benefit plans (other than the welfare plans
set forth in subsection 4.10(b) below) of BCB and Heritage may,
at the Holding Company's election and subject to the requirements
of the IRC and any other laws applicable to such benefit plans,
continue to be maintained separately or consolidated. With
respect to pension benefit (retirement) plans and other plans as
described below, the following provisions and guidelines shall
apply:
(i) Heritage ESOP (Containing 401(k)
Provisions).
(A) At some time after the execution of
this Agreement but prior to the Effective Date, as
determined by Heritage, Heritage will take action,
through its Board of Directors, to terminate the IRC
Section 4975 employee stock ownership plan portion of
the Heritage ESOP, effective as of the Effective Date.
Any action to terminate the IRC Section 4975 portion of
the Heritage ESOP will be specifically conditioned upon
successful consummation of the Consolidation. The
termination of the Heritage ESOP will apply to the IRC
Section 4975 employee stock ownership plan portion of
the Heritage ESOP, and assets related thereto, only.
The portion of the Heritage ESOP subject to IRC
Section 401(k) (salary reduction contributions) and IRC
Section 401(m) (employer matching contributions), and
the assets related thereto, shall be handled as set
forth in subparagraph (D) below. Each participant in
the Heritage ESOP not fully vested will, in accordance
with the termination of the Heritage ESOP, become fully
vested in all of his or her Heritage ESOP accounts as
of the date of the effective date of the termination of
the Heritage ESOP. Heritage shall be responsible for
taking all appropriate action, including possible
amendments to the Heritage ESOP, in order to provide
for the termination of the IRC Section 4975 employee
stock ownership plan portion of the Heritage ESOP and
the transfer of the IRC Section 401(k) (salary
reduction) and IRC Section 401(m) (employer matching)
portion of the Heritage ESOP. Heritage and BCB agree
that, subject to the conditions described herein, as
soon as practicable after the termination of the IRC
Section 4975 employee stock ownership plan portion of
the Heritage ESOP, participants in the Heritage ESOP
shall be entitled, at their election, to have their
Heritage ESOP employer discretionary contribution
employee stock ownership plan accounts either
distributed to them in a lump sum or directly
transferred to another tax-qualified plan (including
the Holding Company plan(s)) or to an individual
retirement account. Participants who request a direct
transfer to the Holding Company's plan(s) will be
permitted to transfer employer stock and will be
permitted to hold employer stock in the Holding Company
plan(s).
(B) The actions relating to
effectuating termination distributions from the
Heritage ESOP will be conditioned upon receiving a
favorable determination letter from the Internal
Revenue Service ("IRS") with regard to the
qualification of the termination of the IRC
Section 4975 employer stock ownership plan portion of
the Heritage ESOP. Heritage and the Holding Company
will cooperate in submitting appropriate requests for
any such determination letter to the IRS and will use
their best efforts to seek the issuance of such letter
as soon as practicable following the effective date of
the termination of the Heritage ESOP. Heritage and the
Holding Company will adopt such additional amendments
to the Heritage ESOP as may be reasonably required by
the IRS as a condition to granting such determination
letter, provided that such amendments do not
(i) substantially change the terms outlined herein,
(ii) have a Material Adverse Effect on Heritage or
(iii) result in an additional material liability to the
Holding Company.
(C) As of and following the Effective
Date, the terminated Heritage ESOP will not be made
available to any employees other than persons who were
participants or beneficiaries of the Heritage ESOP as
of the effective date of the termination.
(D) As soon as practicable after the
consummation of the Consolidation, the Holding Company
and Heritage will take appropriate action to effectuate
a plan merger of the IRC Section 401(k) and IRC
Section 401(m) portions, including the assets related
thereto, of the Heritage ESOP with and into the BCB
401(k) Plan. Such plan merger will involve the
transfer of IRC Section 401(k) contribution assets (and
related earnings) and IRC Section 401(m) contribution
assets (and related earnings) in the Heritage ESOP to
the BCB 401(k) Plan.
(E) Heritage will make an employer
discretionary contribution to the Heritage ESOP for the
1997 Heritage ESOP Plan Year in an amount not to exceed
$100,000. After 1997 and up to the termination
effective date of the IRC Section 4975 employee stock
ownership plan portion of the Heritage ESOP, Heritage
shall make an employer discretionary contribution to
the Heritage ESOP in an amount not to exceed $8,500 for
each complete calendar month in 1998 through the
Effective Date. The 1998 employer discretionary
contribution to the Heritage ESOP is conditioned upon
successful consummation of the Consolidation.
(ii) Heritage Pension Plan. At a date
following the execution of this Agreement but prior to the
Effective Date, as determined by Heritage, the Heritage
Board of Directors shall take the following actions, all
subject to successful consummation of the Consolidation,
with respect to the Heritage Bancorp, Inc. Employee
Retirement Plan ("Heritage Pension Plan"):
(A) Approve an amendment to the
Heritage Pension Plan to provide for the freezing of
benefit accruals (cessation of future benefit accruals)
as of the Effective Date.
(B) Approve an amendment to the
Heritage Pension Plan to provide for the allocation of
excess assets upon plan termination for the benefit of
active plan participants with accrued benefits under
the Heritage Pension Plan.
(C) Approve the termination of the
Heritage Pension Plan.
Heritage and the Holding Company shall cooperate in effectuating
the distribution of appropriate notices to affected Heritage
Pension Plan participants and in the submission of the terminated
Heritage Pension Plan to the Pension Benefit Guaranty Corporation
(PBGC) and the IRS. No distributions shall be made to any
participants from the Heritage Pension Plan, prior to the
successful expiration of the 60 day PBGC review period and the
receipt of a favorable determination letter from the IRS;
provided, however, employee participants who qualify for a
retirement pension under the Heritage Pension Plan and retire
from Heritage prior to the completion of the submissions to the
PBGC and the IRS, shall be able to receive their basic accrued
benefit. Heritage Pension Plan participants shall be entitled,
at their election, to elect a direct transfer of their benefit
(if a lump sum) to another tax-qualified plan (including any
plan(s) of the Holding Company) or to an IRA or to request that
their benefit be paid to them in an annuity form or lump sum
form.
(b) Retirement Plans Provided to Employees
Commencing Upon the Effective Date.
(i) BCB 401(k) Plan. As of the Effective
Date, employees of Heritage shall be eligible to
participate in the BCB 401(k) Plan. No later than the
Effective Date, the BCB 401(k) Plan shall be amended to
provide for prior Heritage service credit, for eligibility
and vesting purposes. The BCB 401(k) Plan shall also be
amended no later than the Effective Date to provide for the
participation of eligible Heritage employees in the BCB
401(k) Plan as of the Effective Date. A 75% employer
matching contribution up to 6% of employee IRC
Section 401(k) deferrals formula shall be applied under the
BCB 401(k) Plan for a period of five BCB 401(k) Plan years
after the Effective Date with the 1998 plan year
constituting the first BCB 401(k) plan year for purposes of
the five year period described above. No reduction in the
above described formula will be made for the five year
period described above. No later than the Effective Date,
the BCB 401(k) Plan shall also be amended to provide for
100% immediate vesting on all employer matching
contributions. On and after the Effective Date the BCB
401(k) Plan shall continue to make available an employer
stock-based investment option, and shall consider making
available to all participants in the BCB 401(k) Plan the
participant directed investment options currently offered to
Heritage employees under the Heritage ESOP. No amendment
shall be made to the BCB 401(k) Plan regarding full 100%
vesting on employer matching contributions for the same five
year period described above.
(ii) Money Purchase Pension Plan. As of the
Effective Date, employees of Heritage and BCB shall be
eligible to participate in a new money purchase pension plan
to be established by the Holding Company, subject to
successful consummation of the Consolidation. The money
purchase plan shall contain eligibility provisions requiring
an employee to be at least 21 years of age and have at least
one year of service, with entry dates of at least January 1
and July 1; provided, however, the Holding Company may
establish eligibility provisions which are more liberal than
age 21 and one year of service. The money purchase pension
plan shall provide for a fixed employer contribution equal
to 3% of an eligible employee's base salary, shall provide
for prior Heritage and BCB service credit for eligibility
and vesting, shall contain a vesting schedule which shall
provide 20% vesting for each year of service up to 100%
vesting upon completion of five years of service and shall
permit participants to direct the investment of their
account balances in the money purchase plan in investment
options similar to those offered under the BCB 401(k) Plan.
In lieu of the adoption of a new money purchase plan by the
Holding Company, to the extent permitted by the IRC, the
Holding Company may cause the BCB 401(k) Plan to be amended,
as of the Effective Date, to provide for a fixed employer
contribution in the same amount and subject to the same
provisions as are set forth in the preceding sentence. The
fixed 3% employer contribution formula which shall be
provided in either a new money purchase plan or in the BCB
401(k) Plan shall not be reduced for the same five year
period described in subparagraph (A) above.
(iii) Welfare Benefit Plans. Following the
Consolidation, the Holding Company will adopt the Heritage
Blue Cross/Blue Shield Plan, the Heritage short-term and
long-term disability plans and the BCB group life insurance
plan. The Holding Company shall also adopt a Flexible
Benefits (IRC Section 125) Plan similar to the existing
Heritage Flexible Benefit Plan. With respect to any other
welfare benefit plans of BCB and Heritage, the Holding
Company shall undertake a study, in consultation with
appropriate professional advisors, with a view toward the
possible combination of some or all of such plans (other
than the welfare plans described above) or the benefits
provided thereunder. Following such study, the Holding
Company shall take such action with respect to such plans
(which may include the implementation of new benefits,
reduction or elimination of some benefits, and/or the
alteration of the respective cost allocation between
employer and employee) as it deems appropriate under the
circumstances.
(iv) Bonus Plans and Arrangements. Heritage
and BCB may continue to administer such bonus programs and
arrangements as are disclosed pursuant to this Agreement
through the Effective Date, with such equitable
modifications as may be appropriate to take into account the
circumstances of the Consolidation and the timing thereof.
(v) Other Plans. From the date of this
Agreement through the Effective Date of the Consolidation,
without the prior written consent of the other party or
except as otherwise expressly permitted by this Agreement,
no further benefits, grants or awards shall be made
available under any Heritage or BCB plans to employees or
directors, including, without limitation, the granting of
stock options, stock appreciation rights, restricted stock,
and performance shares except that BCB may make its annual
grant of 1,000 shares of BCB Common Stock to Nelson R.
Oswald and 992 shares of BCB Common Stock to Robert D.
McHugh, Jr.
Section 4.11 Nasdaq Listing. BCB shall use all
reasonable efforts to cause the shares of the Holding Company
Common Stock to be issued in connection with the Consolidation to
be approved for quotation on the Nasdaq Stock Market's National
Market, subject to official notice of issuance, as of or prior to
the Effective Date.
Section 4.12 Affiliate Letters.
(a) Each party has provided to the other party a
schedule of each person that, to the best of its knowledge, is
deemed to be an "Affiliate" of it, as that term is used in Rule
145 under the Securities Act or Accounting Series Releases 130
and 135 of the Commission.
(b) Each of Heritage and BCB shall use its
reasonable efforts to cause each person who may be deemed to be
an Affiliate of Heritage and BCB respectively, to execute and
deliver to BCB as soon as practicable after the date of this
Agreement, and in any event prior to the date of the meetings of
shareholders of Heritage and BCB to be called pursuant to
Section 4.09(f) hereof, a written agreement in the form of
Exhibit 1-A and 1-B in the case of Affiliates of Heritage and
BCB, respectively.
Section 4.13 Employment and Change in Control
Agreements.
(a) Employment Agreements. On or before the
Effective Date, Heritage and Heritage National Bank, and BCB and
Berks County Bank, as applicable, shall use their best efforts to
amend the employment agreements of Nelson R. Oswald, Allen E.
Kiefer, Robert D. McHugh, Jr. and Richard A. Ketner so that such
agreements, contain customary change in control provisions,
provide salaries and benefits comparable to salaries and benefits
payable to executive officers at companies that will be peer
companies of the Holding Company and otherwise will be
substantially identical in form.
(b) Change in Control Agreements. On or before
the Effective Date, Heritage and Heritage National Bank, and BCB
and Berks County Bank, as applicable, shall use their best
efforts to amend the existing employment or change in control
agreement, or enter into a new change in control agreement, with
the following individuals: Sherelyn A. Ammon, Steven A. Ehrlich,
Norman E. Heilenman, Donna L. Rickert, Dorothy I. Krick, David
Scott, David Snyder, Marie Umbriac and Mary Jo Wright. Such
change in control agreements shall be substantially identical in
form.
(c) Holding Company Assumption of Agreements. On
the Effective Date, each employment agreement or change in
control agreement, or any nonqualified retirement, deferred
compensation, "top hat," excess benefit or supplemental pension
plans, whether entered into before or after the date of this
Agreement, to which either Heritage or BCB is a party shall be
expressly assumed in writing by the Holding Company.
(d) Holding Company Assumption of Benefit Plans.
On the Effective Date, each employee benefit plan of Heritage or
BCB described in Section 4.10 shall be expressly assumed in
writing by the Holding Company and administered in the manner
contemplated by Section 4.10.
Section 4.14 Severance and Vacation Pay. After the
Effective Date (i) employees of Heritage or BCB or any of their
respective Subsidiaries who are involuntarily terminated, other
than for cause, within one year of the Effective Date, and
(ii) employees of Heritage or BCB (other than those holding a
title of Vice President or above) who, within one year of the
Effective Date, are asked, but decline to, relocate their
workplace to a location that increases their daily one-way
commute by more than 30 miles, in each case, shall be entitled to
severance benefits as follows: (i) one week of pay per year of
service, with a minimum of 2 weeks severance and a maximum of
20 weeks severance; (ii) medical insurance continuation until the
end of the severance period (or earlier if other coverage is
obtained); and (iii) payment of accrued vacation days for the
year of termination. In addition, through the end of calendar
year 1999, employees of BCB or Heritage who continue as employees
of the Holding Company or its Subsidiaries after the Effective
Date shall be provided with the greater of the days of annual
vacation and sick days to which they were entitled on the day
before the Effective Date or the days of annual vacation and sick
days to which similarly situated employees of the Holding Company
are then entitled.
Section 4.15 Transition Committee. Promptly after
execution of this Agreement, the parties shall establish a
transition committee consisting of not less than 4 or more than 6
members, including Messrs. Oswald, Kiefer, McHugh and Ketner and
up to one director from each of BCB and Heritage. The function
of such committee shall be to determine the name for the Holding
Company, approve the form of employment and change in control
agreements referred to in Section 4.13 and to address such other
transitional matters as the Boards of Directors of Heritage and
BCB may direct.
Section 4.16 Voting of Heritage Common Stock Held by
Heritage National Bank as Fiduciary. Heritage shall direct the
full Board of Directors of Heritage National Bank, and not a
committee or other designee of the Board of Directors, to
exercise all voting rights as Heritage National Bank may possess
with respect to all shares of Heritage Common Stock held by
Heritage National Bank in a fiduciary capacity.
ARTICLE V
CONDITIONS
Section 5.01 Mutual Conditions to the Obligations of
Heritage and BCB under this Agreement. The obligations of
Heritage and BCB hereunder shall be subject to satisfaction at or
prior to the Closing Date of each of the following conditions,
unless waived by both parties pursuant to Section 7.03 hereof:
(a) Corporate Proceedings. All action required
to be taken by, or on the part of, each party to authorize the
execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated by this Agreement,
shall have been duly and validly taken and each party shall have
received certified copies of the resolutions of the other party
evidencing such authorizations;
(b) Covenants. The obligations and covenants of
each party required by this Agreement to be performed by each
party at or prior to the Closing Date shall have been duly
performed and complied with in all material respects;
(c) Representations and Warranties. The
representations and warranties of each party set forth in this
Agreement shall be true and correct, as of the date of this
Agreement, and as of the Closing Date as though made on and as of
the Closing Date, except as to any representation or warranty
(i) which specifically relates to an earlier date or (ii) where
the breach of the representation or warranty would not, either
individually or in the aggregate, constitute a Material Adverse
Effect;
(d) Approvals of Regulatory Authorities. The
parties shall have received all required approvals of Regulatory
Authorities of the Consolidation, without the imposition of any
term or condition that would have a Material Adverse Effect on
the Holding Company upon completion of the Consolidation and all
notice and waiting periods required thereunder shall have expired
or been terminated;
(e) No Injunction. There shall not be in effect
any order, decree or injunction of a court or agency of competent
jurisdiction which enjoins or prohibits consummation of the
transactions contemplated hereby;
(f) Officer's Certificate. Each party shall have
delivered to the other party a certificate, dated the Closing
Date and signed, without personal liability, by its chairman or
president, to the effect that the conditions set forth in
subsections (a) through (e) of this Section 5.01 have been
satisfied, to the best knowledge of the officer executing the
same;
(g) Opinions of Counsel. Heritage shall have
received an opinion of Stevens & Lee, counsel to BCB, dated the
Closing Date, in form and substance reasonably satisfactory to
Heritage and its counsel to the effect set forth on Exhibit 6
attached hereto and BCB shall have received an opinion of counsel
of Rhoads and Sinon LLP counsel to Heritage, dated the Closing
Date, in form and substance reasonably satisfactory to BCB and
its counsel to the effect set forth in Exhibit 7 attached hereto;
(h) Registration Statement. The Registration
Statement shall be effective under the Securities Act and no
proceedings shall be pending or threatened by the SEC to suspend
the effectiveness of the Registration Statement; all required
approvals by state securities or "blue sky" authorities with
respect to the transactions contemplated by this Agreement, shall
have been obtained; and neither the Registration Statement nor
any such approval by state securities or "blue sky" authorities
shall be subject to a stop order or threatened stop order by the
SEC or any such authority;
(i) Tax Opinion. Each party shall have received
an opinion of Stevens & Lee substantially to the effect set forth
on Exhibit 8 attached hereto;
(j) Pooling Letter. Beard & Company shall have
issued a letter dated as of the Effective Date to Heritage and
BCB, to the effect that, based on a review of this Agreement and
related agreements and the facts and circumstances then known to
it, the Consolidation shall be accounted for as a pooling-of-
interests under GAAP, and BCB and Heritage shall have received
from the Affiliates of BCB and Heritage the agreements referred
to in Section 4.12(b) hereof to the extent necessary to ensure in
the reasonable judgment of Heritage and BCB that the
Consolidation shall be accounted for in such manner;
(k) Approval of Shareholders. This Agreement
shall have been approved by the shareholders of Heritage and BCB
by such vote as is required under the BCL, their respective
articles of incorporation and bylaws or under Nasdaq requirements
applicable to it;
(l) Nasdaq Listing. The Holding Company Common
Stock shall be approved for quotation on the Nasdaq National
Market System;
(m) Other. Each party shall have furnished the
other party with such certificates of its respective officers or
others and such documents to evidence fulfillment of the
conditions set forth in this Section 5.01 as each party may
reasonable request.
ARTICLE VI
TERMINATION, WAIVER AND AMENDMENT
Section 6.01 Termination. This Agreement may be
terminated on or at any time prior to the Closing Date:
(a) By the mutual written consent of the parties
hereto;
(b) By BCB or Heritage:
(i) if the Closing Date shall not have
occurred on or before July 31, 1998, unless the failure of
such occurrence shall be due to the failure of the party
seeking to terminate this Agreement to perform or observe in
any material respect its agreements set forth in this
Agreement required to be performed or observed by such party
on or before the Closing Date; or
(ii) if either party has received a final
unappealable administrative order from a Regulatory
Authority whose approval or consent has been requested that
such approval or consent will not be granted, will not be
granted absent the imposition of terms and conditions which
would permit satisfaction of the condition set forth at
Section 5.01(d) hereof, unless the failure of such
occurrence shall be due to the failure of the party seeking
to terminate this Agreement to perform or observe in any
material respect its agreements set forth herein required to
be performed or observed by such party on or before the
Closing Date; or
(c) (A) By BCB, in the event during a
thirty trading day period ended five trading days prior
to the Effective Date the average of the mean between
the closing high bid and low asked prices for Heritage
Common Stock for any consecutive ten day period
declines to a level 40% less than or equal to the Index
Value established for Heritage;
(B) By Heritage, in the event during a
thirty trading day period ended five trading days prior
to the Effective Date the average of the mean between
the closing high bid and low asked prices for BCB
Common Stock for any consecutive ten day period
declines to a level 30% less than or equal to the Index
Value established for BCB;
(C) For purposes of this
subparagraph (C), the Index Value for each of BCB and
Heritage shall be the average of the mean between the
closing high bid and low asked prices for Heritage or
BCB Common Stock, as reported by Nasdaq, for the
3 trading days beginning November 20, 1997.
(d) at any time on or prior to the Effective
Date, by Heritage in writing if BCB has, or by BCB in writing if
Heritage has, in any material respect, breached (i) any material
covenant or undertaking contained herein or (ii) any
representation or warranty contained herein, which in the case of
a breach by BCB would have a Material Adverse Effect on BCB or in
the case of a breach by Heritage would have a Material Adverse
Effect on Heritage, in any case, if such breach has not been
substantially cured by the earlier of 30 days after the date on
which written notice of such breach is given to the party
committing such breach or the Effective Date unless on such date
such breach no longer causes a Material Adverse Effect;
(e) by either the Board of Directors of BCB or
the Board of Directors of Heritage if the Board of Directors of
the other party shall have exercised its rights under
Section 4.06 or shall have otherwise withdrawn, modified or
changed in a manner adverse to the terminating party its approval
or recommendation of this Agreement and the transactions
contemplated hereby;
(f) by either the Board of Directors of BCB or
the Board of Directors of Heritage if their shareholders shall
have not approved this Agreement by the requisite vote; provided,
however, that no termination right shall exist hereunder if prior
to such shareholder vote the Board of Directors of the party
whose shareholders failed to approve this Agreement shall have
exercised its right under clause (ii) of the second sentence of
Section 4.06 or shall have otherwise withdrawn, modified or
changed in a manner adverse to the other party its approval or
recommendation of this Agreement and the transactions
contemplated thereby.
Section 6.02 Effect of Termination. If this Agreement
is terminated pursuant to Section 6.01 hereof, this Agreement
shall forthwith become void (other than Section 4.02(d) and
Section 7.01 hereof, which shall remain in full force and
effect), and there shall be no further liability on the part of
BCB or Heritage to the other, except for any liability arising
out of any uncured willful breach of any covenant or other
agreement contained in this Agreement, any fraudulent breach of a
representation or warranty, in this Agreement and any obligation
or liability arising under the Heritage Option or the BCB Option.
Nothing contained in this Section 6.02 shall be deemed to
prohibit BCB or Heritage from maintaining an action against a
third party for tortious interference or otherwise.
ARTICLE VII
MISCELLANEOUS
Section 7.01 Expenses. Except for the cost of
printing and mailing the Proxy Statement/Prospectus which shall
be shared equally, each party hereto shall bear and pay all costs
and expenses incurred by it in connection with the transactions
contemplated hereby, including fees and expenses of its own
financial consultants, accountants and counsel.
Section 7.02 Non-Survival of Representations and
Warranties. All representations, warranties and, except to the
extent specifically provided otherwise herein, agreements and
covenants, other than those covenants that by their terms are to
be performed after the Effective Date, including without
limitation the covenants set forth in Sections 1.02(f) and (g),
4.05, 4.10 and 4.13(c) hereof, which will survive the
Consolidation, shall terminate on the Closing Date.
Section 7.03 Amendment, Extension and Waiver. Subject
to applicable law, at any time prior to the consummation of the
transactions contemplated by this Agreement, the parties may
(a) amend this Agreement, (b) extend the time for the performance
of any of the obligations or other acts of either party hereto,
(c) waive any inaccuracies in the representations and warranties
contained herein or in any document delivered pursuant hereto, or
(d) waive compliance with any of the agreements or conditions
contained in Articles IV and V hereof or otherwise, provided that
any amendment, extension or waiver granted or executed after
shareholders of Heritage or BCB have approved this Agreement
shall not modify either the amount or the form of the
consideration to be provided hereby to holders of Heritage Common
Stock or BCB Common Stock upon consummation of the Consolidation,
change any terms of the articles of Holding Company or otherwise
materially adversely affect the shareholders of Heritage or BCB
without the approval of the shareholders who would be so
affected. This Agreement may not be amended except by an
instrument in writing authorized by the respective Boards of
Directors and signed, by duly authorized officers, on behalf of
the parties hereto. Any agreement on the part of a party hereto
to any extension or waiver shall be valid only if set forth in an
instrument in writing signed by a duly authorized officer on
behalf of such party, but such waiver or failure to insist on
strict compliance with such obligation, covenant, agreement or
condition shall not operate as a waiver of, or estoppel with
respect to, any subsequent or other failure.
Section 7.04 Entire Agreement. This Agreement,
including the documents and other writings referred to herein or
delivered pursuant hereto, contains the entire agreement and
understanding of the parties with respect to its subject matter.
This Agreement supersedes all prior arrangements and
understandings between the parties, both written or oral with
respect to its subject matter. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their
respective successors; provided, however, that nothing in this
Agreement, expressed or implied, is intended to confer upon any
party, other than the parties hereto and their respective
successors, any rights, remedies, obligations or liabilities
other than pursuant to Sections 1.02(f) and (g), 4.05, and
4.13(a), (b) and (c).
Section 7.05 No Assignment. Neither party hereto may
assign any of its rights or obligations hereunder to any other
person, without the prior written consent of the other party
hereto.
Section 7.06 Notices. All notices or other
communications hereunder shall be in writing and shall be deemed
given if delivered personally, mailed by prepaid registered or
certified mail (return receipt requested), or sent by telecopy,
addressed as follows:
(a) If to BCB, to:
BCB Financial Services Corporation
400 Washington Street
Reading, Pennsylvania 19603-1097
Attention: Nelson R. Oswald, Chairman,
President and Chief Executive
Officer
Telecopy No.: (610) 378-9193
with a copy to:
Stevens & Lee
One Glenhardie Corporate Center
1275 Drummers Lane
P.O. Box 236
Wayne, Pennsylvania 19087-0236
Attention: Jeffrey P. Waldron, Esquire
Telecopy No.: (610) 687-1384
(b) If to Heritage, to:
Heritage Bancorp, Inc.
120 South Centre Street
Pottsville, Pennsylvania 17901-3002
Attention: Allen E. Kiefer
President and Chief
Executive Officer
Telecopy No.: (717) 622-2320
with copies to:
Rhoads & Sinon LLP
One South Market Square, 12th Floor
Harrisburg, Pennsylvania 17108
Attention: Charles J. Ferry, Esquire
Telecopy No.: (717) 232-1459
Section 7.07 Captions. The captions contained in this
Agreement are for reference purposes only and are not part of
this Agreement.
Section 7.08 Counterparts. This Agreement may be
executed in any number of counterparts, and each such counterpart
shall be deemed to be an original instrument, but all such
counterparts together shall constitute but one agreement.
Section 7.09 Severability. If any provision of this
Agreement or the application thereof to any person or
circumstance shall be invalid or unenforceable to any extent, the
remainder of this Agreement and the application of such
provisions to other persons or circumstances shall not be
affected thereby and shall be enforced to the greatest extent
permitted by law.
Section 7.10 Governing Law. This Agreement shall be
governed by and construed in accordance with the domestic
internal law (including the law of conflicts of law) of the
Commonwealth of Pennsylvania.
IN WITNESS WHEREOF, the parties have caused this
Agreement to be executed by their duly authorized officers as of
the day and year first above written.
BCB FINANCIAL SERVICES CORPORATION
By/s/ Nelson R. Oswald
Nelson R. Oswald
Chairman, President and
Chief Executive Officer
HERITAGE BANCORP, INC.
By/s/ Allen E. Kiefer
Allen E. Kiefer
President and Chief
Executive Officer
<PAGE>
Exhibit 1-A
November 18, 1997
BCB Financial Services Corporation
The Madison Building
400 Washington Street
Reading, Pennsylvania 19601
Ladies and Gentlemen:
BCB Financial Services Corporation ("BCB") and Heritage
Bancorp, Inc. ("Heritage") desire to enter into an agreement
dated November 18, 1997 ("Agreement"), pursuant to which, subject
to the terms and conditions set forth therein, (a) a new
corporation with name to be determined will be formed by BCB and
Heritage (the "Holding Company"), (b) shareholders of BCB shall
receive shares of Holding Company common stock for shares of
common stock of BCB outstanding on the closing date, and
(c) shareholders of Heritage shall receive shares of Holding
Company common stock for shares of common stock of Heritage
outstanding on the closing date (the foregoing, collectively,
referred to herein as the "Consolidation").
BCB has requested, as an inducement to its execution and
delivery to Heritage of the Agreement, that the undersigned
execute and deliver to BCB this Letter Agreement.
In consideration of the foregoing, each of the undersigned
hereby irrevocably:
(a) Agrees (i) to be present (in person or by proxy)
at all meetings of shareholders of Heritage called to vote for
approval of the Agreement and the Consolidation so that all
shares of common stock of Heritage then owned by the undersigned
will be counted for the purpose of determining the presence of a
quorum at such meetings, and (ii) unless the undersigned has
voted against approval and adoption of the Agreement in his or
her capacity as a director of Heritage at a meeting of the Board
of Directors of Heritage or pursuant to Section 4.06 of the
Agreement has voted to recommend or endorse an Acquisition
Transaction, to vote or cause to be voted all shares owned by the
undersigned on any record date for any meeting of shareholders of
Heritage called to vote on the Consolidation in favor of approval
and adoption of the Agreement and the transactions contemplated
thereby (including any amendments or modifications of the terms
thereof approved by the Board of Directors of Heritage).
(b) Agrees not to offer, sell, transfer or otherwise
dispose of any shares of common stock of the Holding Company
received in the Consolidation, except (i) at such time as a
registration statement under the Securities Act of 1933, as
amended ("Securities Act") covering sales of such Holding Company
common stock is effective and a prospectus is made available
under the Securities Act, (ii) within the limits, and in
accordance with the applicable provisions of, Rule 145(d) under
the Securities Act, or (iii) in a transaction which, in the
opinion of counsel satisfactory to the Holding Company or as
described in a "no-action" or interpretive letter from the staff
of the Securities and Exchange Commission ("SEC"), is not
required to be registered under the Securities Act; and
acknowledges and agrees that the Holding Company is under no
obligation to register the sale, transfer or other disposition of
the Holding Company common stock by the undersigned or on behalf
of the undersigned, or to take any other action necessary to make
an exemption from registration available;
(c) Notwithstanding the foregoing, agrees not to sell,
or in any other way reduce the risk of the undersigned relative
to, any shares of common stock of Heritage or of common stock of
the Holding Company, during the period commencing thirty days
prior to the effective date of the Consolidation and ending on
the date on which financial results covering at least thirty days
of post-Consolidation combined operations of the Holding Company
have been published within the meaning of Section 201.01 of the
SEC's Codification of Financial Reporting Policies, provided,
however, that excluded from the foregoing undertaking shall be
such sales, pledges, transfers or other dispositions of shares of
Heritage common stock or shares of Holding Company common stock
which, in BCB's or the Holding Company's sole judgment, are
individually and in the aggregate de minimis within the meaning
of Topic 2-E of the Staff Accounting Bulletin Series of the SEC;
(d) Agrees that neither Heritage nor the Holding
Company shall be bound by any attempted sale of any shares of
Heritage common stock or Holding Company common stock,
respectively, in violation of this Agreement and Heritage's and
the Holding Company's transfer agents shall be given appropriate
stop transfer orders and shall not be required to register any
such attempted sale, unless the sale has been effected in
compliance with the terms of this Letter Agreement; and further
agrees that the certificate representing shares of Holding
Company common stock owned by the undersigned may be endorsed
with a restrictive legend consistent with the terms of this
Letter Agreement;
(e) Agrees to use reasonable efforts to cause the
provisions of subparagraphs (b) or (c) hereof to be observed with
respect to shares of Holding Company common stock and Heritage
common stock owned by (i) his or her spouse, (ii) any of his or
her relatives or relatives of his or her spouse occupying his or
her home, (iii) any trust or estate in which he or she, his or
her spouse, or any such relative owns at least a 10% beneficial
interest or of which any of them serves as trustee, executor or
in any similar capacity, and (iv) any corporation or other
organization in which the undersigned, any affiliate of the
undersigned, his or her spouse, or any such relative owns at
least 10% of any class of equity securities or of the equity
interest;
(f) Represents that the undersigned has the capacity
to enter into this Letter Agreement and that it is a valid and
binding obligation enforceable against the undersigned in
accordance with its terms, subject to bankruptcy, insolvency and
other laws affecting creditors' rights and general equitable
principles.
_________________________
It is understood and agreed that the provisions of
subparagraph (a) of this Letter Agreement relate solely to the
capacity of the undersigned as a shareholder or other beneficial
owner of shares of Heritage common stock and is not in any way
intended to affect the exercise by the undersigned of the
undersigned's responsibilities as a director or officer of
Heritage. It is further understood and agreed that such
subparagraphs of this Letter Agreement are not in any way
intended to affect the exercise by the undersigned of any
fiduciary responsibility which the undersigned may have in
respect of any shares of Heritage common stock held by the
undersigned as of the date hereof.
_________________________
This Letter Agreement may be executed in two or more
counterparts, each of which shall be deemed to constitute an
original, but all of which together shall constitute one and the
same Letter Agreement.
_________________________
This Letter Agreement shall terminate concurrently with any
termination of the Agreement in accordance with its terms.
_________________________
The undersigned intend to be legally bound hereby.
Sincerely,
<PAGE>
Exhibit 1-B
November 18, 1997
Heritage Bancorp, Inc.
120 South Centre Street
Pottsville, Pennsylvania 17901
Ladies and Gentlemen:
BCB Financial Services Corporation and Heritage Bancorp,
Inc. ("Heritage") desire to enter into an agreement dated
November 18, 1997 ("Agreement"), pursuant to which, subject to
the terms and conditions set forth therein (a) a new corporation
will be formed by BCB and Heritage (the "Holding Company"),
(b) shareholders of BCB will receive shares of Holding Company
common stock for shares of BCB common stock outstanding on the
closing date, and (c) shareholders of Heritage shall receive
shares of Holding Company common stock for shares of common stock
Heritage outstanding on the closing date (the foregoing,
collectively referred to herein as the "Consolidation").
Heritage has requested, as an inducement to its execution
and delivery to BCB of the Agreement, that the undersigned
execute and deliver to Heritage this Letter Agreement.
In consideration of the foregoing, each of the undersigned
hereby irrevocably:
(a) Agrees (i) to be present (in person or by proxy)
at all meetings of shareholders of BCB called to vote for
approval of the Agreement and the Consolidation so that all
shares of common stock of BCB then owned by the undersigned will
be counted for the purpose of determining the presence of a
quorum at such meetings, and (ii) subject to Section 4.06 of the
Agreement and unless the undersigned has voted against approval
and adoption of the Agreement in his capacity as a director of
BCB at a meeting of the Board of Directors of BCB or pursuant to
Section 4.06 of the agreement has voted to recommend or endorse
an Acquisition Transaction, to vote or cause to be voted all
shares owned by the undersigned on any record date for any
meeting of shareholders of BCB called to vote on the
Consolidation in favor of approval and adoption of the Agreement
and the transactions contemplated thereby (including any
amendments or modifications of the terms thereof approved by the
Board of Directors of BCB).
(b) Notwithstanding the foregoing, agrees not to sell,
or in any other way reduce the risk of the undersigned relative
to, any shares of common stock of Heritage or of common stock of
BCB, during the period commencing thirty days prior to the
effective date of the Consolidation and ending on the date on
which financial results covering at least thirty days of post-
Consolidation combined operations of BCB and Heritage have been
published within the meaning of Section 201.01 of the
Codification of Financial Reporting Policies of the Securities
and Exchange Commission ("SEC"), provided, however, that excluded
from the foregoing undertaking shall be such sales, pledges,
transfers or other dispositions of shares of BCB common stock or
shares of BCB common stock which, in Heritage's or the Holding
Company's sole judgment, are individually and in the aggregate
de minimis within the meaning of Topic 2-E of the Staff
Accounting Bulletin Series of the SEC;
(c) Agrees that neither the Holding Company nor BCB
shall be bound by any attempted sale of any shares of Holding
Company common stock or BCB common stock, respectively, in
violation of this Agreement and the Holding Company's and BCB's
transfer agents shall be given appropriate stop transfer orders
and shall not be required to register any such attempted sale,
unless the sale has been effected in compliance with the terms of
this Letter Agreement; and further agrees that the certificate
representing shares of the Holding Company common stock owned by
the undersigned may be endorsed with a restrictive legend
consistent with the terms of this Letter Agreement;
(d) Agrees to use reasonable efforts to cause the
provisions of subparagraphs (b) and (c) to be observed with
respect to shares of BCB common stock and Holding Company common
stock owned by (i) his or her spouse, (ii) any of his or her
relatives or relatives of his or her spouse occupying his or her
home, (iii) any trust or estate in which he or she, his or her
spouse, or any such relative owns at least a 10% beneficial
interest or of which any of them serves as trustee, executor or
in any similar capacity, and (iv) any corporation or other
organization in which the undersigned, any affiliate of the
undersigned, his or her spouse, or any such relative owns at
least 10% of any class of equity securities or of the equity
interest;
(e) Represents that the undersigned has the capacity
to enter into this Letter Agreement and that it is a valid and
binding obligation enforceable against the undersigned in
accordance with its terms, subject to bankruptcy, insolvency and
other laws affecting creditors' rights and general equitable
principles.
_________________________
It is understood and agreed that the provisions of
subparagraph (a) of this Letter Agreement relate solely to the
capacity of the undersigned as a shareholder or other beneficial
owner of shares of BCB common stock and is not in any way
intended to affect the exercise by the undersigned of the
undersigned's responsibilities as a director or officer of BCB.
It is further understood and agreed that such subparagraphs of
this Letter Agreement are not in any way intended to affect the
exercise by the undersigned of any fiduciary responsibility which
the undersigned may have in respect of any shares of BCB common
stock held by the undersigned as of the date hereof.
_________________________
This Letter Agreement may be executed in two or more
counterparts, each of which shall be deemed to constitute an
original, but all of which together shall constitute one and the
same Letter Agreement.
_________________________
This Letter Agreement shall terminate concurrently with any
termination of the Agreement in accordance with its terms.
_________________________
The undersigned intend to be legally bound hereby.
Sincerely,
<PAGE>
EXHIBIT 2
BCB STOCK OPTION AGREEMENT
[SEE ANNEX B.]
<PAGE>
EXHIBIT 3
HERITAGE STOCK OPTION AGREEMENT
[SEE ANNEX C.]
<PAGE>
EXHIBIT 4
FORM OF
ARTICLES OF CONSOLIDATION OF
BCB FINANCIAL SERVICES CORPORATION
AND
HERITAGE BANCORP, INC.
ARTICLES OF CONSOLIDATION (the "Articles of
Consolidation") dated __________, 1997 between BCB FINANCIAL
SERVICES CORPORATION, a Pennsylvania corporation ("BCB") with a
principal place of business in Reading, Pennsylvania, and
HERITAGE BANCORP, INC., a Pennsylvania corporation ("Heritage")
with a principal place of business in Pottsville, Pennsylvania.
WHEREAS, BCB is a corporation organized and existing
under the laws of the Commonwealth of Pennsylvania that is
registered as a bank holding company pursuant to the Bank Holding
Company Act of 1956, as amended (the "Act"), the authorized
capital stock of which consists of 20,000,000 shares of common
stock, par value $2.50 per share (the "BCB Common Stock"), of
which at November 18, 1997, 3,469,930 shares were issued and
outstanding; and
WHEREAS, Heritage is a corporation organized and
existing under the laws of the Commonwealth of Pennsylvania that
is registered as a bank holding company pursuant to the Act, the
authorized capital stock of which consists of 10,000,000 shares
of common stock, par value $5.00 per share (the "Heritage Common
Stock"), of which at November 18, 1997, 4,758,999 shares were
issued and outstanding, and 10,000,000 shares of preferred stock,
par value $25.00 per share, none of which are issued and
outstanding; and
WHEREAS, the respective Boards of Directors of BCB and
Heritage deem the formation of a new Pennsylvania corporation by
BCB and Heritage (the "Holding Company") which will then issue
1.05 share and 1.3335 shares of common stock of the Holding
Company to Heritage and BCB shareholders, respectively, for each
share of each of Heritage and BCB common stock outstanding as of
the closing date, pursuant to the terms and conditions herein set
forth or referred to, is desirable and in the best interests of
the respective corporations and their respective shareholders,
and the respective Boards of Directors and shareholders of BCB
and Heritage have adopted resolutions approving the Plan of
Consolidation and an Agreement and Plan of Consolidation of even
date herewith (the "Agreement and Plan") pursuant to the
following vote results:
(i) the BCB Board of Directors approved the Agreement
and the Plan by a vote of ______ votes for the
Agreement and the Plan and ______ votes against
the Agreement and the Plan;
(ii) the BCB shareholders approved the Agreement and
the Plan by a vote of ______ votes for the
Agreement and the Plan and ______ votes against
the Agreement and the Plan;
(iii) the Heritage Board of Directors approved the
Agreement and the Plan by a vote of _____ votes
for the Agreement and the Plan and ______ votes
against the Agreement and the Plan; and
(iv) the Heritage shareholders approved the Agreement
and the Plan by a vote of ______ votes for the
Agreement and the Plan and ______ votes against
the Agreement and the Plan.
NOW, THEREFORE, in consideration of the premises and of
the mutual agreements herein contained, and in accordance with
applicable provisions of the Pennsylvania Business Corporation
Law of 1988, as amended, of the Commonwealth of Pennsylvania (the
"BCL"), the parties hereto do hereby agree as follows:
ARTICLE I
CONSOLIDATION
Subject to the terms and conditions of the Agreement
and Plan on the Effective Date, the shareholders of BCB and
Heritage shall consolidate into the Holding Company in accordance
with the BCL. As a result of the foregoing, the separate
corporate existence of BCB and Heritage shall cease and such
transaction shall hereinafter be referred to as the
"Consolidation." The capital stock of the Holding Company shall
consist of 50,000,000 shares of common stock, par value $1.00 per
share (the "Holding Company Common Stock") and 5,000,000 shares
of preferred stock, having such par value as the board of
directors of the Holding Company shall fix from time to time,
issuable in series.
ARTICLE II
ARTICLE OF INCORPORATION AND BY-LAWS
The Articles of Incorporation of the Holding Company
shall be as set forth in Exhibit A hereto and the By-Laws of the
Holding Company shall be as set forth in Exhibit B hereto, in
each case until altered, amended or repealed.
ARTICLE III
BOARD OF DIRECTORS AND OFFICERS
From and after the Effective Date, the directors and
officers of the Holding Company, who shall hold office until
their successors are elected and qualified according to the By-
Laws of the Holding Company, shall be those persons listed on
Exhibit C hereto.
ARTICLE IV
CONVERSION AND EXCHANGE OF SHARES
1. The shares of the parties hereto outstanding
immediately prior to the Effective Date, shall, by virtue of the
Consolidation and without any action by the holders thereof, be
converted as follows:
(a) Each share of BCB Common Stock shall be
converted into 1.3335 shares of Holding Company Common Stock.
(b) Each share of Heritage Common Stock shall be
converted into 1.05 share of Holding Company Common Stock.
(c) No fractional shares of Holding Company
Common Stock and no scrip or certificates therefor will be issued
in connection with the Consolidation. Any former holder of BCB
or Heritage Common Stock who would otherwise be entitled to
receive a fraction of a share of Holding Company Common Stock
shall receive, in lieu thereof, a check for cash in an amount
equal to such fraction of a share multiplied by the closing price
of the Holding Company Common Stock on the Nasdaq National Market
System on the first day Holding Company Common Stock is traded
after the Effective Date.
2. All shares of BCB Common Stock held in the
treasury of BCB or any BCB Subsidiary or owned by Heritage or any
Heritage Subsidiary and all shares of Heritage Common Stock held
in the treasury of Heritage or any Heritage Subsidiary or owned
by BCB or any BCB Subsidiary shall be cancelled, and no cash,
stock or other property shall be delivered in exchange therefor.
3. On and after the Effective Date, each holder of a
certificate or certificates theretofore representing outstanding
shares of BCB Common Stock or outstanding shares of Heritage
Common Stock may surrender same to the Holding Company or the
Exchange Agent for cancellation and each such holder shall be
entitled upon such surrender to receive in exchange therefor
certificate(s) representing the number of shares of Holding
Company Common Stock and a check for cash representing the value
of fractional shares to which the holder is entitled as provided
above. Until surrendered, each certificate theretofore
representing outstanding shares of BCB Common Stock or
outstanding shares of Heritage Common Stock, from and after the
Effective Date, will evidence solely the right to receive
certificates for shares of Holding Company Common stock and a
check for cash in lieu of any fractional shares as described
above.
ARTICLE V
EFFECTIVE DATE OF THE CONSOLIDATION
The Consolidation shall be effective at the close of
business on the date these Articles of Consolidation are filed in
accordance with the BCL (the date of such filing being herein
referred to as the "Effective Date").
ARTICLE VI
EFFECT OF THE CONSOLIDATION
On the Effective Date, the separate existence of BCB
and Heritage shall cease and all of the property, real, personal,
and mixed, and franchises of each of BCB and Heritage, and all
debts due on whatever account to each of them, including
subscriptions to shares and other choses in action, shall be
taken and deemed to be transferred to and vested in the Holding
Company, without further act or deed. The Holding Company shall
thenceforth be responsible for all the liabilities and
obligations of each of BCB and Heritage provided in the BCL.
ARTICLE VII
CONDITIONS PRECEDENT
The obligations of BCB and Heritage to effect the
Consolidation shall be subject to satisfaction, unless duly
waived, of the conditions set forth in the Agreement and Plan.
ARTICLE VIII
TERMINATION
Anything contained in these Articles of Consolidation
to the contrary notwithstanding, and notwithstanding adoption
hereof by the shareholders of BCB or Heritage, the Agreement and
Plan may be terminated and the Consolidation abandoned as
provided in Section 6 of the Agreement and Plan.
ARTICLE IX
MISCELLANEOUS
1. Each party, by written instrument signed by a duly
authorized officer, may extend the time for the performance of
any of the obligations or other acts of the other party hereto
and may waive compliance with any of the covenants or performance
of any of the obligations of the other party contained in this
Plan of Consolidation.
2. Any notice or other communication required or
permitted under this Plan of Consolidation shall be given, and
shall be effective, in accordance with the provisions of
Section 7 of the Agreement.
3. The headings of the several Articles herein are
inserted for convenience of reference only and are not intended
to be part of or to affect the meaning or interpretation of this
Plan of Consolidation.
4. For the convenience of the parties hereto and to
facilitate the filing and recording of this Plan of
Consolidation, it may be executed in several counterparts, each
of which shall be deemed the original, but all of which together
shall constitute one and the same instrument.
5. This Plan of Consolidation shall be governed by
and construed in accordance with the laws of the Commonwealth of
Pennsylvania.
6. The full text of the Agreement and Plan is on file
at the offices of the Holding Company located at 400 Washington
Street, Reading, Pennsylvania 19603, and is available for review
by BCB shareholders or Heritage shareholders during reasonable
business hours.
IN WITNESS WHEREOF, BCB and Heritage have caused this
Plan of Consolidation to be executed in counterparts by their
duly authorized officers and their corporate seals to be hereunto
affixed on the date first written above.
ATTEST BCB FINANCIAL SERVICES CORPORATION
_________________________ ___________________________________
Secretary NELSON R. OSWALD,
Chairman, President and Chief
Executive Officer
(SEAL)
ATTEST HERITAGE BANCORP, INC.
_________________________ ___________________________________
Secretary ALLEN E. KIEFER,
President and Chief Executive
Officer
(SEAL)
<PAGE>
EXHIBIT A
ARTICLES OF INCORPORATION
OF
______________________
FIRST. The name of the Corporation is ____________________.
SECOND. The location and post office address of the
Corporation's registered office in this Commonwealth is 400
Washington Street, Reading, Pennsylvania 19603.
THIRD. The purpose of the Corporation is and it shall have
unlimited power to engage in and to do any lawful act concerning
any or all lawful business for which corporations may be
incorporated under provisions of the Business Corporation Law of
1988, the Act approved December, 1988, P.L. 1444, as amended (the
"Pennsylvania Business Corporation Law").
FOURTH. The term of the Corporation's existence is
perpetual.
FIFTH. The aggregate number of shares of capital stock
which the Corporation shall have authority to issue is 55,000,000
shares, divided into two classes consisting of 50,000,000 shares
of common stock, par value $1.00 per share (the "Common Stock")
and 5,000,000 shares of preferred stock, having such par value as
the board of directors shall fix and determine, as provided in
Article SIXTH below (the "Preferred Stock").
SIXTH. The Preferred Stock may be issued from time to time
as a class without series or, if so determined by the board of
directors of the Corporation, either in whole or in part, in one
or more series. There is hereby expressly granted to and vested
in the board of directors of the Corporation authority to fix and
determine (except as fixed and determined herein), by resolution,
the par value, voting powers, full or limited, or no voting
powers, and such designations, preferences and relative,
participating, optional or other special rights, if any, and the
qualifications, limitations or restrictions thereof, if any,
including specifically, but not limited to, the dividend rights,
conversion rights, redemption rights and liquidation preferences,
if any, of any wholly unissued series of Preferred Stock (or the
entire class of Preferred Stock if none of such shares have been
issued), the number of shares constituting any such series and
the terms and conditions of the issue thereof. Prior to the
issuance of any shares of Preferred Stock, a statement setting
forth a copy of each such resolution or resolutions and the
number of shares of Preferred Stock of each such class or series
shall be executed and filed in accordance with the Pennsylvania
Business Corporation Law. Unless otherwise provided in any such
resolution or resolutions, the number of shares of capital stock
of any such class or series so set forth in such resolution or
resolutions may thereafter be increased or decreased (but not
below the number of shares then outstanding), by a statement
likewise executed and filed setting forth a statement that a
specified increase or decrease therein had been authorized and
directed by a resolution or resolutions likewise adopted by the
board of directors of the Corporation. In case the number of
such shares shall be decreased, the number of shares so specified
in the statement shall resume the status they had prior to the
adoption of the first resolution or resolutions.
SEVENTH. Each holder of record of Common Stock shall have
the right to one vote for each share of Common Stock standing in
such holder's name on the books of the Corporation. No
shareholder shall be entitled to cumulate any votes for the
election of directors.
EIGHTH. For a period of three (3) years after the formation
of the Corporation, the Board of Directors shall consist of at
least thirteen (13) directors, (i) seven (7) of whom shall have
been directors of BCB Financial Services Corporation or chosen by
directors of the Holding Company who were directors of BCB
Financial Services Corporation, and (ii) six (6) of whom shall
have been directors of Heritage Bancorp, Inc. or chosen by
directors of the Holding Company who were directors of Heritage
Bancorp, Inc. Thereafter, the management, control and government
of the Corporation shall be vested in a board of directors
consisting of not less than five (5) nor more than twenty-five
(25) members in number, as fixed by the board of directors of the
Corporation from time to time. The directors of the Corporation
shall be divided into three classes: Class I, Class II and
Class III. Each Class shall be as nearly equal in number as
possible. If the number of Class I, Class II or Class III
directors is fixed for any term of office, it shall not be
increased during that term, except by a majority vote of the
board of directors. The term of office of the initial Class I
directors shall expire at the annual election of directors by the
shareholders of the Corporation in 1998; the term of office of
the initial Class II directors shall expire at the annual
election of directors by the shareholders of the Corporation in
1999; and the term of office of the initial Class III directors
shall expire at the annual election of directors by the
shareholders of the Corporation in 2000. After the initial term
of each Class, the term of office of each Class shall be three
(3) years, so that the term of office of one class of directors
shall expire each year when their respective successors have been
duly elected by the shareholders and qualified. At each annual
election by the shareholders of the Corporation, the directors
chosen to succeed those whose terms then expire shall be
identified as being of the same class as the directors they
succeed. Unless waived by the board of directors of the
Corporation, in order to qualify for election as a director of
the Corporation, a person must have been a shareholder of record
of the Corporation for a period of time equal to the lesser of
(i) three (3) years, or (ii) the time elapsed since the
consolidation of BCB Financial Services Corporation and Heritage
Bancorp, Inc. into the Corporation (the "Consolidation").
Shareholders of another corporation that merges with the
Corporation, is acquired by, or acquires the Corporation, or
enters into any similar transaction with the Corporation shall
qualify for election as a director of the Corporation if such
shareholder was a shareholder of record of the other corporation
for a period of time equal to the lesser of (i) three (3) years,
or (ii) the time elapsed since the Consolidation. If, for any
reason, a vacancy occurs on the board of directors of the
Corporation, a majority of the remaining directors shall have the
exclusive power to fill the vacancy by electing a director to
hold office for the unexpired term in respect of which the
vacancy occurred. No director of the Corporation shall be
removed from office, as a director, by the vote of shareholders,
unless the votes of shareholders cast in favor of the resolution
for the removal of such director constitute at least a majority
of the votes which all shareholders would be entitled to cast at
an annual election of directors.
NINTH. No holder of any class of capital stock of the
Corporation shall have preemptive rights, and the Corporation
shall have the right to issue and to sell to any person or
persons any shares of its capital stock or any option, warrant or
right to acquire capital stock, or any securities having
conversion or option rights without first offering such shares,
rights or securities to any holder of any class of capital stock
of the Corporation.
TENTH. Except as set forth below, the affirmative vote of
at least 80 percent (80%) of votes cast by shareholders entitled
to vote, and if any class of shares is entitled to vote as a
separate class, the affirmative vote of shareholders entitled to
cast at least a majority of the votes cast by the outstanding
shares of such class (or such greater amount as required by the
provisions of these Articles of Incorporation establishing such
class) shall be required to approve any of the following:
(a) any merger or consolidation of the Corporation
with or into any other corporation;
(b) any share exchange in which a corporation, person
or entity acquires the issued or outstanding shares of
capital stock of the Corporation pursuant to a vote of
shareholders;
(c) any sale, lease, exchange or other transfer of
all, or substantially all, of the assets of the Corporation
to any other corporation, person or entity; or
(d) any transaction similar to, or having similar
effect as, any of the foregoing transactions.
The board of directors of the Corporation shall have the
power and duty to determine, for purposes of this Article TENTH,
on the basis of information known to the board, if any
transaction is similar to, or has an effect similar to, any of
the transactions identified above in this Article TENTH. Any
such determination shall be conclusive and binding for all
purposes of this Article TENTH. The Corporation may voluntarily
completely liquidate and/or dissolve only in accordance with all
applicable laws and only if the proposed liquidation and/or
dissolution is approved by the affirmative vote of shareholders
entitled to cast at least 80 percent (80%) of the votes which all
shareholders are entitled to cast. The provisions of this
Article TENTH shall not apply to any transaction which is
approved in advance by 75 percent (75%) of the members of the
board of directors of the Corporation, at a meeting duly called
and held.
ELEVENTH. Subsection 1. No Person or Group Acting in
Concert shall Acquire Voting Control of the Corporation, at any
time, except in accordance with the provisions of Article TENTH.
The terms "Acquire," "Voting Control," "Group Acting in Concert,"
and "Person" as used in this Article ELEVENTH are defined in
subsection 4 hereof.
Subsection 2. If Voting Control of the Corporation is
acquired, in violation of this Article ELEVENTH, all shares with
respect to which any Person or Group Acting in Concert has
acquired Voting Control in excess of the number of shares the
beneficial ownership of which is deemed under subsection 4 hereof
to confer Voting Control of the Corporation (as determined
without regard to this Subsection 2) shall be considered from and
after the date of acquisition by such Person or Group Acting in
Concert to be "excess shares" for purposes of this Article
ELEVENTH. All shares deemed to be excess shares shall thereafter
no longer be entitled to vote on any matter or to take other
shareholder action. If, after giving effect to the first two
sentences of this Subsection 2, any Person or Group Acting in
Concert still shall be deemed to be in Voting Control of the
Corporation based on the number of votes then entitled to be cast
(rather than the number of issued and outstanding shares of
common stock of the Corporation), then shares held in excess of
the number of shares deemed to confer Voting Control upon such
Person or Group Acting in Concert also shall not be entitled to
vote on any matter or take any other shareholder action, but this
subsequent reduction in voting rights shall be effected only
once. The provisions of this Subsection 2 deeming shares to be
excess shares shall only apply for so long as such shares shall
be beneficially owned by such Person or Group Acting in Concert
who has acquired Voting Control. Notwithstanding the foregoing,
shares held in excess of the number of shares the beneficial
ownership of which would otherwise be deemed under Subsection 4
to confer Voting Control of the Corporation shall not be deemed
to be excess shares if such shares are held by a Tax-Qualified
Employee Stock Benefit Plan.
Subsection 3. The provisions of this Article ELEVENTH
shall be of no further force and effect after the consummation of
a transaction in which another Person Acquires shares of capital
stock of the Corporation entitled to cast 80% or more of the
votes which all shareholders are entitled to cast (as determined
without regard to the application of this Article ELEVENTH) and
such transaction was approved in advance by the board of
directors of the Corporation.
Subsection 4. For purposes of this Article ELEVENTH:
A. The term "Acquire" includes every type of
acquisition, whether effected by purchase, exchange,
operation of law or otherwise.
B. "Voting Control" means the sole or shared
power to vote or to direct the voting of, or to dispose or
to direct the disposition of, more than ten percent (10%) of
the issued and outstanding common stock of the Corporation;
provided that (i) the solicitation, holding and voting of
proxies obtained by the board of directors of the
Corporation pursuant to a solicitation under Regulation 14A
of the General Rules and Regulations under the Securities
Exchange Act of 1934, as amended (the "Exchange Act") shall
not constitute Voting Control, (ii) a Tax-Qualified Employee
Stock Benefit Plan which holds more than 10 percent of the
voting shares of the Corporation shall not be deemed to have
Voting Control of the Corporation, (iii) any trustee, member
of any administrative committee or employee beneficiary of a
Tax-Qualified Employee Stock Benefit Plan shall not be
deemed to have Voting Control of the Corporation either
(A) as a result of their control of a Tax-Qualified Employee
Stock Benefit Plan, and/or their beneficial interest in
voting shares held by a Tax-Qualified Employee Stock Benefit
Plan, or (B) as a result of the aggregation of both their
beneficial interest in voting shares held by a Tax-Qualified
Employee Stock Benefit Plan and voting shares held by such
trustee, administrative committee member or employee
beneficiary independent of a Tax-Qualified Employee Stock
Benefit Plan, and (iv) any trustee which is a direct or
indirect subsidiary of the Corporation shall not be deemed
to have Voting Control of the Corporation as a result of
having the right to vote more than ten percent (10%) of the
issued and outstanding common stock of the Corporation.
C. "Group Acting in Concert" includes Persons
seeking to combine or pool their voting or other interests
in the voting shares for a common purpose, pursuant to any
contract, understanding, relationship, agreement or other
arrangement, whether written or otherwise, provided, that a
"Group Acting in Concert" shall not include (i) the members
of the board of directors of the Corporation solely as a
result of their board membership, (ii) the members of the
board of directors of the Corporation as a result of their
solicitation, holding and voting of proxies obtained by them
pursuant to a solicitation subject to rules and regulations
promulgated under the Exchange Act or any successor statute
or (iii) any member or all the members of the board of
directors of the Corporation, and any Tax-Qualified Employee
Stock Benefit Plan and the trustees, administrative
committee members and employee beneficiaries thereof.
D. The term "Person" includes an individual, a
Group Acting in Concert, a corporation, a partnership, an
association, a joint stock company, a trust, an
unincorporated organization or similar company, a syndicate
or any other group formed for the purpose of acquiring,
holding or disposing of the equity securities of the
Corporation.
E. The term "Tax-Qualified Employee Stock
Benefit Plan" means any defined benefit plan or defined
contribution plan of the Corporation or any subsidiary, such
as an employee stock ownership plan, stock bonus plan,
profit sharing plan or other plan, that, with its related
trust, meets the requirements to be "qualified" under
Section 401 of the Internal Revenue Code of 1986, as
amended.
Subsection 5. This Article ELEVENTH shall not apply to
the purchase of securities of the Corporation by underwriters in
connection with a public offering of such securities by the
Corporation or by a holder of shares of capital stock of the
Corporation with written consent of the board of directors of the
Corporation; provided, however, that purchasers of securities of
the Corporation from any underwriter shall be subject to the
provisions of this Article ELEVENTH.
The board of directors of the Corporation shall have the
power and duty to determine, for purposes of this Article
ELEVENTH, on the basis of information known to the Board, if and
when such other Person has acquired Voting Control of the
Corporation, and/or if any transaction is similar to, or has a
similar effect as, any of the transactions identified in this
Article ELEVENTH. Any such determination shall be conclusive and
binding for all purposes of this Article ELEVENTH.
TWELFTH. No action required to be taken or which may be
taken at any annual or special meeting of shareholders of the
Corporation may be taken without a meeting, and the power of the
shareholders of the Corporation to consent in writing to action
without a meeting is specifically denied. The presence, in
person or by proxy, of shareholders entitled to cast at least a
majority of the votes which all shareholders are entitled to cast
shall constitute a quorum of shareholders at any annual or
special meeting of shareholders of the Corporation.
THIRTEENTH. The authority to make, amend, alter, change or
repeal the By-Laws of the Corporation is hereby expressly and
solely granted to and vested in the board of directors of the
Corporation, subject always to the power of the shareholders to
change such action by the affirmative vote of shareholders of the
Corporation entitled to cast at least 66-2/3 percent (66-2/3%) of
the votes which all shareholders are entitled to cast, except
that provisions of the By-Laws of the Corporation relating to
limitations on directors' liabilities and indemnification of
directors, officers and others may not be amended to increase the
exposure to liability for directors or to decrease the
indemnification of directors, officers and others except by the
affirmative vote of 66-2/3 percent (66-2/3%) of the entire board
of directors or by the affirmative vote of shareholders of the
Corporation entitled to cast at least 75 percent (75%) of the
votes which all shareholders are entitled to cast.
FOURTEENTH. The board of directors of the Corporation, when
evaluating any offer of another party to (a) make a tender or
exchange offer for any equity security of the Corporation,
(b) merge or consolidate the Corporation with another
corporation, (c) purchase or otherwise acquire all or
substantially all of the properties and assets of the
Corporation, or (d) engage in any transaction similar to, or
having similar effects as, any of the foregoing transactions,
shall, in connection with the exercise of its judgment in
determining what is in the best interests of the Corporation and
its shareholders, give due consideration to all relevant factors,
including without limitation the social and economic effects of
the proposed transaction on the employees, suppliers, customers
and other constituents of the Corporation and its subsidiaries
and on the communities in which the Corporation and its
subsidiaries operate or are located, the business reputation of
the other party, and the board of directors' evaluation of the
then value of the Corporation in a freely negotiated sale and of
the future prospects of the Corporation as an independent entity.
FIFTEENTH. If any corporation, person, entity, or group
becomes the beneficial owner, directly or indirectly, of shares
of capital stock of the Corporation having the right to cast in
the aggregate 25 percent (25%) or more of all votes entitled to
be cast by all issued and outstanding shares of capital stock of
the Corporation entitled to vote, such corporation, person,
entity or group shall within thirty (30) days thereafter offer to
purchase all shares of capital stock of the Corporation issued,
outstanding and entitled to vote. Such offer to purchase shall
be at a price per share equal to the highest price paid for
shares of the respective class or series of capital stock of the
Corporation purchased by such corporation, person, entity or
group within the preceding twelve months. If such corporation,
person, entity or group did not purchase any shares of a
particular class or series of capital stock of the Corporation
within the preceding twelve months, such offer to purchase shall
be at a price per share equal to the fair market value of such
class or series of capital stock on the date on which such
corporation, person, entity or group becomes the beneficial
owner, directly or indirectly, of shares of capital stock of the
Corporation having the right to cast in the aggregate 25 percent
(25%) or more of all votes entitled to be cast by all issued and
outstanding capital stock of the Corporation. Such offer shall
provide that the purchase price for such shares shall be payable
in cash. The provisions of this Article FIFTEENTH shall not
apply if 80 percent (80%) or more of the members of the board of
directors of the Corporation approve in advance the acquisition
of beneficial ownership by such corporation, person, entity or
group, of shares of capital stock of the Corporation having the
right to cast in the aggregate 25 percent (25%) or more of all
votes entitled to be cast by all issued and outstanding shares of
capital stock of the Corporation. The provisions of this Article
FIFTEENTH shall be in addition to and not in lieu of any rights
granted under Subchapter E of Chapter 25 of the Pennsylvania
Business Corporation Law and any amendment or restatement of such
section ("Subchapter E"); provided, however, that if the
provisions of this Article FIFTEENTH and Subchapter E are both
applicable in any given instance, the price per share to be paid
for shares of capital stock of the Corporation issued,
outstanding and entitled to vote shall be the higher of the price
per share determined in accordance with this Article FIFTEENTH or
the price per share determined in accordance with the provisions
of Subchapter E.
SIXTEENTH. The Corporation reserves the right to amend,
alter, change or repeal any provision contained in its Articles
of Incorporation in the manner now or hereafter prescribed by
statute and all rights conferred upon shareholders and directors
herein are hereby granted subject to this reservation; provided,
however, that the provisions set forth in Articles SEVENTH,
EIGHTH and TENTH through FOURTEENTH, inclusive, of these Articles
of Incorporation may not be repealed, altered or amended, in any
respect whatsoever, unless such repeal, alteration or amendment
is approved by either (a) the affirmative vote of at least 80
percent (80%) of votes cast by shareholders entitled to vote or
(b) the affirmative vote of 75 percent (75%) of the members of
the board of directors of the Corporation and the affirmative
vote of a majority of the votes cast by all shareholders of the
Corporation then entitled to vote.
<PAGE>
EXHIBIT B
BYLAWS
OF
[SEE EXHIBIT 5.]
<PAGE>
EXHIBIT C
DIRECTORS
[TO BE SUPPLIED]
BCB Heritage
CLASS I 2 2
CLASS II 3 2
CLASS III 2(1) 2(2)
OFFICERS
Nelson R. Oswald - Chairman and Chief Executive
Officer
Allen E. Kiefer - President and Chief Operating
Officer
Robert D. McHugh, Jr. - Executive Vice President and
Chief Financial Officer
Richard A. Ketner - Executive Vice President and Chief
Administrative Officer
_________________
(1) Includes Holding Company Chairman
(2) Includes Holding Company Vice Chairman and President
<PAGE>
Exhibit 5
BYLAWS
OF
ARTICLE I. MEETINGS OF SHAREHOLDERS.
Section 101. Place of Meetings. All meetings of the
shareholders shall be held at such place or places, within or
without the Commonwealth of Pennsylvania, as shall be determined
by the Board of Directors from time to time.
Section 102. Annual Meetings.
(a) Time and Date. The annual meeting of the
shareholders for the election of Directors and the transaction of
such other business as may properly come before the meeting shall
be held at such date or hour as may be fixed by the Board of
Directors. At each annual meeting of shareholders, directors
shall be elected, reports of the affairs of the Corporation shall
be considered, and any other business may be transacted which is
within the power of the shareholders.
(b) Agenda for Annual Meeting. Matters to be placed
on the agenda for consideration at annual meetings of
shareholders may be determined by the Board of Directors or by
any shareholder entitled to vote for the election of directors.
Matters proposed for the agenda by shareholders entitled to vote
for the election of directors shall be made by notice in writing,
delivered or mailed by first-class United States mail, postage
prepaid, to the Secretary of the Corporation not less than sixty
(60) days prior to any annual meeting of shareholders; provided,
however, that if less than twenty-one (21) days' notice of the
meeting is given to shareholders, such written notice shall be
delivered or mailed, as prescribed, to the Secretary of the
Corporation not later than the close of the seventh day following
the day on which notice of the meeting was mailed to
shareholders. Notice of matters which are proposed by the Board
of Directors shall be given at any time by the Chairman of the
Board or any other appropriate officer. Each notice made by
shareholders shall set forth a brief description of the business
desired to be brought before the annual meeting. The chairman of
the meeting may determine and declare to the meeting that a
matter proposed for the agenda was not made in accordance with
the foregoing procedure, and if the chairman should so determine,
the chairman shall so declare to the meeting and the matter shall
be disregarded.
Section 103. Special Meetings. Special meetings of the
shareholders may be called at any time by the Board of Directors
in the manner provided herein. Shareholders shall not have the
right to call special meetings of shareholders, except as
specifically provided by law.
Section 104. Conduct of Shareholders' Meetings. At every
meeting of the shareholders, the Chairman of the Board or, in the
Chairman's absence, the President or, in the President's absence,
a chairman (who shall be one of the officers, if any is present)
chosen by a majority of the members of the Board of Directors
shall act as chairman of the meeting. The chairman of the
meeting shall have any and all powers and authority necessary in
the chairman's sole discretion to conduct an orderly meeting and
preserve order and to determine any and all procedural matters,
including imposing reasonable limits on the amount of time at the
meeting taken up in remarks by any one shareholder or group of
shareholders. In addition, until the business to be completed at
a meeting of the shareholders is completed, the chairman of a
meeting of the shareholders is expressly authorized to
temporarily adjourn and postpone the meeting from time to time.
The Secretary of the Corporation or in the Secretary's absence,
an assistant secretary, shall act as secretary of all meetings of
the shareholders. In the absence at such meeting of the
Secretary or assistant secretary, the chairman of the meeting may
appoint another person to act as secretary of the meeting.
Section 105. Determination of Record Date. The Board of
Directors may fix a time prior to the date of any meeting of
shareholders as a record date for the determination of the
shareholders entitled to notice of, or to vote at, the meeting,
which time, except in the case of an adjourned meeting, shall be
not more than 90 days prior to the date of the meeting of
shareholders. Only shareholders of record on the date fixed
shall be so entitled notwithstanding any transfer of shares on
the books of the Corporation after any record date fixed as
provided in this section. The Board of Directors may similarly
fix a record date for the determination of shareholders of record
for any other purpose. When a determination of shareholders of
record has been made as provided in this section for purposes of
a meeting, the determination shall apply to any adjournment
thereof unless the Board of Directors fixes a new record date for
the adjourned meeting.
Section 106. Voting List. The officer or agent having
charge of the transfer books for shares of the Corporation shall
make a complete list of the shareholders entitled to vote at any
meeting of shareholders, arranged in alphabetical order, with the
address of and the number of shares held by each. The list shall
be produced and kept open at the time and place of the meeting
and shall be subject to the inspection of any shareholder during
the whole time of the meeting for the purposes thereof.
Failure to comply with the requirements of this section
shall not affect the validity of any action taken at a meeting
prior to a demand at the meeting by any shareholder entitled to
vote thereat to examine the list. The original share register or
transfer book, or a duplicate thereof kept in Pennsylvania, shall
be prima facie evidence as to who are the shareholders entitled
to examine the list or share register or transfer book or to vote
at any meeting of shareholders.
Section 107. Judges of Election. In advance of any meeting
of shareholders of the Corporation, the Board of Directors may
appoint judges of election, who need not be shareholders, to act
at the meeting or any adjournment thereof. If judges of election
are not so appointed, the presiding officer of the meeting may,
and on the request of any shareholder shall, appoint judges of
election at the meeting. The number of judges shall be one (1)
or three (3). No person who is a candidate for office to be
filled at the meeting shall act as a judge of election.
In the event any person appointed as a judge fails to appear
or fails or refuses to act, the vacancy may be filled by
appointment made by the Board of Directors in advance of
convening the meeting or at the meeting by the presiding officer
thereof.
The judges of election shall determine the number of shares
outstanding and the voting power of each, the shares represented
at the meeting, the existence of a quorum, the authenticity,
validity and effect of proxies, receive votes or ballots, hear
and determine all challenges and questions in any way arising in
connection with the right to vote, count and tabulate all votes,
determine the result and do such acts as may be proper to conduct
the election or vote with fairness to all shareholders. The
judge or judges of election shall perform their duties
impartially, in good faith, to the best of their ability and as
expeditiously as is practical. If there are three judges of
election, the decision, act or certificate of a majority shall be
effective in all respects as the decision, act or certificate of
all.
On request of the presiding officer of the meeting, or of
any shareholder, the judge or judges shall make a report in
writing of any challenge or question or matter determined by
them, and execute a certificate of any fact found by them. Any
report or certificate made by them shall be prima facie evidence
of the facts stated therein.
Section 108. No Consent of Shareholders in Lieu of Meeting.
No action required to be taken or which may be taken at any
annual or special meeting of shareholders of the Corporation may
be taken without a meeting, and the power of the shareholders to
consent in writing to action without a meeting is specifically
denied.
ARTICLE II. DIRECTORS AND BOARD MEETINGS.
Section 201. Management by Board of Directors. The
business and affairs of the Corporation shall be managed by a
Board of Directors consisting of not less than five (5) nor more
than twenty-five (25) members, as fixed by the Board of Directors
from time to time. The Board of Directors may exercise all such
powers of the Corporation and do all such lawful acts and things
as are not by statute, regulation, the Articles of Incorporation
or these Bylaws directed or required to be exercised or done by
the shareholders. The Board of Directors shall appoint one of
its members to be the Chairman and Chief Executive Officer
("Chairman and CEO") to serve at the pleasure of the Board. He
shall be a voting member of the Board of Directors, the Executive
Committee and shall preside at all meetings of the Board of
Directors and Shareholders. The Board of Directors shall also
appoint a Vice Chairman and/or President of the Corporation. The
Vice Chairman or President shall preside at any meeting of the
Board in the absence of the Chairman and CEO.
Section 202. Nominations for Directors. Nominations by
shareholders for directors to be elected at an annual meeting of
shareholders must be submitted to the Secretary of the
Corporation in writing not later than the close of business on
the ninetieth (90th) day immediately preceding the date of the
meeting. Such notification shall contain the following
information: (a) name and address of each proposed nominee;
(b) the principal occupation of each proposed nominee; (c) the
total number of shares of capital stock of the Corporation that
will be voted for each proposed nominee; (d) the name and
residence address of the notifying shareholder; and (e) the
number of shares of capital stock of the Corporation owned by the
notifying shareholder. Nominations not made in accordance
herewith may, in the discretion of the chairman of the meeting,
be disregarded and, upon instruction, the judges of election may
disregard all votes cast for any such proposed nominee.
Section 203. Qualifications of Directors.
(a) Share Ownership. Every Director must be a
shareholder of the Corporation and shall own in his/her own right
the number of shares (if any) required by law in order to qualify
as such Director. Any Director shall forthwith cease to be a
Director when he/she no longer holds such shares, which fact
shall be reported to the Board of Directors by the Secretary,
whereupon the Board of Directors shall declare the seat of such
Director vacated.
(b) Other Qualifications. Until January 1, 2003, it
shall be a qualification for election and continued service as a
Director of the Corporation for each Director of the Corporation
to observe the following agreements and covenants:
(i) Except for the Chairman and Chief Executive
Officer, Directors of the Corporation shall not, either in
their capacities as Directors, shareholders, or otherwise,
directly or indirectly, encourage, solicit, initiate, or
respond to any indications of interest, proposals or offers
for any acquisition of, or change of control involving, the
Corporation, whether by merger, sale of assets, or
otherwise, or assist, aid or abet any person or persons with
respect to such conduct. In the event that any director is
approached as described herein, any such contact shall be
immediately referred in writing to the Chairman of the Board
of Directors.
(ii) Directors of the Corporation shall not,
either in their capacities as Directors, shareholders or
otherwise, provide any third person with non-public
information concerning the Corporation; and
(iii) Directors of the Corporation shall not (in
any capacity) publicly comment on the Corporation's
strategic alternatives (including sale or possible sale of
the Corporation) or on differences of view among members of
the Board relating to the Corporation's strategic
alternatives or on specific merger proposals or
opportunities;
absent in any case either a direction from the entire Board of
Directors by the affirmative vote of 75% of the total number of
directors then in office (rounding up to the nearest whole
number) or a written opinion of counsel to the Corporation that
such Director's fiduciary duty requires any such conduct.
It is adopted as the corporate policy of this Corporation
that the failure by a Director to observe and comply with the
foregoing covenants and agreements shall subject the Director to
removal by a vote of a majority of the Board of Directors then in
office or otherwise in accordance with law, unless such Director
has received a written opinion of the Corporation's counsel that
such Director's fiduciary duty requires such conduct.
Section 204. Classification of Directors. The Board of
Directors of the Corporation shall be divided into three (3)
classes, as nearly equal in number as possible, as provided in
the Corporation's Articles of Incorporation.
Section 205. Compensation of Directors. No Director shall
be entitled to any salary as such; but the Board of Directors may
fix, from time to time, reasonable fees or other compensation,
payable in cash, stock or other property, for acting as a
Director and reasonable fees to be paid each Director for his/her
services in attending meetings of the Board and meetings of
committees appointed by the Board. The Corporation may reimburse
Directors for expenses related to their duties as members of the
Board of Directors.
Section 206. Regular Meetings. Regular meetings of the
Board of Directors shall be held on such day, at such hour, and
at such place, consistent with applicable law, as the Board of
Directors shall from time to time designate or as may be
designated in any notice from the Secretary calling the meeting.
The Board of Directors shall meet for reorganizational purposes
at the first regular meeting following the annual meeting of
shareholders at which the Directors are elected. Notice need not
be given of regular meetings of the Board of Directors which are
held at the time and place designated by the Board of Directors.
If a regular meeting is not to be held at the time and place
designated by the Board of Directors, notice of such meeting,
which need not specify the business to be transacted thereat and
which may be either verbal or in writing, shall be given by the
President to each member of the Board of Directors at least
twenty-four (24) hours before the time of the meeting.
A majority of the members of the Board of Directors shall
constitute a quorum for the transaction of business. If at the
time fixed for the meeting, including the meeting to organize the
new Board following the annual meeting of shareholders, a quorum
is not present, the directors in attendance may adjourn the
meeting from time to time until a quorum is present.
Except as otherwise provided in Section 209 or as otherwise
provided herein, a majority of Directors present and voting at
any meeting of the Board of Directors at which a quorum is
present, shall decide each matter considered. A Director cannot
vote by proxy, or otherwise act by proxy at a meeting of the
Board of Directors.
Section 207. Special Meetings. Special meetings of the
Board of Directors may be called by the Chairman of the Board, or
at the request of a majority of Directors then in office. A
special meeting of the Board of Directors shall be deemed to be
any meeting other than a regular meeting of the Board of
Directors. Notice of the time and place of every special
meeting, which need not specify the business to be transacted
thereat, shall be given by the Chairman to each member of the
Board at least twenty-four (24) hours before the time of such
meeting.
Section 208. Reports and Records. The reports of officers
and Committees and the records of the proceedings of all
Committees shall be filed with the Secretary of the Corporation
and presented to the Board of Directors, if practicable, at its
next regular meeting. The Board of Directors shall keep complete
records of its proceedings in a minute book kept for that
purpose. When a Director shall request it, the vote of each
Director upon a particular question shall be recorded in the
minutes.
Section 209. Special Director Voting Requirements.
Notwithstanding anything contained herein to the contrary, until
January 1, 2003, approval of any of the following actions shall
require a vote of 75% of the total number of directors of the
Corporation then in office (rounding up to the nearest whole
number):
(i) adopting a motion or resolution to study sale
of the Corporation as a strategic alternative, or engaging a
financial advisor with respect thereto;
(ii) adopting a motion or resolution approving a
fundamental transaction (a "Fundamental Transaction")
involving the Corporation within the meaning of Chapter 19
of Title 15 of the Pennsylvania Business Corporation Law of
1988, as amended, if upon completion of the Fundamental
Transaction the Corporation would not be the surviving or
controlling entity, or any successor provisions (whether by
merger, consolidation, share exchange or otherwise), or
calling a special meeting of shareholders of the Corporation
to consider any such proposal or placing any such proposal
on the agenda for an annual meeting of shareholders of the
Corporation;
(iii) recommending that shareholders of the
Corporation (A) accept a transaction or tender their shares
of the Corporation's voting securities in connection with a
tender or exchange offer for the Corporation's voting
securities or (B) cast votes with respect to their voting
securities in a proxy solicitation conducted by a party
other than the Corporation's Board of Directors contrary to
the recommendation of the Board of Directors;
(iv) soliciting indications of interest or
responding to proposals relating to a Fundamental
Transaction in which the Corporation, upon completion of
such Fundamental Transaction, would not be the surviving or
controlling entity; or
(v) amending or repealing Sections 203 or 209 of
these Bylaws.
ARTICLE III. COMMITTEES.
Section 301. Committees. The following two (2) Committees
of the Board of Directors shall be established by the Board of
Directors in addition to any other Committee the Board of
Directors may in its discretion establish: Executive and Audit
Committees.
Section 302. Executive Committee. The Executive Committee
shall consist of five (5) Directors, including the Chairman and
CEO who shall serve as Chairman of the Committee and who shall
designate the remaining four members. For a period of three
years after the formation of the Corporation, the designees of
the Chairman shall consist of two former directors of BCB
Financial Services Corporation and two former directors of
Heritage Bancorp, Inc. A majority of the members of the
Executive Committee shall constitute a quorum, and actions of a
majority of those present at a meeting at which a quorum is
present shall be the actions of the Committee. Meetings of the
Committee may be called at any time by the Chairman of the
Committee or his designee. The Executive Committee shall have
and exercise the authority of the Board of Directors in the
management of the business of the Corporation between the dates
of regular meetings of the Board of Directors.
Section 303. Audit Committee. The Audit Committee shall
consist of at least five (5) Directors, none of whom shall be
officers of the Corporation. Meetings of the Committee may be
called at any time by the Chairman of the Board or the Chairman
of the Committee or his designee. A majority of the members of
the Committee shall constitute a quorum for the transaction of
business, and the actions of a majority of those present at a
meeting at which a quorum is present shall be the actions of the
Committee. The Committee shall, among other things, supervise
the audit of the books of the Corporation and recommend for
approval by the Board the services of a reputable Certified
Public Accounting firm to perform such audit.
Section 304. Appointment of Committee Members. The
Chairman of the Board of Directors shall appoint the members of
the Committees and the Chairman of each such Committee to serve
until the next annual meeting of shareholders. The Chairman of
the Board shall appoint the members of any other Committees
established by the Board of Directors, and the Chairman of such
Committee, to serve until the next annual meeting of
shareholders. The Board of Directors may appoint, from time to
time, other committees, for such purposes and with such powers as
the Board may determine.
Section 305. Organization and Proceedings. Each Committee
of the Board of Directors shall effect its own organization by
the appointment of a Secretary and such other officers, except
the Chairman, as it may deem necessary. A record of proceedings
of all Committees shall be kept by the Secretary of such
Committee and filed and presented as provided in Section 208 of
these Bylaws.
ARTICLE IV. OFFICERS.
Section 401. Chairman and CEO. The Board of Directors
shall appoint one of its members to be the Chairman and CEO to
serve at the pleasure of the Board. He shall be a voting member
of the Board of Directors and shall preside at all meetings of
the Board of Directors, the Executive Committee and shareholders.
The Chairman and CEO shall supervise the carrying out of the
policies adopted or approved by the Board. He shall have general
executive powers, as well as the specific powers conferred by
these Bylaws. He shall also have and may exercise such further
powers and duties as from time to time may be conferred upon,or
assigned to him by the Board of Directors.
Section 402. President. The Board of Directors shall
appoint a President of the Corporation. In the absence of the
Chairman of the Board and the Vice Chairman, the President shall
preside at any meeting of the Board. In the absence of the
Chairman and CEO, the President shall have general executive
powers, and shall have and may exercise any and all other powers
and duties pertaining by law, regulation, or practice, to the
office of President, or imposed by these Bylaws. He shall also
have and may exercise such further powers and duties as from time
to time may be conferred upon or assigned to him by the Board of
Directors.
Section 403. Vice Presidents. The Board of Directors may
appoint one or more Executive Vice Presidents, Senior Vice
Presidents, Vice Presidents and Assistant Vice Presidents
(collectively referred to herein as the "Vice Presidents"). The
Vice Presidents shall have such powers and duties as may be
assigned to them by the Board of Directors. The Executive Vice
Presidents shall, in the absence of the Vice Chairman and
President, perform all the duties of the Vice Chairman and
President.
Section 404. Secretary. The Board of Directors shall
appoint a Secretary, who shall be Secretary of the Board and of
the Corporation, and shall keep accurate minutes of all meetings.
He shall attend to the giving of all notices required by these
Bylaws to be given. He shall be custodian of the corporate seal,
records, documents and papers of the Corporation. He shall
provide for the keeping of proper records of all transactions of
the Corporation. He shall have and may exercise any and all
other powers and duties pertaining by law, regulation or
practice, to the office of Secretary, or imposed by these Bylaws.
He shall also perform such other duties as may be assigned to
him, from time to time, by the Board of Directors.
Section 405. Chief Financial Officer ("CFO"). The CFO
shall act under the supervision of the Chairman and CEO or such
other officer as the Chairman and CEO may designate. The CFO
shall have custody of the Corporation's funds and such other
duties as may be prescribed by the Board of Directors, Chairman
and CEO or such other Supervising Officer as the Chairman and CEO
may designate.
Section 406. Assistant Officers. Unless otherwise provided
by the Board of Directors, each Assistant Officer shall perform
such duties as shall be prescribed by the Board of Directors, the
Chairman of the Board, the President or the Officer to whom
he/she is an Assistant. In the event of the absence or
disability of an Officer or his/her refusal to act, his/her
Assistant Officer shall, in the order of their rank, and within
the same rank in the order of their seniority, have the powers
and authorities of such Officer.
Section 407. Compensation. Unless otherwise provided by
the Board of Directors, the salaries and compensation of all
Officers and Assistant Officers, except the Chairman of the
Board, the President and the Executive Vice Presidents, shall be
fixed by the Chairman of the Board in accordance with the general
salary administration programs and guidelines established by the
Board.
Section 408. General Powers. The Officers are authorized
to do and perform such corporate acts as are necessary in the
carrying on of the business of the Corporation, subject always to
the direction of the Board of Directors.
ARTICLE V. SHARES OF CAPITAL STOCK.
Section 501. Authority to Sign Share Certificates. Every
share certificate of the Corporation shall be signed by the
Chairman of the Board, the President or by an Executive Vice
President or one of the Vice Presidents. Certificates may be
signed by facsimile signature.
Section 502. Lost or Destroyed Certificates. Any person
claiming a share certificate to be lost, destroyed or wrongfully
taken shall receive a replacement certificate if such person
shall have: (a) requested such replacement certificate before the
Corporation has notice that the shares have been acquired by a
bona fide purchaser; (b) provided the Corporation with an
indemnity agreement satisfactory in form and substance to the
Chairman of the Board, the President or the Executive Vice
President; and (c) satisfied any other reasonable requirements
(including providing an affidavit and a surety bond) fixed by the
Vice Chairman and President or the Executive Vice President.
ARTICLE VI. GENERAL.
Section 601. Fiscal Year. The fiscal year of the
Corporation shall begin on the first (1st) day of January in each
year and end on the thirty-first (31st) day of December in each
year.
Section 602. Absentee Participation in Meetings.
Participation in meetings of the Board of Directors, or of
Committees of the Board, by means of a conference telephone or
similar communications equipment, by means of which all persons
participating in the meeting can hear each other shall be
permitted.
Section 6DG. Emergency Bylaws. In the event of any
emergency resulting from a nuclear attack or similar disaster,
and during the continuance of such emergency, the following Bylaw
provisions shall be in effect, notwithstanding any other
provisions of the Bylaws:
(a) A meeting of the Board of Directors or of any
Committee thereof may be called by any Officer or Director upon
one (1) hour's notice to all persons entitled to notice whom, in
the sole judgment of the notifier, it is feasible to notify;
(b) The Director or Directors in attendance at the
meeting of the Board of Directors or of any Committee thereof
shall constitute a quorum; and
(c) These Bylaws may be amended or repealed, in whole
or in part, by a majority vote of the Directors attending any
meeting of the board of Directors, provided such amendment or
repeal shall only be effective for the duration of such
emergency.
Section 604. Severability. If any provision of these
Bylaws is illegal or unenforceable as such, such illegality or
unenforceability shall not affect any other provision of these
Bylaws and such other provisions shall continue in full force and
effect.
ARTICLE VII. LIABILITY OF DIRECTORS: INDEMNIFICATION.
Section 701. Elimination of Liability. To the fullest
extent permitted by the laws of the Commonwealth of Pennsylvania,
a Director of the Corporation shall not be personally liable for
monetary damages for any action taken or any failure to take any
action unless the Director has breached or failed to perform the
duties of his or her office under the Pennsylvania Business
Corporation Law of 1988, as amended, or any successor statute,
and such breach or failure constitutes self-dealing, willful
misconduct or recklessness. The provisions of this Section 701
shall not apply with respect to the responsibility or liability
of a Director under any criminal statute or the liability of a
director for the payment of taxes pursuant to local, state or
federal law.
Section 702. Indemnification. The Corporation shall
indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending, or completed action,
suit, or proceeding, whether civil, criminal, administrative, or
investigative by reason of the fact that such person is or was a
Director, officer, employee, or agent of the Corporation, or is
or was serving at the request of the corporation as a director,
officer, employee, or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses
(including attorneys' fees), amounts paid in settlement,
judgments, and fines actually and reasonably incurred by such
person in connection with such action, suit, or proceeding;
provided, however, that no indemnification shall be made in any
case where the act or failure to act giving rise to the claim for
indemnification is determined by a court to have constituted
willful misconduct or recklessness.
Section 703. Expenses. Expenses (including attorneys'
fees) incurred in defending a civil or criminal action, suit, or
proceeding shall be paid by the Corporation in advance of the
final disposition of such action, suit, or proceeding upon
receipt of an undertaking by or on behalf of the Director,
officer, employee, or agent to repay such amount if it shall be
ultimately determined that he/she is not entitled to be
indemnified by the Corporation as authorized in this Article VII.
Section 704. Non-Exclusive. The indemnification and
advancement of expenses provided by this Article VII shall not be
deemed exclusive of any other right to which persons seeking
indemnification and advancement of expenses may be entitled under
any agreement, vote of shareholders or disinterested directors,
or otherwise, both as to actions in such persons' official
capacity and as to their actions in another capacity while
holding office, and shall continue as to a person who has ceased
to be a director, officer, employee, or agent and shall inure to
the benefit of the heirs, executors, and administrator of such
person.
Section 705. Insurance, Etc. The Corporation may purchase
and maintain insurance on behalf of any person, may enter into
contracts of indemnification with any person, may create a fund
of any nature (which may, but need not be, under the control of a
trustee) for the benefit of any person, and may otherwise secure
in any manner its obligations with respect to indemnification and
advancement of expenses, whether arising under this Article IX or
otherwise, to or for the benefit of any person, whether or not
the Corporation would have the power to indemnify such person
against such liability under the provisions of this Article VII.
Section 706. Amendment. Notwithstanding anything herein
contained or contained in the Articles of Incorporation to the
contrary, this Article VII may not be amended or repealed, and a
provision inconsistent herewith may not be adopted, except by the
affirmative vote of 66-2/3% of the members of the entire Board of
Directors or by the affirmative vote of shareholders of the
corporation entitled to cast at least 75% of all votes which
shareholders of the corporation are then entitled to cast, except
that, if the laws of the Commonwealth of Pennsylvania are amended
or any other statute is enacted so as to decrease the exposure of
directors to liability or to increase the indemnification rights
available, this Article VII and any other provision of these
Bylaws inconsistent with such decreased exposure or increased
indemnification rights shall be amended, automatically and
without any further action on the part of shareholders or
directors, to reflect such decreased exposure or to include such
increased indemnification rights, unless such legislation
expressly otherwise requires. Any repeal or modification of this
Article VII by the directors or shareholders of the Corporation
shall be prospective only, and shall not adversely affect any
limitation on the personal liability of a director of the
Corporation or any right to indemnification for any action taken
or any failure to take any action occurring prior to the time of
such repeal or modification.
Section 707. Severability. If, for any reason, any
provision of this Article VII shall be held invalid, such
invalidity shall not affect any other provision not held so
invalid, and each such other provision shall, to the full extent
consistent with law, continue in full force and effect. If any
provision of this Article VII shall be held invalid in part, such
invalidity shall in no way affect the remainder of such
provision, and the remainder of such provision, together with all
other provisions of this Article VII shall, to the full extent
consistent with law, continue in full force and effect.
ARTICLE VIII. AMENDMENT OR REPEAL.
Section 801. Amendment or Repeal by the Board of Directors.
These Bylaws may be amended or repealed, in whole or in part, in
the manner set forth in the Articles of Incorporation.
<PAGE>
EXHIBIT 6
FORM OF OPINION OF COUNSEL TO BCB
Heritage shall have received from counsel to BCB, an
opinion, dated as of the Closing Date, substantially to the
effect that, subject to normal exceptions and qualifications:
(a) BCB has full corporate power to carry out the
transactions contemplated in the Agreement. The execution and
delivery of the Agreement and the consummation of the
transactions contemplated thereunder have been duly and validly
authorized by all necessary corporate action on the part of BCB,
and the Agreement constitutes a valid and legally binding
obligation of BCB, except as may be limited by (i) bankruptcy,
insolvency, reorganization, moratorium, receivership,
conservatorship, and other laws now or hereafter in effect
relating to or affecting the enforcement of creditors' rights
generally or the rights of creditors of federal savings
institutions or their holding companies, and (ii) general
equitable principles, except that no opinion need be rendered as
to the effect or availability of equitable remedies or injunctive
relief (regardless of whether such enforceability is considered
in a proceeding in equity or at law). Subject to satisfaction of
the conditions set forth in the Agreement, neither the
transactions contemplated in the Agreement, nor compliance by BCB
with any of the provisions thereof, will (i) conflict with or
result in a breach or default under (A) the articles of
incorporation or bylaws of BCB or the charter or bylaws of Berks
County Bank, or, (B) to the knowledge of such counsel, any note,
bond, mortgage, indenture, license, agreement or other material
instrument or obligation to which BCB or Berks County Bank is a
party; or (ii) based on certificates of officers and without
independent verification, to the knowledge of such counsel,
result in the creation or imposition of any material lien or
encumbrance upon the property of BCB or Berks County Bank, except
such material lien, instrument or obligation that has been
disclosed pursuant to the Agreement or the Plan; or (iii) violate
in any material respect any order, writ, injunction or decree
known to such counsel, or any federal or Pennsylvania statute,
rule or regulation applicable to BCB or Berks County Bank.
(b) Berks County Bank is a validly existing
Pennsylvania-chartered commercial bank organized under the laws
of the Commonwealth of Pennsylvania and the United States of
America. The deposits of Berks County Bank are insured to the
maximum extent provided by law by the Federal Deposit Insurance
Corporation.
(c) There is, to the knowledge of such counsel, no
legal, administrative, arbitration or governmental proceeding or
investigation pending or threatened to which BCB or Berks County
Bank is a party which would, if determined adversely to BCB or
Berks County Bank, have a material adverse effect on the
financial condition or results of operation of BCB and Berks
County Bank taken as a whole, or which presents a claim to
restrain or prohibit the transactions contemplated by the
Agreement and the Plan, respectively.
(d) No consent, approval, authorization or order of
any federal or state court or federal or state governmental
agency or body, or to such counsel's knowledge, of any third
party, is required for the consummation by BCB of the
transactions contemplated by the Agreement, except for such
consents, approvals, authorizations or orders as have been
obtained or which would not have a Material Adverse Effect upon
BCB or the Holding Company upon consummation of the
Consolidation.
(e) Upon the filing and effectiveness of the Articles
of Consolidation with the PDS, the Consolidation will have been
effected in compliance with all applicable Pennsylvania laws and
regulations in all material respects.
(f) The shares of Holding Company Common Stock to be
issued in connection with the Consolidation have been duly
authorized and will, when issued in accordance with the terms of
the Agreement, be validly issued, fully paid and nonassessable,
free and clear of any mortgage, pledge, lien, encumbrance or
claim (legal or equitable).
Such counsel's opinion shall be limited to matters
governed by federal banking and securities laws and by the BCL.
<PAGE>
EXHIBIT 7
FORM OF OPINION OF COUNSEL TO HERITAGE
BCB shall have received from counsel to Heritage, an
opinion, dated as of the Closing Date, substantially to the
effect that, subject to normal exceptions and qualifications:
(a) Heritage has full corporate power to carry out the
transactions contemplated in the Agreement. The execution and
delivery of the Agreement and the consummation of the
transactions contemplated thereunder have been duly and validly
authorized by all necessary corporate action on the part of
Heritage and the Agreement constitutes a valid and legally
binding obligation of Heritage except as may be limited by
(i) bankruptcy, insolvency, reorganization, moratorium,
receivership, conservatorship, and other laws now or hereafter in
effect relating to or affecting the enforcement of creditors'
rights generally or the rights of creditors of federal savings
institutions or their holding companies, and (ii) general
equitable principles, except that no opinion need be rendered as
to the effect or availability of equitable remedies or injunctive
relief (regardless of whether such enforceability is considered
in a proceeding in equity or at law). Subject to satisfaction of
the conditions set forth in the Agreement, neither the
transactions contemplated in the Agreement nor compliance by
Heritage with any of the provisions thereof, will (i) conflict
with or result in a breach or default under (A) the certificate
of incorporation or bylaws of Heritage or the charter or bylaws
of Heritage National Bank, or (B) based on certificates of
officers and without independent verification, to the knowledge
of such counsel, any note, bond, mortgage, indenture, license,
agreement or other instrument or obligation to which Heritage or
Heritage National Bank is a party; or (ii) to the knowledge of
such counsel, result in the creation or imposition of any
material lien, instrument or encumbrance upon the property of
Heritage or Heritage National Bank, except such material lien,
instrument or obligation that has been disclosed to BCB pursuant
to the Agreement and the Plan, or (iii) violate in any material
respect any order, writ, injunction, or decree known to such
counsel, or any statute, rule or regulation applicable to
Heritage or Heritage National Bank.
(b) Heritage National Bank is a validly existing
national bank organized under the laws of the United States of
America. The deposits of Heritage National Bank are insured to
the maximum extent provided by law by the Federal Deposit
Insurance Corporation.
(c) There is, to the knowledge of such counsel, no
legal, administrative, arbitration or governmental proceeding or
investigation pending or threatened to which Heritage or Heritage
National Bank is a party which would, if determined adversely to
Heritage or Heritage National Bank, have a material adverse
effect on the business, properties, results of operations, or
condition, financial or otherwise, of Heritage or Heritage
National Bank taken as a whole or which presents a claim to
restrain or prohibit the transactions contemplated by the
Agreement and the Plan, respectively.
(d) No consent, approval, authorization, or order of
any federal or state court or federal or state governmental
agency or body, or to such counsel's knowledge, of any third
party of any third party, is required for the consummation by
Heritage of the transactions contemplated by the Agreement,
except for such consents, approvals, authorizations or orders as
have been obtained or which would not have a Material Adverse
Effect upon Heritage or the Holding Company upon consummation of
the Consolidation.
Such counsel's opinion shall be limited to matters
governed by federal banking and securities laws and by the BCL.
<PAGE>
EXHIBIT 8
FORM OF TAX OPINION OF STEVENS & LEE
BCB and Heritage shall have received an opinion of Stevens &
Lee substantially to the effect that, under the provisions of the
IRC:
1. The Consolidation will constitute a reorganization
within the meaning of IRC Section 368(a)(1)(A).
2. BCB, Heritage and Holding Company will each be "a
party to a reorganization" within the meaning of IRC Section
368(b).
3. Neither BCB, nor Heritage, nor Holding Company
will recognize any gain or loss upon the respective transfers of
BCB's and Heritage's assets to Holding Company in exchange solely
for Holding Company Common Stock (including any fractional share
interests) and the assumption by Holding Company of the
respective liabilities of BCB and Heritage.
4. The basis of the respective BCB and Heritage
assets in the hands of Holding Company will be the same as the
basis of such assets in the hands of BCB and Heritage immediately
prior to the Consolidation.
5. The holding period of the respective assets of BCB
and Heritage to be received by Holding Company will include the
period during which the assets were held by BCB and Heritage.
6. No gain or loss will be recognized by the
shareholders of BCB or Heritage on the receipt of Holding Company
Common Stock (including any fractional share interests) solely in
exchange for their shares of BCB or Heritage Common Stock, as the
case may be.
7. The basis of the Holding Company Common Stock
(including any fractional share interests) to be received by the
BCB and Heritage shareholders in the Consolidation will be the
same as the basis of the BCB or Heritage Common Stock, as the
case may be, surrendered in exchange therefor.
8. The holding period of the Holding Company Common
Stock (including any fractional share interests) to be received
by the BCB and Heritage shareholders in the Consolidation will
include the period during which the BCB and Heritage shareholders
held their respective BCB and Heritage Common Stock, provided the
shares of such stock are held as a capital asset on the Effective
Date of the Consolidation.
9. The payment of cash in lieu of fractional share
interests of Holding Company Common Stock will be treated as if
the fractional share interests were distributed as part of the
Consolidation and then redeemed by Holding Company. Such cash
payments will be treated as having been received as distributions
in full payment in exchange for the fractional share interests
redeemed, as provided in IRC Section 302(a). Any gain or loss
recognized by a BCB or Heritage shareholder will be a capital
gain or loss, provided the shares of BCB or Heritage Common
Stock, as the case may be, are held as a capital asset on the
Effective Date of the Consolidation.
10. As provided in IRC Section 381(c)(2) and related
Treasury regulations, Holding Company will succeed to and take
into account the respective earnings and profits, or deficit in
earnings and profits, of BCB and Heritage as of the Effective
Date of the Consolidation. Any deficit in the earnings and
profits of the parties will be used only to offset the earnings
and profits accumulated after the Consolidation.
11. Pursuant to IRC Section 381(a) and related
Treasury regulations, Holding Company will succeed to and take
into account the respective items of BCB and Heritage described
in IRC Section 381(c). Such items will be taken into account by
Holding Company subject to the conditions and limitations of IRC
Sections 381, 382, 383, and 384 and the Treasury regulations
thereunder.
<PAGE>
ANNEX B
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT ("Stock Option Agreement")
dated November 18, 1997, is by and between BCB FINANCIAL SERVICES
CORPORATION, a Pennsylvania corporation ("BCB") and HERITAGE
BANCORP, INC., a Pennsylvania corporation ("HERITAGE").
BACKGROUND
1. BCB and Heritage desire to enter into an Agreement
and Plan of Consolidation, dated November 18, 1997 (the
"Agreement"), providing, among other things, for the creation by
BCB and Heritage of a bank holding company which will issue
shares of its common stock to the shareholders of BCB and
Heritage (the "Consolidation").
2. As a condition to BCB to enter into the Agreement,
Heritage is granting to BCB an option to purchase up to that
number of shares of common stock, par value $5.00 per share (the
"Common Stock") of Heritage as shall equal 19.9% of shares of
Common Stock of Heritage issued and outstanding as of the date
hereof, on the terms and conditions hereinafter set forth.
AGREEMENT
In consideration of the foregoing and the mutual
covenants and agreements set forth herein, BCB and Heritage,
intending to be legally bound hereby, agree:
1. Grant of Option. Heritage hereby grants to BCB,
on the terms and conditions set forth herein, the option to
purchase (the "Option") up to 947,041 shares of Common Stock of
Heritage (as adjusted as set forth herein, the "Option Shares")
at a price per share (as adjusted as set forth herein, the
"Option Price") equal to $22.875, provided, however, that in no
event shall the number of Option Shares for which the Option is
exercisable exceed 19.9% of the issued and outstanding shares of
Heritage Common Stock without giving effect to any shares subject
to or issued pursuant to the Option.
2. Exercise of Option.
(a) Provided that (i) BCB shall not be, on the
date of exercise, in material breach of the agreements or
covenants contained in the Agreement, this Stock Option Agreement
or the reciprocal Stock Option Agreement by and between Heritage
and BCB, and (ii) no preliminary or permanent injunction or other
order against the delivery of shares covered by the Option issued
by any court of competent jurisdiction in the United States shall
be in effect on the date of exercise, upon or after the
occurrence of a Triggering Event (as such term is hereinafter
defined) BCB may exercise the Option, in whole or in part, at any
time or one or more times, from time to time; provided that the
Option shall terminate and be of no further force and effect upon
the earliest to occur of (A) the Effective Date of the
Consolidation, as provided in the Agreement, (B) termination of
the Agreement in accordance with the terms thereof prior to the
occurrence of a Triggering Event or a Preliminary Triggering
Event, other than a termination of the Agreement pursuant to
Section 6.01(d), unless in the case of termination by Heritage
pursuant to Section 6.01(d), such termination is as a result of a
willful breach of the Agreement by BCB (a termination pursuant to
Section 6.01(d), except a termination by Heritage as a result of
a willful breach by BCB, being referred to herein as a "Default
Termination"), (C) 18 months after the termination of the
Agreement by BCB or Heritage pursuant to a Default Termination,
and (D) 18 months after termination of the Agreement (other than
pursuant to a Default Termination) following the occurrence of a
Triggering Event or a Preliminary Triggering Event; and provided,
further, that any purchase of shares upon exercise of the Option
shall be subject to compliance with applicable securities and
banking laws. The rights set forth in Section 3 hereof shall
terminate when the right to exercise the Option terminates (other
than as a result of a complete exercise of the Option) as set
forth above.
(b) As used herein, the term "Triggering Event"
means the occurrence of any of the following events:
(i) a person or group (as such terms are
defined in the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and the rules and regulations
thereunder), other than BCB or an affiliate of BCB, acquires
beneficial ownership (within the meaning of Rule 13d-3 under
the Exchange Act) of 25% or more of the then outstanding
shares of Common Stock (excluding any shares eligible to be
reported on Schedule 13G of the Securities and Exchange
Commission); or
(ii) a person or group, other than BCB or an
affiliate of BCB, enters into an agreement or letter of
intent or memorandum of understanding with Heritage or
Heritage shall have authorized, recommended or publicly
proposed, or publicly announced an intention to authorize,
recommend or propose, such an agreement or letter of intent
or memorandum of understanding, pursuant to which such
person or group or any affiliate of such person or group
would (i) merge or consolidate, or enter into any similar
transaction, with Heritage, (ii) acquire all or
substantially all of the assets or liabilities of Heritage
or all or substantially all of the assets or liabilities of
Heritage National Bank (or any successor subsidiary), the
wholly-owned subsidiary of Heritage ("Heritage Bank"), or
(iii) acquire beneficial ownership of securities
representing, or the right to acquire beneficial ownership
or to vote securities representing, 25% or more of the then
outstanding shares of Common Stock (excluding any shares
eligible to be reported on Schedule 13G of the Securities
and Exchange Commission) or the then outstanding shares of
common stock of Heritage Bank.
(c) As used herein, the term "Preliminary
Triggering Event" means the occurrence of any of the following
events:
TR. a person or group (as such terms are
defined in the Exchange Act and the rules and regulations
thereunder), other than BCB or an affiliate of BCB, acquires
beneficial ownership (within the meaning of Rule 13d-3 under
the Exchange Act) of 10% or more of the then outstanding
shares of Common Stock (excluding any shares eligible to be
reported on Schedule 13G of the Securities and Exchange
Commission);
(ii) a person or group, other than BCB or an
affiliate of BCB, publicly announces a bona fide proposal
(including a written communication that is or becomes the
subject of public disclosure) for (i) any merger,
consolidation or acquisition of all or substantially all the
assets or liabilities of Heritage or all or substantially
all the assets or liabilities of Heritage Bank, or any other
business combination involving Heritage or Heritage Bank, or
(ii) a transaction involving the transfer of beneficial
ownership of securities representing, or the right to
acquire beneficial ownership or to vote securities
representing, 10% or more of the then outstanding shares of
Common Stock or the then outstanding shares of Common Stock
of Heritage Bank (collectively, a "Proposal"), and
thereafter, if such Proposal has not been Publicly Withdrawn
(as such term is hereinafter defined) at least 30 days prior
to the meeting of shareholders of Heritage called to vote on
the Consolidation, Heritage's shareholders fail to approve
the Consolidation by the vote required by applicable law at
the meeting of shareholders called for such purpose or such
meeting has been cancelled; or
(iii) the Board of Directors of Heritage
shall (A) exercise the right granted to it in clause (i) of
the second sentence of Section 4.06 of the Agreement,
(B) fail to recommend the Consolidation, (C) recommend an
Acquisition Transaction or (D) have withdrawn or modified in
a manner adverse to BCB the recommendation of the Board of
Directors of Heritage with respect to the Agreement and
thereafter Heritage's shareholders fail to approve the
Consolidation by the vote required by law at the meeting of
shareholders called for such purpose or such meeting is not
scheduled or is cancelled without the written consent of
BCB; or
(iv) a person or group, other than BCB or an
affiliate of BCB, makes a bona fide Proposal and thereafter,
but before such Proposal has been Publicly Withdrawn,
Heritage shall have breached any representation, warranty,
covenant or obligation contained in the Agreement and such
breach would entitle BCB to terminate the Agreement under
Section 6.01(d) thereof (without regard to the cure period
provided for therein unless such cure is promptly effected
without jeopardizing consummation of the Consolidation
pursuant to the Agreement).
If more than one of the transactions giving rise to a Triggering
Event or a Preliminary Triggering Event under this Section 2 is
undertaken or effected, then all such transactions shall give
rise only to one Triggering Event or Preliminary Triggering
Event, as applicable, which Triggering Event or Preliminary
Triggering Event shall be deemed continuing for all purposes
hereunder until all such transactions are abandoned.
"Publicly Withdrawn" for purposes of this Section 2
shall mean an unconditional bona fide withdrawal of the Proposal
coupled with a public announcement of no further interest in
pursuing such Proposal or in acquiring any controlling influence
over Heritage or in soliciting or inducing any other person
(other than BCB or an affiliate of BCB) to do so.
Notwithstanding the foregoing, the obligation of
Heritage to issue Option Shares upon exercise of the Option shall
be deferred (but shall not terminate): (i) until the receipt of
all required governmental or regulatory approvals or consents
necessary for Heritage to issue the Option Shares or BCB to
exercise the Option, or until the expiration or termination of
any waiting period required by law, or (ii) so long as any
injunction or other order, decree or ruling issued by any federal
or state court of competent jurisdiction is in effect which
prohibits the sale or delivery of the Option Shares, and, in each
case, notwithstanding any provision to the contrary set forth
herein, the Option shall not expire or otherwise terminate with
respect to the Option Shares subject to any prior exercise.
Heritage shall notify BCB promptly in writing of the
occurrence of any Triggering Event known to it, it being
understood that the giving of such notice by Heritage shall not
be a condition to the right of BCB to exercise the Option.
Heritage will not take any action which would have the effect of
preventing or disabling Heritage from delivering the Option
Shares to BCB upon exercise of the Option or otherwise performing
its obligations under this Stock Option Agreement, except to the
extent required by applicable securities and banking laws and
regulations. In the event BCB wishes to exercise the Option, BCB
shall send a written notice to Heritage (the date of which is
hereinafter referred to as the "Notice Date") specifying the
total number of Option Shares it wishes to purchase and a place
and date between two and ten business days inclusive from the
Notice Date for the closing of such a purchase (a "Closing");
provided, however, that a Closing shall not occur prior to two
days after the later of receipt of any necessary regulatory
approvals or the expiration of any legally required notice or
waiting period, if any.
3. Repurchase of Option by Heritage.
(a) Subject to the last sentence of Section 2(a),
at the request of BCB at any time commencing upon the first
occurrence of a Repurchase Event (as defined in Section 3(d)) and
ending 18 months immediately thereafter, Heritage shall
repurchase from BCB (x) the Option and (y) all shares of Common
Stock purchased by BCB pursuant hereto with respect to which BCB
then has beneficial ownership. The date on which BCB exercises
its rights under this Section 3 is referred to as the "Request
Date." Such repurchase shall be at an aggregate price (the
"Section 3 Repurchase Consideration") equal to the sum of:
(i) the aggregate Purchase Price paid by BCB
for any shares of Common Stock acquired pursuant to the
Option with respect to which BCB then has beneficial
ownership;
(ii) the excess, if any, of (x) the
Applicable Price (as defined below) for each share of Common
Stock over (y) the Option Price (subject to adjustment
pursuant to Section 6), multiplied by the number of shares
of Common Stock with respect to which the Option has not
been exercised; and
(iii) the excess, if any, of the Applicable
Price over the Option Price (subject to adjustment pursuant
to Section 6) paid (or, in the case of Option Shares with
respect to which the Option has been exercised, but the
Closing has not occurred, payable) by BCB for each share of
Common Stock with respect to which the Option has been
exercised and with respect to which BCB then has beneficial
ownership, multiplied by the number of such shares.
(b) If BCB exercises it rights under this
Section 3, Heritage shall, within ten (10) business days after
the Request Date, pay the Section 3 Repurchase Consideration to
BCB in immediately available funds, and contemporaneously with
such payment, BCB shall surrender to Heritage the Option and the
certificate evidencing the shares of Common Stock purchased
thereunder with respect to which BCB then has beneficial
ownership, and BCB shall warrant that it has sole record and
beneficial ownership of such shares, and that the same are then
free and clear of all liens, claims, charges and encumbrances of
any kind whatsoever. Notwithstanding the foregoing, to the
extent that prior notification to or approval of any banking
agency or department of any federal or state government,
including without limitation the FRB, the OCC, the FDIC, or the
respective staffs thereof (the "Regulatory Authority"), is
required in connection with the payment of all or any portion of
the Section 3 Repurchase Consideration, BCB shall have the
ongoing option to revoke its request for repurchase pursuant to
Section 3, in whole or in part, or to require that Heritage
deliver from time to time that portion of the Section 3
Repurchase Consideration that it is not then so prohibited from
paying and promptly file the required notice or application for
approval and expeditiously process the same (and each party shall
cooperate with the other in the filing of any such notice or
application and the obtaining of any such approval), in which
case the ten (10) business day period of time that would
otherwise run pursuant to the preceding sentence for the payment
of the portion of the Section 3 Repurchase Consideration shall
run instead from the date on which, as the case may be, any
required notification period has expired or been terminated or
such approval has been obtained and, in either event, any
requisite waiting period shall have passed. If any Regulatory
Authority disapproves of any part of Heritage's proposed
repurchase pursuant to this Section 3, Heritage shall promptly
give notice of such fact to BCB. If any Regulatory Authority
prohibits the repurchase pursuant to this Section 3, Heritage
shall promptly give notice of such fact to BCB. If any
Regulatory Authority prohibits the repurchase in part but not in
whole, then BCB shall have the right (i) to revoke the repurchase
request or (ii) to the extent permitted by such Regulatory
Authority, determine whether the repurchase should apply to the
Option and/or Option Shares and to what extent to each, and BCB
shall thereupon have the right to exercise the Option as to the
number of Option Shares for which the Option was exercisable at
the Request Date less the sum of the number of shares covered by
the Option in respect of which payment has been made pursuant to
Section 3(a)(ii) and the number of shares covered by the portion
of the Option (if any) that has been repurchased. BCB shall
notify Heritage of its determination under the preceding sentence
within five (5) business days of receipt of notice of disapproval
of the repurchase.
(c) For purposes of this Agreement, the
"Applicable Price" means the highest of (i) the highest price per
share of Common Stock paid for any such share by the person or
groups described in Section 3(d)(i), (ii) the price per share of
Common Stock received by a holder of Common Stock in connection
with any merger or other business combination transaction
described in Section 3(d)(ii), (iii) or (iv), or (iii) the
highest closing sales price per share of Common Stock quoted on
the Nasdaq Stock Market during the 40 business days preceding the
Request Date; provided, however, that in the event of a sale of
less than all of Heritage's assets, the Applicable Price shall be
the sum of the price paid in such sale for such assets and the
current market value of the remaining assets of Heritage as
determined by a nationally-recognized investment banking firm
selected by BCB, divided by the number of shares of Common Stock
outstanding at the time of such sale. If the consideration to be
offered, paid or received pursuant to either of the foregoing
clauses (i) or (ii) shall be other than in cash, the value of
such consideration shall be determined in good faith by an
independent nationally-recognized investment banking firm
selected by BCB and reasonably acceptable to Heritage, which
determination shall be conclusive for all purposes of this
Agreement.
(d) As used herein, a Repurchase Event shall
occur if (i) any person or group (as such terms are defined in
the Exchange Act and the rules and regulations thereunder), other
than BCB or an affiliate of BCB, acquires beneficial ownership
(within the meaning of Rule 13d-3 under the Exchange Act) of, or
the right to acquire beneficial ownership of, 25% or more of the
then-outstanding shares of Common Stock, (ii) Heritage shall have
merged or consolidated with any person, other than BCB or an
affiliate of BCB, and shall not be the surviving or continuing
corporation of such merger or consolidation, (iii) any person,
other than BCB or an affiliate of BCB, shall have merged into
Heritage and Heritage shall be the surviving corporation, but, in
connection with such merger, the then-outstanding shares of
Common Stock have been changed into or exchanged for stock or
other securities of Heritage or any other person or cash or any
other property or the outstanding shares of Common Stock
immediately prior to such merger shall after such merger
represent less than 50% of the outstanding shares and share
equivalents of the surviving corporation or (iv) Heritage shall
have sold or otherwise transferred more than 25% of its
consolidated assets to any person, other than BCB or an affiliate
of BCB.
4. Payment and Delivery of Certificates. At any
Closing hereunder, (a) BCB will make payment to Heritage of the
aggregate price for the Option Shares so purchased by wire
transfer of immediately available funds to an account designated
by Heritage, (b) Heritage will deliver to BCB a stock certificate
or certificates representing the number of Option Shares so
purchased, registered in the name of BCB or its designee, in such
denominations as were specified by BCB in its notice of exercise,
and (c) BCB will pay any transfer or other taxes required by
reason of the issuance of the Option Shares so purchased.
A legend will be placed on each stock certificate
evidencing Option Shares issued pursuant to this Stock Option
Agreement, which legend will read substantially as follows:
"The shares of stock evidenced by this
certificate have not been the subject of a registration
statement filed under the Securities Act of 1933, as
amended (the "Act"), and declared effective by the
Securities and Exchange Commission. These shares may
not be sold, transferred or otherwise disposed of prior
to such time unless Heritage Bancorp, Inc. receives an
opinion of counsel acceptable to it stating that an
exemption from the registration provisions of the Act
is available for such transfer."
5. Registration Rights. Upon or after the occurrence
of a Triggering Event and upon receipt of a written request from
BCB, Heritage shall prepare and file as soon as practicable a
registration statement under the Securities Act of 1933 (the
"Securities Act") with the Securities and Exchange Commission
covering the Option and such number of Option Shares as BCB shall
specify in its request, and Heritage shall use its best efforts
to cause such registration statement to be declared effective in
order to permit the sale or other disposition of the Option and
the Option Shares, provided that BCB shall in no event have the
right to have more than one such registration statement become
effective, and provided further that Heritage shall not be
required to prepare and file any such registration statement in
connection with any proposed sale with respect to which counsel
to Heritage delivers to Heritage and to BCB its opinion to the
effect that no such filing is required under applicable laws and
regulations with respect to such sale or disposition; provided
further, however, that Heritage may delay any registration of
Option Shares above for a period not exceeding 90 days in the
event that Heritage shall in good faith determine that any such
registration would adversely affect an offering or contemplated
offering of securities by Heritage. BCB shall provide all
information reasonably requested by Heritage for inclusion in any
registration statement to be filed hereunder. In connection with
such filing, Heritage shall use its reasonable best efforts to
cause to be delivered to BCB such certificates, opinions,
accountant's letters and other documents as BCB shall reasonably
request and as are customarily provided in connection with
registration of securities under the Securities Act. Heritage
shall provide to BCB such number of copies of the preliminary
prospectus and final prospectus and any amendments and
supplements thereto as BCB may reasonably request.
All reasonable expenses incurred by Heritage in
complying with the provisions of this Section 5, including,
without limitation, all registration and filing fees, reasonable
printing expenses, reasonable fees and disbursements of counsel
for Heritage and blue sky fees and expenses, shall be paid by
Heritage. Underwriting discounts and commissions to brokers and
dealers relating to the Option Shares, fees and disbursements of
counsel to BCB and any other expenses incurred by BCB in
connection with such filing shall be borne by BCB. In connection
with such filing, Heritage shall indemnify and hold harmless BCB
against any losses, claims, damages or liabilities, joint or
several, to which BCB may become subject, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any
preliminary or final registration statement or any amendment or
supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading; and Heritage will reimburse BCB for any
legal or other expense reasonably incurred by BCB in connection
with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that Heritage will not be
liable in any case to the extent that any such loss, claim,
damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged
omission made in such preliminary or final registration statement
or such amendment or supplement thereto in reliance upon and in
conformity with written information furnished by or on behalf of
BCB specifically for use in the preparation thereof. BCB will
indemnify and hold harmless Heritage to the same extent as set
forth in the immediately preceding sentence but only with
reference to written information furnished by or on behalf of BCB
for use in the preparation of such preliminary or final
registration statement or such amendment or supplement thereto;
and BCB will reimburse Heritage for any legal or other expense
reasonably incurred by Heritage in connection with investigating
or defending any such loss, claim, damage, liability or action.
Notwithstanding anything to the contrary contained herein, no
indemnifying party shall be liable for any settlement effected
without its prior written consent.
6. Adjustment Upon Changes in Capitalization. In the
event of any change in the Common Stock by reason of stock
dividends, split-ups, recapitalizations, combinations,
conversions, divisions, exchanges of shares or the like, then the
number and kind of Option Shares and the Option Price shall be
appropriately adjusted.
7. Filings and Consents. Each of BCB and Heritage
will use its reasonable best efforts to make all filings with,
and to obtain consents of, all third parties and governmental
authorities necessary to the consummation of the transactions
contemplated by this Stock Option Agreement. Within 10 days from
the date hereof, BCB shall file a report of beneficial ownership
on Form 13D with the Securities and Exchange Commission under the
Exchange Act which discloses the rights of BCB hereunder.
8. Representations and Warranties of Heritage.
Heritage hereby represents and warrants to BCB as follows:
(a) Due Authorization. Heritage has full
corporate power and authority to execute, deliver and perform
this Stock Option Agreement and all corporate action necessary
for execution, delivery and performance of this Stock Option
Agreement has been duly taken by Heritage. This Stock Option
Agreement constitutes a legal, valid and binding obligation of
Heritage, enforceable against Heritage in accordance with its
terms (except as may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent transfer and
similar laws of general applicability relating to or affecting
creditors' rights or by general equity principles).
(b) Authorized Shares. Heritage has taken all
necessary corporate action to authorize and reserve for issuance
all shares of Common Stock that may be issued pursuant to any
exercise of the Option.
9. Representations and Warranties of BCB. BCB hereby
represents and warrants to Heritage that BCB has full corporate
power and authority to execute, deliver and perform this Stock
Option Agreement and all corporate action necessary for
execution, delivery and performance of this Stock Option
Agreement has been duly taken by BCB. This Stock Option
Agreement constitutes a legal, valid and binding obligation of
BCB, enforceable against BCB in accordance with its terms (except
as may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer and similar laws
of general applicability relating to or affecting creditors'
rights or by general equity principles).
10. Specific Performance. The parties hereto
acknowledge that damages would be an inadequate remedy for a
breach of this Stock Option Agreement and that the obligations of
the parties hereto shall be specifically enforceable.
11. Entire Agreement. This Stock Option Agreement and
the Agreement constitute the entire agreement between the parties
with respect to the subject matter hereof and supersede all other
prior agreements and understandings, both written and oral, among
the parties or any of them with respect to the subject matter
hereof.
12. Assignment or Transfer. BCB may not sell, assign
or otherwise transfer its rights and obligations hereunder, in
whole or in part, to any person or group of persons other than to
a subsidiary of BCB. BCB represents that it is acquiring the
Option for BCB's own account and not with a view to, or for sale
in connection with, any distribution of the Option or the Option
Shares. BCB is aware that neither the Option nor the Option
Shares is the subject of a registration statement filed with, and
declared effective by, the Securities and Exchange Commission
pursuant to Section 5 of the Securities Act, but instead each is
being offered in reliance upon the exemption from the
registration requirement provided by Section 4(2) thereof and the
representations and warranties made by BCB in connection
therewith.
13. Amendment of Stock Option Agreement. By mutual
consent of the parties hereto, this Stock Option Agreement may be
amended in writing at any time, for the purpose of facilitating
performance hereunder or to comply with any applicable regulation
of any governmental authority or any applicable order of any
court or for any other purpose.
14. Validity. The invalidity or unenforceability of
any provision of this Stock Option Agreement shall not affect the
validity or enforceability of any other provisions of this Stock
Option Agreement, which shall remain in full force and effect.
15. Notices. All notices, requests, consents and
other communications required or permitted hereunder shall be in
writing and shall be deemed to have been duly given when
delivered personally, by telegram or telecopy, or by registered
or certified mail (postage prepaid, return receipt requested) to
the respective parties as follows:
(i) If to BCB, to:
BCB Financial Services Corporation
The Madison Building
400 Washington Street
Reading, Pennsylvania 19601
Attention: Nelson R. Oswald, President
and Chief Executive Officer
Telecopy No.: (610) 378-9193
with a copy to:
Stevens & Lee
One Glenhardie Corporate Center
1275 Drummers Lane
Wayne, Pennsylvania 19087
Attention: Jeffrey P. Waldron, Esquire
Telecopy No.: (610) 687-1384
(ii) If to Heritage, to:
Heritage Bancorp, Inc.
120 South Centre Street
Pottsville, Pennsylvania 17901
Attention: Allen E. Kiefer
President
and Chief Executive Officer
Telecopy No.: (717) 622-2320
with copies to:
Rhoads & Sinon LLP
One South Market Street, 12th Floor
Harrisburg, Pennsylvania 17108
Attention: Charles J. Ferry, Esquire
Telecopy No.: (717) 232-1459
or to such other address as the person to whom notice is to be
given may have previously furnished to the others in writing in
the manner set forth above (provided that notice of any change of
address shall be effective only upon receipt thereof).
16. Governing Law. This Stock Option Agreement shall
be governed by and construed in accordance with the domestic
internal law (but not the law of conflicts of law) of the
Commonwealth of Pennsylvania.
17. Captions. The captions in this Stock Option
Agreement are inserted for convenience and reference purposes,
and shall not limit or otherwise affect any of the terms or
provisions hereof.
18. Waivers and Extensions. The parties hereto may,
by mutual written consent, extend the time for performance of any
of the obligations or acts of either party hereto. Each party
may waive in writing (i) compliance with any of the covenants of
the other party contained in this Stock Option Agreement and/or
(ii) the other party's performance of any of its obligations set
forth in this Stock Option Agreement.
19. Parties in Interest. This Stock Option Agreement
shall be binding upon and inure solely to the benefit of each
party hereto, and, nothing in this Stock Option Agreement,
express or implied, is intended to confer upon any other person
any rights or remedies of any nature whatsoever under or by
reason of this Stock Option Agreement.
20. Counterparts. This Stock Option Agreement may be
executed in two or more counterparts, each of which shall be
deemed to be an original, but all of which shall constitute one
and the same agreement.
21. Expenses. Except as otherwise provided herein,
all costs and expenses incurred by the parties hereto in
connection with the transactions contemplated by this Stock
Option Agreement or the Option shall be paid by the party
incurring such cost or expense.
22. Defined Terms. Capitalized terms which are used
but not defined herein shall have the meanings ascribed to such
terms in the Agreement.
IN WITNESS WHEREOF, each of the parties hereto,
pursuant to resolutions adopted by its Board of Directors, has
caused this Stock Option Agreement to be executed by its duly
authorized officer all as of the day and year first above
written.
BCB FINANCIAL SERVICES CORPORATION
By/s/ Nelson R. Oswald
Nelson R. Oswald,
Chairman, President and Chief
Executive Officer
HERITAGE BANCORP, INC.
By/s/ Allen E. Kiefer
Allen E. Kiefer
President and Chief Executive
Officer
<PAGE>
ANNEX C
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT ("Stock Option Agreement")
dated November 18, 1997, is by and between HERITAGE BANCORP,
INC., a Pennsylvania corporation ("Heritage") and BCB FINANCIAL
SERVICES CORPORATION, a Pennsylvania corporation ("BCB").
BACKGROUND
1. Heritage and BCB desire to enter into an Agreement
and Plan of Consolidation, dated November 18, 1997 (the
"Agreement"), providing, among other things, for the creation by
Heritage and BCB of a bank holding company which will issue
shares of its common stock to the shareholders of Heritage and
BCB (the "Consolidation").
2. As a condition to Heritage to enter into the
Agreement, BCB is granting to Heritage an option to purchase up
to that number of shares of common stock, par value $2.50 per
share (the "Common Stock") of BCB as shall equal 19.9% of shares
of Common Stock of BCB issued and outstanding as of the date
hereof, on the terms and conditions hereinafter set forth.
AGREEMENT
In consideration of the foregoing and the mutual
covenants and agreements set forth herein, Heritage and BCB,
intending to be legally bound hereby, agree:
1. Grant of Option. BCB hereby grants to Heritage,
on the terms and conditions set forth herein, the option to
purchase (the "Option") up to 690,516 shares of Common Stock of
BCB (as adjusted as set forth herein, the "Option Shares") at a
price per share (as adjusted as set forth herein, the "Option
Price") equal to $22.375, provided, however, that in no event
shall the number of Option Shares for which the Option is
exercisable exceed 19.9% of the issued and outstanding shares of
BCB Common Stock without giving effect to any shares subject to
or issued pursuant to the Option.
2. Exercise of Option.
(a) Provided that (i) Heritage shall not be, on
the date of exercise, in material breach of the agreements or
covenants contained in the Agreement, this Stock Option Agreement
or the reciprocal Stock Option Agreement by and between BCB and
Heritage, and (ii) no preliminary or permanent injunction or
other order against the delivery of shares covered by the Option
issued by any court of competent jurisdiction in the United
States shall be in effect on the date of exercise, upon or after
the occurrence of a Triggering Event (as such term is hereinafter
defined) Heritage may exercise the Option, in whole or in part,
at any time or one or more times, from time to time; provided
that the Option shall terminate and be of no further force and
effect upon the earliest to occur of (A) the Effective Date of
the Consolidation, as provided in the Agreement, (B) termination
of the Agreement in accordance with the terms thereof prior to
the occurrence of a Triggering Event or a Preliminary Triggering
Event, other than a termination of the Agreement pursuant to
Section 6.01(d), unless in the case of termination by BCB
pursuant to Section 6.01(d), such termination is as a result of a
willful breach of the Agreement by Heritage (a termination
pursuant to Section 6.01(d), except a termination by BCB as a
result of a willful breach by Heritage, being referred to herein
as a "Default Termination"), (C) 18 months after the termination
of the Agreement by Heritage or BCB pursuant to a Default
Termination, and (D) 18 months after termination of the Agreement
(other than pursuant to a Default Termination) following the
occurrence of a Triggering Event or a Preliminary Triggering
Event; and provided, further, that any purchase of shares upon
exercise of the Option shall be subject to compliance with
applicable securities and banking laws. The rights set forth in
Section 3 hereof shall terminate when the right to exercise the
Option terminates (other than as a result of a complete exercise
of the Option) as set forth above.
(b) As used herein, the term "Triggering Event"
means the occurrence of any of the following events:
(i) a person or group (as such terms are
defined in the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and the rules and regulations
thereunder), other than Heritage or an affiliate of
Heritage, acquires beneficial ownership (within the meaning
of Rule 13d-3 under the Exchange Act) of 25% or more of the
then outstanding shares of Common Stock (excluding any
shares eligible to be reported on Schedule 13G of the
Securities and Exchange Commission); or
(ii) a person or group, other than Heritage
or an affiliate of Heritage, enters into an agreement or
letter of intent or memorandum of understanding with BCB or
BCB shall have authorized, recommended or publicly proposed,
or publicly announced an intention to authorize, recommend
or propose, such an agreement or letter of intent or
memorandum of understanding, pursuant to which such person
or group or any affiliate of such person or group would
(i) merge or consolidate, or enter into any similar
transaction, with BCB, (ii) acquire all or substantially all
of the assets or liabilities of BCB or all or substantially
all of the assets or liabilities of Berks County Bank (or
any successor subsidiary), the wholly-owned subsidiary of
BCB ("BCB Bank"), or (iii) acquire beneficial ownership of
securities representing, or the right to acquire beneficial
ownership or to vote securities representing, 25% or more of
the then outstanding shares of Common Stock (excluding any
shares eligible to be reported on Schedule 13G of the
Securities and Exchange Commission) or the then outstanding
shares of common stock of BCB Bank.
(c) As used herein, the term "Preliminary
Triggering Event" means the occurrence of any of the following
events:
(i) a person or group (as such terms are
defined in the Exchange Act and the rules and regulations
thereunder), other than Heritage or an affiliate of
Heritage, acquires beneficial ownership (within the meaning
of Rule 13d-3 under the Exchange Act) of 10% or more of the
then outstanding shares of Common Stock (excluding any
shares eligible to be reported on Schedule 13G of the
Securities and Exchange Commission);
(ii) a person or group, other than Heritage
or an affiliate of Heritage, publicly announces a bona fide
proposal (including a written communication that is or
becomes the subject of public disclosure) for (i) any
merger, consolidation or acquisition of all or substantially
all the assets or liabilities of BCB or all or substantially
all the assets or liabilities of BCB Bank, or any other
business combination involving BCB or BCB Bank, or (ii) a
transaction involving the transfer of beneficial ownership
of securities representing, or the right to acquire
beneficial ownership or to vote securities representing, 10%
or more of the then outstanding shares of Common Stock or
the then outstanding shares of Common Stock of BCB Bank
(collectively, a "Proposal"), and thereafter, if such
Proposal has not been Publicly Withdrawn (as such term is
hereinafter defined) at least 30 days prior to the meeting
of shareholders of BCB called to vote on the Consolidation,
BCB's shareholders fail to approve the Consolidation by the
vote required by applicable law at the meeting of
shareholders called for such purpose or such meeting has
been cancelled; or
(iii) the Board of Directors of BCB shall
(A) exercise the right granted to it in clause (i) of the
second sentence of Section 4.06 of the Agreement, (B) fail
to recommend the Consolidation, (C) recommend an Acquisition
Transaction or (D) have withdrawn or modified in a manner
adverse to Heritage the recommendation of the Board of
Directors of BCB with respect to the Agreement and
thereafter BCB's shareholders fail to approve the
Consolidation by the vote required by law at the meeting of
shareholders called for such purpose or such meeting is not
scheduled or is cancelled without the written consent of
Heritage; or
(iv) a person or group, other than Heritage
or an affiliate of Heritage, makes a bona fide Proposal and
thereafter, but before such Proposal has been Publicly
Withdrawn, BCB shall have breached any representation,
warranty, covenant or obligation contained in the Agreement
and such breach would entitle Heritage to terminate the
Agreement under Section 6.01(d) thereof (without regard to
the cure period provided for therein unless such cure is
promptly effected without jeopardizing consummation of the
Consolidation pursuant to the Agreement).
If more than one of the transactions giving rise to a Triggering
Event or a Preliminary Triggering Event under this Section 2 is
undertaken or effected, then all such transactions shall give
rise only to one Triggering Event or Preliminary Triggering
Event, as applicable, which Triggering Event or Preliminary
Triggering Event shall be deemed continuing for all purposes
hereunder until all such transactions are abandoned.
"Publicly Withdrawn" for purposes of this Section 2
shall mean an unconditional bona fide withdrawal of the Proposal
coupled with a public announcement of no further interest in
pursuing such Proposal or in acquiring any controlling influence
over BCB or in soliciting or inducing any other person (other
than Heritage or an affiliate of Heritage) to do so.
Notwithstanding the foregoing, the obligation of BCB to
issue Option Shares upon exercise of the Option shall be deferred
(but shall not terminate): (i) until the receipt of all required
governmental or regulatory approvals or consents necessary for
BCB to issue the Option Shares or Heritage to exercise the
Option, or until the expiration or termination of any waiting
period required by law, or (ii) so long as any injunction or
other order, decree or ruling issued by any federal or state
court of competent jurisdiction is in effect which prohibits the
sale or delivery of the Option Shares, and, in each case,
notwithstanding any provision to the contrary set forth herein,
the Option shall not expire or otherwise terminate with respect
to the Option Shares subject to any prior exercise.
BCB shall notify Heritage promptly in writing of the
occurrence of any Triggering Event known to it, it being
understood that the giving of such notice by BCB shall not be a
condition to the right of Heritage to exercise the Option. BCB
will not take any action which would have the effect of
preventing or disabling BCB from delivering the Option Shares to
Heritage upon exercise of the Option or otherwise performing its
obligations under this Stock Option Agreement, except to the
extent required by applicable securities and banking laws and
regulations. In the event Heritage wishes to exercise the
Option, Heritage shall send a written notice to BCB (the date of
which is hereinafter referred to as the "Notice Date") specifying
the total number of Option Shares it wishes to purchase and a
place and date between two and ten business days inclusive from
the Notice Date for the closing of such a purchase (a "Closing");
provided, however, that a Closing shall not occur prior to two
days after the later of receipt of any necessary regulatory
approvals or the expiration of any legally required notice or
waiting period, if any.
3. Repurchase of Option by BCB.
(a) Subject to the last sentence of Section 2(a),
at the request of Heritage at any time commencing upon the first
occurrence of a Repurchase Event (as defined in Section 3(d)) and
ending 18 months immediately thereafter, BCB shall repurchase
from Heritage (x) the Option and (y) all shares of Common Stock
purchased by Heritage pursuant hereto with respect to which
Heritage then has beneficial ownership. The date on which
Heritage exercises its rights under this Section 3 is referred to
as the "Request Date." Such repurchase shall be at an aggregate
price (the "Section 3 Repurchase Consideration") equal to the sum
of:
(i) the aggregate Purchase Price paid by
Heritage for any shares of Common Stock acquired pursuant to
the Option with respect to which Heritage then has
beneficial ownership;
(ii) the excess, if any, of (x) the
Applicable Price (as defined below) for each share of Common
Stock over (y) the Option Price (subject to adjustment
pursuant to Section 6), multiplied by the number of shares
of Common Stock with respect to which the Option has not
been exercised; and
(iii) the excess, if any, of the Applicable
Price over the Option Price (subject to adjustment pursuant
to Section 6) paid (or, in the case of Option Shares with
respect to which the Option has been exercised, but the
Closing has not occurred, payable) by Heritage for each
share of Common Stock with respect to which the Option has
been exercised and with respect to which Heritage then has
beneficial ownership, multiplied by the number of such
shares.
(b) If Heritage exercises it rights under this
Section 3, BCB shall, within ten (10) business days after the
Request Date, pay the Section 3 Repurchase Consideration to
Heritage in immediately available funds, and contemporaneously
with such payment, Heritage shall surrender to BCB the Option and
the certificate evidencing the shares of Common Stock purchased
thereunder with respect to which Heritage then has beneficial
ownership, and Heritage shall warrant that it has sole record and
beneficial ownership of such shares, and that the same are then
free and clear of all liens, claims, charges and encumbrances of
any kind whatsoever. Notwithstanding the foregoing, to the
extent that prior notification to or approval of any banking
agency or department of any federal or state government,
including without limitation the FRB, the OCC, the FDIC, or the
respective staffs thereof (the "Regulatory Authority"), is
required in connection with the payment of all or any portion of
the Section 3 Repurchase Consideration, Heritage shall have the
ongoing option to revoke its request for repurchase pursuant to
Section 3, in whole or in part, or to require that BCB deliver
from time to time that portion of the Section 3 Repurchase
Consideration that it is not then so prohibited from paying and
promptly file the required notice or application for approval and
expeditiously process the same (and each party shall cooperate
with the other in the filing of any such notice or application
and the obtaining of any such approval), in which case the ten
(10) business day period of time that would otherwise run
pursuant to the preceding sentence for the payment of the portion
of the Section 3 Repurchase Consideration shall run instead from
the date on which, as the case may be, any required notification
period has expired or been terminated or such approval has been
obtained and, in either event, any requisite waiting period shall
have passed. If any Regulatory Authority disapproves of any part
of BCB's proposed repurchase pursuant to this Section 3, BCB
shall promptly give notice of such fact to Heritage. If any
Regulatory Authority prohibits the repurchase pursuant to this
Section 3, BCB shall promptly give notice of such fact to
Heritage. If any Regulatory Authority prohibits the repurchase
in part but not in whole, then Heritage shall have the right
(i) to revoke the repurchase request or (ii) to the extent
permitted by such Regulatory Authority, determine whether the
repurchase should apply to the Option and/or Option Shares and to
what extent to each, and Heritage shall thereupon have the right
to exercise the Option as to the number of Option Shares for
which the Option was exercisable at the Request Date less the sum
of the number of shares covered by the Option in respect of which
payment has been made pursuant to Section 3(a)(ii) and the number
of shares covered by the portion of the Option (if any) that has
been repurchased. Heritage shall notify BCB of its determination
under the preceding sentence within five (5) business days of
receipt of notice of disapproval of the repurchase.
(c) For purposes of this Agreement, the
"Applicable Price" means the highest of (i) the highest price per
share of Common Stock paid for any such share by the person or
groups described in Section 3(d)(i), (ii) the price per share of
Common Stock received by a holder of Common Stock in connection
with any merger or other business combination transaction
described in Section 3(d)(ii), (iii) or (iv), or (iii) the
highest closing sales price per share of Common Stock quoted on
the Nasdaq Stock Market during the 40 business days preceding the
Request Date; provided, however, that in the event of a sale of
less than all of BCB's assets, the Applicable Price shall be the
sum of the price paid in such sale for such assets and the
current market value of the remaining assets of BCB as determined
by a nationally-recognized investment banking firm selected by
Heritage, divided by the number of shares of Common Stock
outstanding at the time of such sale. If the consideration to be
offered, paid or received pursuant to either of the foregoing
clauses (i) or (ii) shall be other than in cash, the value of
such consideration shall be determined in good faith by an
independent nationally-recognized investment banking firm
selected by Heritage and reasonably acceptable to BCB, which
determination shall be conclusive for all purposes of this
Agreement.
(d) As used herein, a Repurchase Event shall
occur if (i) any person or group (as such terms are defined in
the Exchange Act and the rules and regulations thereunder), other
than Heritage or an affiliate of Heritage, acquires beneficial
ownership (within the meaning of Rule 13d-3 under the Exchange
Act) of, or the right to acquire beneficial ownership of, 25% or
more of the then-outstanding shares of Common Stock, (ii) BCB
shall have merged or consolidated with any person, other than
Heritage or an affiliate of Heritage, and shall not be the
surviving or continuing corporation of such merger or
consolidation, (iii) any person, other than Heritage or an
affiliate of Heritage, shall have merged into BCB and BCB shall
be the surviving corporation, but, in connection with such
merger, the then-outstanding shares of Common Stock have been
changed into or exchanged for stock or other securities of BCB or
any other person or cash or any other property or the outstanding
shares of Common Stock immediately prior to such merger shall
after such merger represent less than 50% of the outstanding
shares and share equivalents of the surviving corporation or
(iv) BCB shall have sold or otherwise transferred more than 25%
of its consolidated assets to any person, other than Heritage or
an affiliate of Heritage.
4. Payment and Delivery of Certificates. At any
Closing hereunder, (a) Heritage will make payment to BCB of the
aggregate price for the Option Shares so purchased by wire
transfer of immediately available funds to an account designated
by BCB, (b) BCB will deliver to Heritage a stock certificate or
certificates representing the number of Option Shares so
purchased, registered in the name of Heritage or its designee, in
such denominations as were specified by Heritage in its notice of
exercise, and (c) Heritage will pay any transfer or other taxes
required by reason of the issuance of the Option Shares so
purchased.
A legend will be placed on each stock certificate
evidencing Option Shares issued pursuant to this Stock Option
Agreement, which legend will read substantially as follows:
"The shares of stock evidenced by this
certificate have not been the subject of a registration
statement filed under the Securities Act of 1933, as
amended (the "Act"), and declared effective by the
Securities and Exchange Commission. These shares may
not be sold, transferred or otherwise disposed of prior
to such time unless BCB Financial Services Corporation
receives an opinion of counsel acceptable to it stating
that an exemption from the registration provisions of
the Act is available for such transfer."
5. Registration Rights. Upon or after the occurrence
of a Triggering Event and upon receipt of a written request from
Heritage, BCB shall prepare and file as soon as practicable a
registration statement under the Securities Act of 1933 (the
"Securities Act") with the Securities and Exchange Commission
covering the Option and such number of Option Shares as Heritage
shall specify in its request, and BCB shall use its best efforts
to cause such registration statement to be declared effective in
order to permit the sale or other disposition of the Option and
the Option Shares, provided that Heritage shall in no event have
the right to have more than one such registration statement
become effective, and provided further that BCB shall not be
required to prepare and file any such registration statement in
connection with any proposed sale with respect to which counsel
to BCB delivers to BCB and to Heritage its opinion to the effect
that no such filing is required under applicable laws and
regulations with respect to such sale or disposition; provided
further, however, that BCB may delay any registration of Option
Shares above for a period not exceeding 90 days in the event that
BCB shall in good faith determine that any such registration
would adversely affect an offering or contemplated offering of
securities by BCB. Heritage shall provide all information
reasonably requested by BCB for inclusion in any registration
statement to be filed hereunder. In connection with such filing,
BCB shall use its reasonable best efforts to cause to be
delivered to Heritage such certificates, opinions, accountant's
letters and other documents as Heritage shall reasonably request
and as are customarily provided in connection with registration
of securities under the Securities Act. BCB shall provide to
Heritage such number of copies of the preliminary prospectus and
final prospectus and any amendments and supplements thereto as
Heritage may reasonably request.
All reasonable expenses incurred by BCB in complying
with the provisions of this Section 5, including, without
limitation, all registration and filing fees, reasonable printing
expenses, reasonable fees and disbursements of counsel for BCB
and blue sky fees and expenses, shall be paid by BCB.
Underwriting discounts and commissions to brokers and dealers
relating to the Option Shares, fees and disbursements of counsel
to Heritage and any other expenses incurred by Heritage in
connection with such filing shall be borne by Heritage. In
connection with such filing, BCB shall indemnify and hold
harmless Heritage against any losses, claims, damages or
liabilities, joint or several, to which Heritage may become
subject, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of any material
fact contained in any preliminary or final registration statement
or any amendment or supplement thereto, or arise out of or are
based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make
the statements therein not misleading; and BCB will reimburse
Heritage for any legal or other expense reasonably incurred by
Heritage in connection with investigating or defending any such
loss, claim, damage, liability or action; provided, however, that
BCB will not be liable in any case to the extent that any such
loss, claim, damage or liability arises out of or is based upon
an untrue statement or alleged untrue statement or omission or
alleged omission made in such preliminary or final registration
statement or such amendment or supplement thereto in reliance
upon and in conformity with written information furnished by or
on behalf of Heritage specifically for use in the preparation
thereof. Heritage will indemnify and hold harmless BCB to the
same extent as set forth in the immediately preceding sentence
but only with reference to written information furnished by or on
behalf of Heritage for use in the preparation of such preliminary
or final registration statement or such amendment or supplement
thereto; and Heritage will reimburse BCB for any legal or other
expense reasonably incurred by BCB in connection with
investigating or defending any such loss, claim, damage,
liability or action. Notwithstanding anything to the contrary
contained herein, no indemnifying party shall be liable for any
settlement effected without its prior written consent.
6. Adjustment Upon Changes in Capitalization. In the
event of any change in the Common Stock by reason of stock
dividends, split-ups, recapitalizations, combinations,
conversions, divisions, exchanges of shares or the like, then the
number and kind of Option Shares and the Option Price shall be
appropriately adjusted.
7. Filings and Consents. Each of Heritage and BCB
will use its reasonable best efforts to make all filings with,
and to obtain consents of, all third parties and governmental
authorities necessary to the consummation of the transactions
contemplated by this Stock Option Agreement. Within 10 days from
the date hereof, Heritage shall file a report of beneficial
ownership on Form 13D with the Securities and Exchange Commission
under the Exchange Act which discloses the rights of Heritage
hereunder.
8. Representations and Warranties of BCB. BCB hereby
represents and warrants to Heritage as follows:
(a) Due Authorization. BCB has full corporate
power and authority to execute, deliver and perform this Stock
Option Agreement and all corporate action necessary for
execution, delivery and performance of this Stock Option
Agreement has been duly taken by BCB. This Stock Option
Agreement constitutes a legal, valid and binding obligation of
BCB, enforceable against BCB in accordance with its terms (except
as may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer and similar laws
of general applicability relating to or affecting creditors'
rights or by general equity principles).
(b) Authorized Shares. BCB has taken all
necessary corporate action to authorize and reserve for issuance
all shares of Common Stock that may be issued pursuant to any
exercise of the Option.
9. Representations and Warranties of Heritage.
Heritage hereby represents and warrants to BCB that Heritage has
full corporate power and authority to execute, deliver and
perform this Stock Option Agreement and all corporate action
necessary for execution, delivery and performance of this Stock
Option Agreement has been duly taken by Heritage. This Stock
Option Agreement constitutes a legal, valid and binding
obligation of Heritage, enforceable against Heritage in
accordance with its terms (except as may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer and similar laws of general applicability relating to or
affecting creditors' rights or by general equity principles).
10. Specific Performance. The parties hereto
acknowledge that damages would be an inadequate remedy for a
breach of this Stock Option Agreement and that the obligations of
the parties hereto shall be specifically enforceable.
11. Entire Agreement. This Stock Option Agreement and
the Agreement constitute the entire agreement between the parties
with respect to the subject matter hereof and supersede all other
prior agreements and understandings, both written and oral, among
the parties or any of them with respect to the subject matter
hereof.
12. Assignment or Transfer. Heritage may not sell,
assign or otherwise transfer its rights and obligations
hereunder, in whole or in part, to any person or group of persons
other than to a subsidiary of Heritage. Heritage represents that
it is acquiring the Option for Heritage's own account and not
with a view to, or for sale in connection with, any distribution
of the Option or the Option Shares. Heritage is aware that
neither the Option nor the Option Shares is the subject of a
registration statement filed with, and declared effective by, the
Securities and Exchange Commission pursuant to Section 5 of the
Securities Act, but instead each is being offered in reliance
upon the exemption from the registration requirement provided by
Section 4(2) thereof and the representations and warranties made
by Heritage in connection therewith.
13. Amendment of Stock Option Agreement. By mutual
consent of the parties hereto, this Stock Option Agreement may be
amended in writing at any time, for the purpose of facilitating
performance hereunder or to comply with any applicable regulation
of any governmental authority or any applicable order of any
court or for any other purpose.
14. Validity. The invalidity or unenforceability of
any provision of this Stock Option Agreement shall not affect the
validity or enforceability of any other provisions of this Stock
Option Agreement, which shall remain in full force and effect.
15. Notices. All notices, requests, consents and
other communications required or permitted hereunder shall be in
writing and shall be deemed to have been duly given when
delivered personally, by telegram or telecopy, or by registered
or certified mail (postage prepaid, return receipt requested) to
the respective parties as follows:
(i) If to Heritage, to:
Heritage Bancorp, Inc.
120 South Centre Street
Pottsville, Pennsylvania 17901
Attention: Allen E. Kiefer, President
and Chief Executive Officer
Telecopy No.: (717) 622-2320
with a copy to:
Rhoads & Sinon LLP
One South Market Square, 12th Floor
Harrisburg, Pennsylvania 17108
Attention: Charles J. Ferry, Esquire
Telecopy No.: (717) 232-1459
(ii) If to BCB, to:
BCB Financial Services Corporation
The Madison Building
400 Washington Street
Reading, Pennsylvania 19601
Attention: Nelson R. Oswald, President
and Chief Executive Officer
Telecopy No.: (610) 378-9193
with copies to:
Stevens & Lee
One Glenhardie Corporate Center
Suite 202
1275 Drummers Lane
P.O. Box 236
Wayne, PA 19087
Attention: Jeffrey P. Waldron, Esquire
Telecopy No.: (610) 687-1384
or to such other address as the person to whom notice is to be
given may have previously furnished to the others in writing in
the manner set forth above (provided that notice of any change of
address shall be effective only upon receipt thereof).
16. Governing Law. This Stock Option Agreement shall
be governed by and construed in accordance with the domestic
internal law (but not the law of conflicts of law) of the
Commonwealth of Pennsylvania.
17. Captions. The captions in this Stock Option
Agreement are inserted for convenience and reference purposes,
and shall not limit or otherwise affect any of the terms or
provisions hereof.
18. Waivers and Extensions. The parties hereto may,
by mutual written consent, extend the time for performance of any
of the obligations or acts of either party hereto. Each party
may waive in writing (i) compliance with any of the covenants of
the other party contained in this Stock Option Agreement and/or
(ii) the other party's performance of any of its obligations set
forth in this Stock Option Agreement.
19. Parties in Interest. This Stock Option Agreement
shall be binding upon and inure solely to the benefit of each
party hereto, and, nothing in this Stock Option Agreement,
express or implied, is intended to confer upon any other person
any rights or remedies of any nature whatsoever under or by
reason of this Stock Option Agreement.
20. Counterparts. This Stock Option Agreement may be
executed in two or more counterparts, each of which shall be
deemed to be an original, but all of which shall constitute one
and the same agreement.
21. Expenses. Except as otherwise provided herein,
all costs and expenses incurred by the parties hereto in
connection with the transactions contemplated by this Stock
Option Agreement or the Option shall be paid by the party
incurring such cost or expense.
22. Defined Terms. Capitalized terms which are used
but not defined herein shall have the meanings ascribed to such
terms in the Agreement.
IN WITNESS WHEREOF, each of the parties hereto,
pursuant to resolutions adopted by its Board of Directors, has
caused this Stock Option Agreement to be executed by its duly
authorized officer as of the day and year first above written.
HERITAGE BANCORP, INC.
By/s/ Allen E. Kiefer
Allen E. Kiefer,
President and Chief
Executive Officer
BCB FINANCIAL SERVICES CORPORATION
By/s/ Nelson R. Oswald
Nelson R. Oswald,
Chairman, President and
Chief Executive Officer
<PAGE>
ANNEX D
FORM OF OPINION OF JANNEY MONTGOMERY SCOTT INCORPORATED
March __, 1998
Board of Directors
BCB Financial Services Corporation
400 Washington Street
Reading, Pennsylvania 19601
Members of the Board:
BCB Financial Services Corporation ("BCB") and Heritage
Bancorp, Inc. ("Heritage") have entered into an Agreement
providing for the proposed merger (the "Merger") of BCB and
Heritage. The terms of the Merger are set forth in the Agreement
and Plan of Consolidation (the "Agreement") dated November ,
1997, and provide that holders of BCB common stock receive the
exchange ratio (the "Exchange Ratio") as set forth in Section
1.02 (e)(i)(A) of the Agreement. You have requested our opinion,
from a financial point of view, as to the fairness of the
Exchange Ratio to be received in the Merger by the holders of BCB
common stock.
Janney Montgomery Scott Inc., as part of its investment
banking business, is engaged regularly in the valuation of
financial institutions and their securities in connection with
mergers and acquisitions. In addition, in the ordinary course of
our business as a broker-dealer, we may, from time to time, have
a long or short position in, and buy or sell, debt or equity
securities of BCB or Heritage for our own account or for the
accounts of our customers. We are familiar with BCB, having
lead-managed BCB's common stock offering in July 1997, and are
acting as financial advisor to BCB in rendering this opinion. We
will receive a fee from BCB for rendering this opinion.
In arriving at our opinion, we have, among other things:
(a) reviewed the historical financial
performances, current financial positions and general prospects
of BCB and Heritage;
(b) reviewed the Agreement;
(c) reviewed and analyzed historical market
prices and trading activity performance of BCB and Heritage;
(d) reviewed publicly-available information such
as annual reports, SEC filings and research reports;
(e) considered the terms and conditions of the
Merger between BCB and Heritage as compared with the terms and
conditions of comparable bank mergers and acquisitions;
(f) discussed with certain members of BCB's
senior management the strategic aspects of the Merger, including
estimated cost savings from the Merger;
(g) compared the respective results of operations
for BCB and Heritage with those of certain publicly traded
companies which were deemed relevant to BCB and Heritage;
(h) considered the pro forma effects of the
Merger on BCB's earnings, book value, tangible book value, cash
dividends per share and certain other balance sheet and
profitability ratios of BCB; and
(i) conducted such other financial analyses,
studies and investigations as we deemed appropriate.
Our opinion is given in reliance on information and
representations made or given by BCB and Heritage, and their
respective officers, directors, auditors, counsel and other
agents, and on filings, releases and other information issued by
BCB and Heritage including financial statements, financial
projections, and stock price data as well as certain information
from recognized independent sources. We have not independently
verified the information concerning BCB and Heritage nor other
data which we have considered in our review and, for purposes of
the opinion set forth below, we have assumed and relied upon the
accuracy and completeness of all such information and data.
Additionally, we assume that the Merger is, in all respects,
lawful under applicable law.
With regard to financial and other information relating
to the general prospects of BCB and Heritage, we have assumed
that such information has been reasonably prepared and reflects
the best currently available estimates and judgments of the
managements of BCB and Heritage as to BCB's and Heritage's most
likely future performance. In rendering our opinion, we have
assumed that in the course of obtaining the necessary regulatory
approvals for the Merger, and in preparation of the final proxy
statement, no conditions will be imposed that will have a
material adverse effect on the contemplated benefits of the
Merger to BCB.
Our opinion is based upon information provided to us by
the managements of BCB and Heritage, as well as market, economic,
financial, and other conditions as they exist and can be
evaluated only as of the date hereof and speaks to no other
period. Our opinion pertains only to the financial consideration
of the Merger and does not constitute a recommendation to the
Board of BCB and does not constitute a recommendation to BCB's
shareholders as to how such shareholders should vote on the
Agreement.
Based upon and subject to the foregoing, it is our
opinion that, as of the date hereof, the Exchange Ratio is fair,
from a financial point of view, to the holders of BCB common
stock.
Sincerely,
JANNEY MONTGOMERY SCOTT
INC.
<PAGE>
ANNEX E
FORM OF OPINION OF McCONNELL BUDD & DOWNES INC.
March __,1998
The Board of Directors
Heritage Bancorp, Inc.
120 South Centre Street
Pottsville, Pennsylvania 17901
The Board of Directors:
You have requested our opinion as to the fairness from a
financial point of view to the shareholders of Heritage Bancorp,
Inc. ("Heritage") of the exchange ratio governing the prospective
exchange of shares of Heritage Common Stock for shares of a to be
named new holding company ("Holding Company") common stock in
connection with the proposed affiliation of Heritage and BCB
Financial Services Corporation ("BCB") in a transaction (the
"Consolidation") to be accounted for as a pooling of interests.
The Consolidation will be consummated pursuant to an Agreement
and Plan of Consolidation (the "Agreement") dated as of November
18, 1997, by and between BCB and Heritage.
As is more specifically set forth in the Agreement, upon
consummation of the contemplated transaction, each outstanding
share of the common stock of Heritage, par value $5.00 per share
("Heritage Common Stock"), except for any dissenting shares and
except for shares held by BCB and its subsidiaries or by Heritage
and its subsidiaries (in both cases, other than shares held in a
fiduciary capacity or as a result of debts previously
contracted), will be entitled to be exchanged for 1.05 shares of
the common stock of Holding Company ("Holding Company Common
Stock") (the "Heritage Exchange Ratio") in a transaction, in
which, simultaneously, each outstanding share of the common stock
of BCB, par value $2.50 per share ("BCB Common Stock"), except
for any dissenting shares and except for shares held by Heritage
and its subsidiaries or by BCB and its subsidiaries ( in both
cases, other than shares held in a fiduciary capacity or as a
result of debts previously contracted), will be entitled to be
exchanged for 1.3335 shares of Holding Company Common Stock (the
"BCB Exchange Ratio").
In connection with the Consolidation all outstanding
options to purchase shares of Heritage Common Stock and BCB
Common Stock issued under Heritage's and BCB's respective
preexisting stock option plans will be converted on the Effective
Date into options to acquire that number of shares of Holding
Company Common Stock equal to the number of shares covered by the
option multiplied by the Heritage Exchange Ratio or the BCB
Exchange Ratio, as the case may be, and the exercise price for a
whole share of Holding Company Common Stock shall be the stated
exercise price for such option divided by the Heritage Exchange
Ratio or the BCB Exchange Ratio, as the case may be, such shares
to be issuable upon exercise in accordance with the terms of the
respective plans and grant agreements of Heritage and BCB under
which they were issued.
The reader is urged to carefully read all the terms of
the Agreement, which is reproduced in its entirety in Annex A of
the Proxy Statement/ Prospectus.
McConnell, Budd & Downes, Inc., ("MB&D") as part of its
investment banking business, is continually engaged in the
valuation of bank holding companies and banks, thrift holding
companies and thrifts and their securities in connection with
mergers and acquisitions, underwriting, private placements,
market making as a NASD market maker, secondary distributions of
listed securities and valuations for corporate, estate and other
purposes. Our experience and familiarity with Heritage includes
having worked continually as a general financial advisor to
Heritage (or its predecessors) since March of 1992 on a non-
exclusive contractual basis in connection with Heritage's
development and implementation of its strategic plan. During 1994
and 1995, MB&D represented Heritage (then Miners National
Bancorp, Inc.) in connection with its acquisition of Bankers
Financial Services Corporation. With respect to the contemplated
transaction, MB&D advised Heritage during a lengthy process of
evaluation of alternatives and negotiations leading up to the
proposed Consolidation. In the course of our role as financial
advisor to Heritage in connection with the proposed Consolidation
we have received fees for our services and will receive
additional fees contingent on the occurrence of certain defined
events. We will receive a fee in connection with the rendering of
this opinion. In the ordinary course of our business, we may,
from time to time, trade the equity securities of either or both
Heritage and BCB in our capacity as a NASD market maker and as a
broker dealer, for our own account, for the accounts of our
customers and for the accounts of individual employees of
McConnell, Budd & Downes, Inc. Accordingly we may, from time to
time, hold a long or short position in the equity securities of
either Heritage or BCB.
In arriving at our opinion, we have reviewed the
Agreement and the Joint Proxy Statement/Prospectus in
substantially the form to be mailed to Heritage shareholders. We
have also reviewed publicly available business, financial and
shareholder information relating to Heritage and its
subsidiaries, publicly available business, financial and
shareholder information relating to BCB and its subsidiaries and
certain financial information relating to Heritage provided by
Heritage's management as well as certain financial information
relating to BCB provided by BCB's management. In addition, we
have reviewed certain other information, including internal
reports and documents of Heritage and certain management prepared
financial information provided to us by Heritage. We have also
met with and had discussions with members of the senior
management of each of Heritage and BCB to discuss their past and
current business operations, current financial condition and
future prospects. In connection with the foregoing, we have
reviewed the annual reports to shareholders of Heritage for the
calendar years ended December 31, 1994, 1995 and 1996 and the
annual report on form 10-K for the calendar year ended December
31, 1997. We have similarly reviewed the annual reports of BCB
for the calendar years ended December 31, 1994, 1995 and 1996. In
addition we have reviewed the unaudited quarterly reports to
shareholders for the first second and third quarters of 1997
issued by Heritage and BCB. In addition we reviewed the
prospectus concerning a public offering of common stock completed
during 1997 by BCB. We have reviewed and studied the historical
stock prices and trading volumes of the common stock of both
Heritage and BCB. We also considered the current state of and
future prospects for the economy of Pennsylvania and the
demographics of the relevant market areas for Heritage and BCB in
particular. We have also conducted such other studies, analyses
and investigations as we deemed appropriate under the
circumstances surrounding this proposed transaction. For
additional information concerning the analysis which we
conducted, we direct the reader's attention to the section of the
Proxy Statement/Prospectus titled "Opinions of Financial
Advisors" which provides more detail concerning our review and
analysis.
In the course of our review and analysis we considered,
among other things, such topics as relative capitalization,
capital adequacy, profitability, availability of non-interest
income, relative asset quality, adequacy of the reserve for loan
losses and the composition of the loan portfolio of each of
Heritage and BCB. We also considered estimates of cost savings
and (to a lesser extent) revenue enhancements which might result
from a consolidation of Heritage and BCB, which were provided to
us by the management of Heritage and BCB. In the conduct of our
review and analysis we have relied upon and assumed, without
independent verification, the accuracy and completeness of the
financial information provided to us by Heritage and BCB or
otherwise publicly obtainable. In reaching our opinion, we have
not assumed any responsibility for the independent verification
of such information nor have we completed any independent
valuation or appraisal of any of the assets or the liabilities of
either Heritage or BCB nor have we obtained from any other
source, any appraisals of the assets or liabilities of either
Heritage or BCB. We have also relied on the respective
managements of Heritage and BCB as to the reasonableness of
various financial and operating forecasts, cost savings estimates
and of the assumptions on which they are based, which were
provided to us for use in our analyses.
In the course of rendering this opinion, which is being
rendered prior to the receipt of certain required regulatory
approvals necessary before consummation of the transaction, we
have assumed that no conditions will be imposed by any regulatory
agency in connection with its approval of the transaction that
will have a material adverse effect on the results of operations,
the financial condition or the prospects of Heritage or BCB
following consummation of the transaction.
Based upon and subject to the foregoing, it is our
opinion, that as of the date of this letter, the exchange ratio
of 1.05:1 is fair to the shareholders of Heritage from a
financial point of view in a pooling transaction in which the
corresponding exchange ratio for the shareholders of BCB is
1.3335:1.
Very truly yours,
McCONNELL, BUDD & DOWNES, INC.
By:_______________________
David A. Budd
Managing Director
<PAGE>
ANNEX F
SECTION 1930 OF THE
PENNSYLVANIA BUSINESS CORPORATION LAW OF 1988
Section 1930. Dissenters rights.
(a) General rule.--If any shareholder of a domestic
business corporation that is to be a party to a merger or
consolidation pursuant to a plan of merger or consolidation
objects to the plan of merger or consolidation and complies with
the provisions of Subchapter D of Chapter 15 [FN 1] (relating to
dissenters rights), the shareholder shall be entitled to the
rights and remedies of dissenting shareholders therein provided,
if any. See also section 1906(c) (relating to dissenters rights
upon special treatment).
(b) Plans adopted by directors only.--Except as otherwise
provided pursuant to section 1571(c) (relating to grant of
optional dissenters rights), Subchapter D of Chapter 15 shall not
apply to any of the shares of a corporation that is a party to a
merger or consolidation pursuant to section 1924(b)(1)(i)
(relating to adoption by board of directors).
(c) Cross references.--See sections 1571(b) (relating to
exceptions) and 1904 (relating to de facto transaction doctrine
abolished).
____________________
1 15 Pa. C.S.A. Section 1571 et seq.
<PAGE>
SUBCHAPTER D OF CHAPTER 15 OF THE
PENNSYLVANIA BUSINESS CORPORATION LAW OF 1988
Subchapter D.-Dissenters Rights
Section 1571. Application and effect of subchapter.
(a) General rule.--Except as otherwise provided in
subsection (b), any shareholder of a business corporation shall
have the right to dissent from, and to obtain payment of the fair
value of his shares in the event of, any corporate action, or to
otherwise obtain fair value for his shares, where this part
expressly provides that a shareholder shall have the rights and
remedies provided in this subchapter. See:
Section 1906(c) (relating to dissenters rights upon
special treatment).
Section 1930 (relating to dissenters rights).
Section 1931(d) (relating to dissenters rights in share
exchanges).
Section 1932(c) (relating to dissenters rights in asset
transfers).
Section 1952(d) (relating to dissenters rights in
division).
Section 1962(c) (relating to dissenters rights in
conversion).
Section 2104(b) (relating to procedure).
Section 2324 (relating to corporation option where a
restriction on transfer of a security is held invalid).
Section 2325(b) (relating to minimum vote requirement).
Section 2704(c) (relating to dissenters rights upon
election).
Section 2705(d) (relating to dissenters rights upon
renewal of election).
Section 2907(a) (relating to proceedings to terminate
breach of qualifying conditions).
Section 7104(b)(3) (relating to procedure).
(b) Exceptions.--
(1) Except as otherwise provided in paragraph (2), the
holders of the shares of any class or series of shares that, at
the record date fixed to determine the shareholders entitled to
notice of and to vote at the meeting at which a plan specified in
any of section 1930, 1931(d), 1932(c) or 1952(d) is to be voted
on, are either:
(i) listed on a national securities exchange; or
(ii) held of record by more than 2,000
shareholders;
shall not have the right to obtain payment of the fair value of
any such shares under this subchapter.
(2) Paragraph (1) shall not apply to and dissenters
rights shall be available without regard to the exception
provided in that paragraph in the case of:
(i) Shares converted by a plan if the shares are
not converted solely into shares of the acquiring,
surviving, new or other corporation or solely into such
shares and money in lieu of fractional shares.
(ii) Shares of any preferred or special class
unless the articles, the plan or the terms of the
transaction entitle all shareholders of the class to vote
thereon and require for the adoption of the plan or the
effectuation of the transaction the affirmative vote of a
majority of the votes cast by all shareholders of the class.
(iii) Shares entitled to dissenters rights under
section 1906(c) (relating to dissenters rights upon special
treatment).
(3) The shareholders of a corporation that acquires by
purchase, lease, exchange or other disposition all or
substantially all of the shares, property or assets of another
corporation by the issuance of shares, obligations or otherwise,
with or without assuming the liabilities of the other corporation
and with or without the intervention of another corporation or
other person, shall not be entitled to the rights and remedies of
dissenting shareholders provided in this subchapter regardless of
the fact, if it be the case, that the acquisition was
accomplished by the issuance of voting shares of the corporation
to be outstanding immediately after the acquisition sufficient to
elect a majority or more of the directors of the corporation.
(c) Grant of optional dissenters rights.--The bylaws or a
resolution of the board of directors may direct that all or a
part of the shareholders shall have dissenters rights in
connection with any corporate action or other transaction that
would otherwise not entitle such shareholders to dissenters
rights.
(d) Notice of dissenters rights.--Unless otherwise provided
by statute, if a proposed corporate action that would give rise
to dissenters rights under this subpart is submitted to a vote at
a meeting of shareholders, there shall be included in or enclosed
with the notice of meeting:
(1) a statement of the proposed action and a statement
that the shareholders have a right to dissent and obtain
payment of the fair value of their shares by complying with
the terms of this subchapter; and
(2) a copy of this subchapter.
(e) Other statutes.--The procedures of this subchapter
shall also be applicable to any transaction described in any
statute other than this part that makes reference to this
subchapter for the purpose of granting dissenters rights.
(f) Certain provisions of articles ineffective.--This
subchapter may not be relaxed by any provision of the articles.
(g) Cross references.--See sections 1105 (relating to
restriction on equitable relief), 1904 (relating to de facto
transaction doctrine abolished) and 2512 (relating to dissenters
rights procedure).
Section 1572. Definitions.
The following words and phrases when used in this subchapter
shall have the meanings given to them in this section unless the
context clearly indicates otherwise:
"Corporation." The issuer of the shares held or owned
by the dissenter before the corporate action or the
successor by merger, consolidation, division, conversion or
otherwise of that issuer. A plan of division may designate
which of the resulting corporations is the successor
corporation for the purposes of this subchapter. The
successor corporation in a division shall have sole
responsibility for payments to dissenters and other
liabilities under this subchapter except as otherwise
provided in the plan of division.
"Dissenter." A shareholder or beneficial owner who is
entitled to and does assert dissenters rights under this
subchapter and who has performed every act required up to
the time involved for the assertion of those rights.
"Fair value." The fair value of shares immediately
before the effectuation of the corporate action to which the
dissenter objects taking into account all relevant factors,
but excluding any appreciation or depreciation in
anticipation of the corporate action.
"Interest." Interest from the effective date of the
corporate action until the date of payment at such rate as
is fair and equitable under all of the circumstances, taking
into account all relevant factors including the average rate
currently paid by the corporation on its principal bank
loans.
Section 1573. Record and beneficial holders and owners.
(a) Record holders of shares.--A record holder of shares of
a business corporation may assert dissenters rights as to fewer
than all of the shares registered in his name only if he dissents
with respect to all the shares beneficially owned by any one
person and discloses the name and address of the person or
persons on whose behalf he dissents. In that event, his rights
shall be determined as if the shares as to which he has dissented
and his other shares were registered in the names of different
shareholders.
(b) Beneficial owners of shares.--A beneficial owner of
shares of a business corporation who is not the record holder may
assert dissenters rights with respect to shares held on his
behalf and shall be treated as a dissenting shareholder under the
terms of this subchapter if he submits to the corporation not
later than the time of the assertion of dissenters rights a
written consent of the record holder. A beneficial owner may not
dissent with respect to some but less than all shares of the same
class or series owned by the owner, whether or not the shares so
owned by him are registered in his name.
Section 1574. Notice of intention to dissent.
If the proposed corporate action is submitted to a vote at a
meeting of shareholders of a business corporation, any person who
wishes to dissent and obtain payment of the fair value of his
shares must file with the corporation, prior to the vote, a
written notice of intention to demand that he be paid the fair
value of his shares if the proposed action is effectuated, must
effect no change in the beneficial ownership of his shares from
the date of such filing continuously through the effective date
of the proposed action and must refrain from voting his shares in
approval of such action. A dissenter who fails in any respect
shall not acquire any right to payment of the fair value of his
shares under this subchapter. Neither a proxy nor a vote against
the proposed corporate action shall constitute the written notice
required by this section.
Section 1575. Notice to demand payment.
(a) General rule.--If the proposed corporate action is
approved by the required vote at a meeting of shareholders of a
business corporation, the corporation shall mail a further notice
to all dissenters who gave due notice of intention to demand
payment of the fair value of their shares and who refrained from
voting in favor of the proposed action. If the proposed
corporate action is to be taken without a vote of shareholders,
the corporation shall send to all shareholders who are entitled
to dissent and demand payment of the fair value of their shares a
notice of the adoption of the plan or other corporate action. In
either case, the notice shall:
(1) State where and when a demand for payment must be
sent and certificates for certificated shares must be
deposited in order to obtain payment.
(2) Inform holders of uncertificated shares to what
extent transfer of shares will be restricted from the time
that demand for payment is received.
(3) Supply a form for demanding payment that includes
a request for certification of the date on which the
shareholder, or the person on whose beneficial shareholder
dissents, acquired beneficial ownership of the shares.
(4) Be accompanied by a copy of this subchapter.
(b) Time for receipt of demand for payment.--The time set
for receipt of the demand and deposit of certificated shares
shall be not less than 30 days from the mailing of the notice.
Section 1576. Failure to comply with notice to demand payment,
etc.
(a) Effect of failure of shareholder to act.--A shareholder
who fails to timely demand payment, or fails (in the case of
certificated shares) to timely deposit certificates, as required
by a notice pursuant to section 1575 (relating to notice to
demand payment) shall not have any right under this subchapter to
receive payment of the fair value of his shares.
(b) Restriction on uncertificated shares.--If the shares
are not represented by certificates, the business corporation may
restrict their transfer from the time of receipt of demand for
payment until effectuation of the proposed corporate action or
the release of restrictions under the terms of section 1577(a)
(relating to failure to effectuate corporate action).
(c) Rights retained by shareholder.--The dissenter shall
retain all other rights of a shareholder until those rights are
modified by effectuation of the proposed corporate action.
Section 1577. Release of restrictions or payment for shares.
(a) Failure to effectuate corporate action.--Within 60 days
after the date set for demanding payment and depositing
certificates, if the business corporation has not effectuated the
proposed corporate action, it shall return any certificates that
have been deposited and release uncertificated shares from any
transfer restrictions imposed by reason of the demand for
payment.
(b) Renewal of notice to demand payment.--When uncertified
shares have been released from transfer restrictions and
deposited certificates have been returned, the corporation may at
any later time send a new notice conforming to the requirements
of section 1575 (relating to notice to demand payment), with like
effect.
(c) Payment of fair value of shares.--Promptly after
effectuation of the proposed corporate action, or upon timely
receipt of demand for payment if the corporate action has already
been effectuated, the corporation shall either remit to
dissenters who have made demand and (if their shares are
certificated) have deposited their certificates the amount that
the corporation estimates to be the fair value of the shares, or
give written notice that no remittance under this section will be
made. The remittance or notice shall be accompanied by:
(1) The closing balance sheet and statement of income
of the issuer of the shares held or owned by the dissenter
for a fiscal year ending not more than 16 months before the
date of remittance or notice together with the latest
available interim financial statements.
(2) A statement of the corporation's estimate of the
fair value of the shares.
(3) A notice of the right of the dissenter to demand
payment or supplemental payment, as the case may be,
accompanied by a copy of this subchapter.
(d) Failure to make payment.--If the corporation does not
remit the amount of its estimate of the fair value of the shares
as provided by subsection (c), it shall return any certificates
that have been deposited and release uncertificated shares from
any transfer restrictions imposed by reason of the demand for
payment. The corporation may make a notation on any such
certificate or on the records of the corporation relating to any
such uncertificated shares that such demand has been made. If
shares with respect to which notation has been so made shall be
transferred, each new certificate issued therefor or the records
relating to any transferred uncertificated shares shall bear a
similar notation, together with the name of the original
dissenting holder or owner of such shares. A transferee of such
shares shall not acquire by such transfer any rights in the
corporation other than those which the original dissenter had
after making demand for payment of their fair value.
Section 1578. Estimate by dissenter of fair value of shares.
(a) General rule.--If the business corporation gives notice
of its estimate of the fair value of the shares, without
remitting such amount, or remits payment of its estimate of the
fair value of a dissenter's shares as permitted by
section 1577(c) (relating to payment of fair value of shares) and
the dissenter believes that the amount stated or remitted is less
than the fair value of his shares, he may send to the corporation
his own estimate of the fair value of the shares, which shall be
deemed a demand for payment of the amount or the deficiency.
(b) Effect of failure to file estimate.--Where the
dissenter does not file his own estimate under subsection (a)
within 30 days after the mailing by the corporation of its
remittance or notice, the dissenter shall be entitled to no more
than the amount stated in the notice or remitted to him by the
corporation.
Section 1579. Valuation proceedings generally.
(a) General rule.--Within 60 days after the latest of:
(1) effectuation of the proposed corporate action;
(2) timely receipt of any demands for payment under
section 1575 (relating to notice to demand payment); or
(3) timely receipt of any estimates pursuant to
section 1578 (relating to estimate by dissenter of fair
value of shares);
if any demands for payment remain unsettled, the business
corporation may file in court an application for relief
requesting that the fair value of the shares be determined by the
court.
(b) Mandatory joinder of dissenters.--All dissenters,
wherever residing, whose demands have not been settled shall be
made parties to the proceeding as in an action against their
shares. A copy of the application shall be served on each such
dissenter. If a dissenter is a nonresident, the copy may be
served on him in the manner provided or prescribed by or pursuant
to 42 Pa.C.S. Ch. 53 (relating to bases of jurisdiction and
interstate and international procedure).
(c) Jurisdiction of the court.--The jurisdiction of the
court shall be plenary and exclusive. The court may appoint an
appraiser to receive evidence and recommend a decision on the
issue of fair value. The appraiser shall have such power and
authority as may be specified in the order of appointment or in
any amendment thereof.
(d) Measure of recovery.--Each dissenter who is made a
party shall be entitled to recover the amount by which the fair
value of his shares is found to exceed the amount, if any,
previously remitted, plus interest.
(e) Effect of corporation's failure to file application.--
If the corporation fails to file an application as provided in
subsection (a), any dissenter who made a demand and who has not
already settled his claim against the corporation may do so in
the name of the corporation at any time within 30 days after the
expiration of the 60-day period. If a dissenter does not file an
application within the 30-day period, each dissenter entitled to
file an application shall be paid the corporation's estimate of
the fair value of the shares and no more, and may bring an action
to recover any amount not previously remitted.
Section 1580. Costs and expenses of valuation proceedings.
R\L General rule.--The costs and expenses of any proceeding
under section 1579 (relating to valuation proceedings generally)
including the reasonable compensation and expenses of the
appraiser appointed by the court, shall be determined by the
court and assessed against the business corporation except that
any part of the costs and expenses may be apportioned and
assessed as the court deems appropriate against all or some of
the dissenters who are parties and whose action in demanding
supplemental payment under section 1578 (relating to estimate by
dissenter of fair value of shares) the court finds to be
dilatory, obdurate, arbitrary, vexatious or in bad faith.
(b) Assessment of counsel fees and expert fees where lack
of good faith appears.--Fees and expenses of counsel and of
experts for the respective parties may be assessed as the court
deems appropriate against the corporation and in favor of any or
all dissenters if the corporation failed to comply substantially
with the requirements of this subchapter and may be assessed
against either the corporation or a dissenter, in favor of any
other party, if the court finds that the party against whom the
fees and expenses arc assessed acted in bad faith or in a
dilatory, obdurate, arbitrary or vexatious manner in respect to
the rights provided by this subchapter.
(c) Award of fees for benefits to other dissenters.--If the
court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated and
should not be assessed against the corporation, it may award to
those counsel reasonable fees to be paid out of the amounts
awarded to the dissenters who were benefitted.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Pennsylvania law provides that a Pennsylvania corporation
may indemnify directors, officers, employees and agents of the
corporation against liabilities they may incur in such capacities
for any action taken or any failure to act, whether or not the
corporation would have the power to indemnify the person under
any provision of law, unless such action or failure to act is
determined by a court to have constituted recklessness or willful
misconduct. Pennsylvania law also permits the adoption of a
bylaw amendment, approved by shareholders, providing for the
elimination of a director's liability for monetary damages for
any action taken or any failure to take any action unless (1) the
director has breached or failed to perform the duties of his
office and (2) the breach or failure to perform constitutes self-
dealing, willful misconduct or recklessness.
The bylaws of each of BCB and Heritage provide for
(1) indemnification of directors, officers, employees and agents
of the registrant and its subsidiaries and (2) the elimination of
a director's liability for monetary damages, to the fullest
extent permitted by Pennsylvania law.
Directors and officers of each of BCB and Heritage are also
insured against certain liabilities for their actions, as such,
by insurance policies obtained by BCB and Heritage.
Item 21. Exhibits and Financial Statement Schedules.
(a) Exhibits.
2.1 Agreement and Plan of Consolidation dated as of
November 18, 1997, between BCB and Heritage
(included as Annex A to the Proxy Statement/
Prospectus). Schedules are omitted; BCB and
Heritage agree to furnish copies of such schedules
to the Commission upon request.*
2.2 Stock Option Agreement dated November 18, 1997,
between BCB and Heritage (included as Annex B to
the Proxy Statement/Prospectus).*
2.3 Stock Option Agreement dated November 18, 1997,
between Heritage and BCB (included as Annex C to
the Proxy Statement/Prospectus).*
3.1 Form of Articles of Incorporation of the Holding
Company.*
3.2 Form of Bylaws of the Holding Company.*
5. Opinion of Stevens & Lee re: Validity.
8. Form of opinion of Stevens & Lee re: tax matters.
23.1 Consents of Beard & Company, Inc.
23.2 Consent of Stevens & Lee (contained in Exhibit 5).
23.3 Consent of Stevens & Lee.
23.4 Consent of Janney Montgomery Scott Incorporated.
23.5 Consent of McConnell Budd & Downes Inc.
24.1 Powers of Attorney of Directors and Officers
(included on signature page hereof).*
99.1 Form of Opinion of Janney Montgomery Scott
Incorporated (included as Annex D to Proxy
Statement/ Prospectus).
99.2 Form Opinion of McConnell Budd & Downes Inc.,
dated (included as Annex E to Proxy Statement/
Prospectus).
99.3 Form of Proxy for the Special Meeting of
Shareholders of BCB.*
99.4 Form of Proxy for the Special Meeting of
Shareholders of Heritage.*
99.5 Question and Answer Brochure.
____________________
* Previously filed.
(b) Financial Statement Schedules.
None required.
Item 22. Undertakings.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or
sales are being made, a post-effective amendment to this
registration statement:
(i) To include any prospectus required by
section 10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any fact 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;
(iii) To include any material information with
respect to the plan of distribution not previously disclosed
in the registration statement or any material change to such
information in the registration statement.
(2) That, for the purpose of determining any liability
under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-
effective amendment any of the securities being registered which
remain unsold at the termination of the offering.
(b) The undersigned registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act of
1933, each filing of the registrant's annual report pursuant to
Section 13(a) or Section 15(d) of the Securities Exchange Act of
1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities
Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(c) (1) The undersigned registrant hereby undertakes as
follows: that prior to any public reoffering of the
securities registered hereunder through use of a prospectus
which is a part of this registration statement, by any
person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such
reoffering prospectus will contain the information called
for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other Items of
the applicable form.
(2) The registrant undertakes that every prospectus
(i) that is filed pursuant to paragraph (1) immediately
preceding, or (ii) that purports to meet the requirements of
section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed
as a part of an amendment to the registration statement and
will not be used until such amendment is effective, and
that, for purposes of determining any liability under the
Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial
bona fide offering thereof.
(d) Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to directors,
officers and controlling persons of the registrant pursuant to
the bylaws of the registrant, or otherwise, the registrant has
been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
(e) The undersigned registrant hereby undertakes to respond
to requests for information that is incorporated by reference
into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this
Form, within one business day of receipt of such request, and to
send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the
registration statement through the date of responding to the
request.
(f) The undersigned registrant hereby undertakes to supply
by means of a post-effective amendment all information concerning
a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration
statement when it became effective.
<PAGE>
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 the City of Reading, Commonwealth of Pennsylvania,
on January 15, 1998.
BCB Financial Services Corporation
(Registrant)
By /s/ Nelson R. Oswald
Nelson R. Oswald
Chairman and Chief Executive
Officer
KNOWN ALL MEN BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints Nelson R.
Oswald, Robert D. McHugh, Jr. and Jeffrey P. Waldron, Esquire,
and each of them, his true and lawful attorney-in-fact, as agent
with full power of substitution and resubstitution for him and in
his name, place and stead, in any and all capacity, to sign any
or all amendments to this Registration Statement and to file the
same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange
Commission, granting unto such attorney-in-fact and agent full
power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the
premises, as fully and to all intents and purposes as they might
or could do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents, or their substitute or
substitutes, may lawfully do or cause to be done by virtue
hereof.
Signature Title Date
/s/ Nelson R. Oswald Chairman, January 15, 1998
Nelson R. Oswald Chief Executive
Officer
/s/ Harold C. Bossard* Director January 15, 1998
Harold C. Bossard
/s/ Edward J. Edwards* Director January 15, 1998
Edward J. Edwards
/s/ Lewis R. Frame, Jr.* Director January 15, 1998
Lewis R. Frame, Jr.
/s/ Ivan H. Gordon* Director January 15, 1998
Ivan H. Gordon
/s/ Jeffrey W. Hayes* Director January 15, 1998
Jeffrey W. Hayes
/s/ Alfred B. Mast* Director January 15, 1998
Alfred B. Mast
/s/ Wesley R. Pace* Director January 15, 1998
Wesley R. Pace
/s/ Randall S. Weeber* Director January 15, 1998
Randall S. Weeber
/s/ Floyd S. Weber* Director January 15, 1998
Floyd S. Weber
/s/ Robert D. McHugh, Jr.* Chief Financial January 15, 1998
Robert D. McHugh, Jr. Officer
/s/ Donna L. Rickert* Chief Accounting January 15, 1998
Donna L. Rickert, CPA Officer
* Executed under power of attorney
<PAGE>
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 the City of Pottsville, Commonwealth of
Pennsylvania, on January 15, 1998.
Heritage Bancorp, Inc.
(Registrant)
By:Allen E. Kiefer
Allen E. Kiefer
President and Chief Executive
Officer
KNOWN ALL MEN BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints Allen E. Kiefer,
David L. Scott and Charles J. Ferry, Esquire, and each of them,
his true and lawful attorney-in-fact, as agent with full power of
substitution and resubstitution for him and in his name, place
and stead, in any and all capacity, to sign any or all amendments
to this Registration Statement and to file the same, with all
exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto such
attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to
be done in and about the premises, as fully and to all intents
and purposes as they might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and
agents, or their substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Signature Title Date
/s/ Allen E. Kiefer President, January 15, 1998
Allen E. Kiefer Chief Executive
Officer and Director
/s/ Ermano O. Agosti Director January 15, 1998
Ermano O. Agosti
/s/ Richard D. Biever Director January 15, 1998
Richard D. Biever
/s/ Albert L. Evans, Jr. Director January 15, 1998
Albert L. Evans, Jr.
/s/Richard T. Fenstermacher Director January 15, 1998
Richard T. Fenstermacher
/s/ Frederick A. Gosch Director January 15, 1998
Frederick A. Gosch
/s/ Joseph P. Schlitzer Director January 15, 1998
Joseph P. Schlitzer
/s/ Richard A. Ketner Director January 15, 1998
Richard A. Ketner
/s/ Robert F. Koehler Director January 15, 1998
Robert F. Koehler
Director January 15, 1998
Joanne C. McCloskey
/s/ Raman V. Patel Director January 15, 1998
Raman V. Patel
/s/ William J. Zimmerman Director January 15, 1998
William J. Zimmerman
/s/ David L. Scott Chief Financial January 15, 1998
David L. Scott, CPA Officer (Principal
Accounting Officer)
<PAGE>
EXHIBIT INDEX
Number Description
2.1 Agreement and Plan of Consolidation dated as
of November 18, 1997, between BCB and
Heritage (included as Annex A to the Proxy
Statement/ Prospectus). Schedules are
omitted; BCB and Heritage agree to furnish
copies of such schedules to the Commission
upon request.*
2.2 Stock Option Agreement dated November 18,
1997, between BCB and Heritage (included as
Annex B to the Proxy Statement/Prospectus).*
2.3 Stock Option Agreement dated November 18,
1997, between Heritage and BCB (included as
Annex C to the Proxy Statement/Prospectus).*
3.1 Form of Articles of Incorporation of the
Holding Company.*
3.2 Form of Bylaws of the Holding Company.*
5. Opinion of Stevens & Lee re: Validity.
8. Form of opinion of Stevens & Lee re: tax matters.
23.1 Consents of Beard & Company, Inc.
23.2 Consent of Stevens & Lee (contained in
Exhibit 5).
23.3 Consent of Stevens & Lee.
23.4 Consent of Janney Montgomery Scott
Incorporated.
23.5 Consent of McConnell Budd & Downes Inc.
24.1 Powers of Attorney of Directors and Officers
(included on signature page hereof).*
99.1 Form of Opinion of Janney Montgomery Scott
Incorporated (included as Annex D to Proxy
Statement/ Prospectus).
99.2 Form of Opinion of McConnell Budd & Downes
Inc., (included as Annex E to Proxy
Statement/Prospectus).
99.3 Form of Proxy for the Special Meeting of
Shareholders of BCB.*
99.4 Form of Proxy for the Special Meeting of
Shareholders of Heritage.*
99.5 Question and Answer Brochure.
____________________
* Previously filed.
