<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 19, 1998
REGISTRATION NO. 333-44697
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2 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)
<TABLE>
<S> <C> <C>
PENNSYLVANIA 6720 23-2444807
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification
incorporation or organization) Classification Code Number) No.)
</TABLE>
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)
<TABLE>
<S> <C> <C>
PENNSYLVANIA 6720 23-2228542
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.)
incorporation or organization) Classification Code Number)
</TABLE>
------------------------------
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 Main Street
Bancorp, Inc.
<TABLE>
<CAPTION>
WITH COPY TO:
<S> <C>
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, TWELFTH FLOOR
READING, PA 19603 ONE SOUTH MARKET SQUARE, P.O. BOX 1146
HARRISBURG, PA 17108-1146
</TABLE>
------------------------------
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
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION FEE
OF SECURITIES TO BE REGISTERED REGISTERED (1) PER UNIT OFFERING PRICE (2)
<S> <C> <C> <C> <C>
Common Stock, par value $1.00 per share........... 9,965,849 shares Not applicable Not applicable $59,605
</TABLE>
(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>
[LOGO]
BCB FINANCIAL SERVICES CORPORATION
400 Washington Street
Reading, Pennsylvania 19601
March 20, 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 Main Street
Bancorp, Inc., 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,
[LOGO]
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 Main Street Bancorp, Inc., 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
[LOGO]
Harold C. Bossard
SECRETARY
Reading, Pennsylvania
March 20, 1998
<PAGE>
[LETTERHEAD OF HERITAGE]
March 20, 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/Schuylkill Haven Highway, 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 Main Street Bancorp, Inc., 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,
[LOGO]
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/Schuylkill Haven HIghway, 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 Main Street
Bancorp, Inc., 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
[LOGO]
Richard A. Ketner,
Secretary
Pottsville, Pennsylvania
March 20, 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 Main Street Bancorp, Inc., 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.
BCB and Heritage expect to apply for quotation on the Nasdaq Stock Market
National Market System for the Holding Company Common Stock. The parties expect
receipt of Nasdaq approval prior to the effective date of the Consolidation.
This Proxy Statement/Prospectus and the accompanying form of proxy are first
being mailed to shareholders of BCB and Heritage on or about March 20, 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 20, 1998.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
AVAILABLE INFORMATION...................................................................................... 1
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................................................ 1
CAUTIONARY STATEMENTS CONCERNING FORWARD-LOOKING INFORMATION............................................... 2
SUMMARY.................................................................................................... 3
The Companies............................................................................................ 3
The Meetings............................................................................................. 4
The Consolidation........................................................................................ 6
Certain Related Transactions............................................................................. 10
Interests of Certain Persons in the Consolidation........................................................ 11
Comparative Per Common Share Data........................................................................ 12
SELECTED FINANCIAL DATA.................................................................................... 15
PRO FORMA COMBINED FINANCIAL INFORMATION................................................................... 19
Pro Forma Unaudited Combined Condensed Balance Sheet as of December 31, 1997............................. 21
Pro Forma Unaudited Combined Condensed Statements of Income for the Years Ended December 31, 1997, 1996
and 1995............................................................................................... 22
THE MEETINGS............................................................................................... 24
Date, Time and Place..................................................................................... 24
Matters To Be Considered at the Special Meetings......................................................... 24
Votes Required........................................................................................... 24
Voting of Proxies........................................................................................ 25
Revocability of Proxies.................................................................................. 26
Record Date; Stock Entitled to Vote; Quorum.............................................................. 26
Solicitation of Proxies.................................................................................. 26
THE CONSOLIDATION.......................................................................................... 28
Background of and Reasons for the Consolidation; Recommendations of the Boards of Directors.............. 28
Terms of the Consolidation............................................................................... 34
Opinions of Financial Advisors........................................................................... 35
Effective Date of the Consolidation...................................................................... 45
Exchange of Stock Certificates........................................................................... 45
Conditions to the Consolidation.......................................................................... 46
Regulatory Approvals..................................................................................... 47
Representations and Warranties........................................................................... 48
Business Pending the Consolidation....................................................................... 49
Dividends................................................................................................ 51
No Solicitation of Transactions.......................................................................... 52
Amendment; Extension and Waivers......................................................................... 52
Termination; Effect of Termination....................................................................... 52
Management and Operations of the Holding Company after the Consolidation................................. 53
Employee Benefits........................................................................................ 54
Accounting Treatment..................................................................................... 55
Certain Federal Income Tax Consequences.................................................................. 56
Expenses................................................................................................. 57
Resale of Holding Company Common Stock................................................................... 57
Dissenters' Rights....................................................................................... 58
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
INTERESTS OF CERTAIN PERSONS IN THE CONSOLIDATION.......................................................... 60
Stock Options............................................................................................ 60
Indemnification; Directors and Officers Insurance........................................................ 60
Continued Employment..................................................................................... 61
Employment Agreements.................................................................................... 61
Change in Control Agreements............................................................................. 62
Pension and ESOP Plans................................................................................... 62
CERTAIN RELATED TRANSACTIONS............................................................................... 63
Reciprocal Stock Option Agreements....................................................................... 63
DESCRIPTION OF THE HOLDING COMPANY......................................................................... 66
General.................................................................................................. 66
Board and Management..................................................................................... 66
Renumeration of Directors and Officers................................................................... 67
Directors and Management of Subsidiaries................................................................. 67
Authorized Capital Stock................................................................................. 68
Market for Holding Company Common Stock and Dividends.................................................... 69
Pennsylvania Anti-Takeover Provisions.................................................................... 69
Comparison of Rights of Shareholders of BCB, Heritage and The Holding Company............................ 70
Directors................................................................................................ 71
Shareholder Meetings..................................................................................... 73
Action by Shareholders Without a Meeting................................................................. 73
Antitakeover Provisions.................................................................................. 73
Required Shareholder Vote................................................................................ 74
Amendment of Bylaws...................................................................................... 75
Mandatory Tender Offer Provision......................................................................... 75
Dissenters' Rights....................................................................................... 76
Dividends................................................................................................ 76
Voluntary Dissolution.................................................................................... 77
Preemptive Rights........................................................................................ 77
Voluntary Dissolution.................................................................................... 77
Preemptive Rights........................................................................................ 77
DESCRIPTION OF BCB......................................................................................... 78
Business................................................................................................. 78
Management's Discussion and Analysis of Financial Condition and Results of Operations.................... 93
New Financial Accounting Standards....................................................................... 104
Management............................................................................................... 104
Security Ownership of Certain Beneficial Owners and Management........................................... 106
Executive Compensation................................................................................... 108
Executive Employment Agreements.......................................................................... 110
Certain Relationships and Related Transactions........................................................... 110
Market Price of and Dividends on BCB Common Stock and
Related Shareholder Matters............................................................................ 111
DESCRIPTION OF HERITAGE.................................................................................... 112
Management............................................................................................... 112
Security Ownership Of Management......................................................................... 113
Market Price of and Dividends on Heritage Common Stock and
Related Shareholder Matters............................................................................ 115
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
ADJOURNMENT................................................................................................ 116
INDEMNIFICATION............................................................................................ 117
EXPERTS.................................................................................................... 117
LEGAL MATTERS.............................................................................................. 117
OTHER MATTERS.............................................................................................. 117
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
</TABLE>
iii
<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
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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 NOVEMBER 20, 1998.
CAUTIONARY STATEMENT CONCERNING FOWARD-LOOKING INFORMATION
This Joint Proxy Statement/Prospectus (including information included or
incorporated by reference herein) contains certain forward-looking statements
with respect to financial condition, results of operations, plans, objectives,
future performance and business of each of BCB and Heritage, including (i)
statements relating to the cost savings estimated to result from the
Consolidation (see "SUMMARY" and "PRO FORMA COMBINED FINANCIAL INFORMATION"),
(ii) statements relating to the charges estimated to be incurred in connection
with the Consolidation (see "SUMMARY" and "PRO FORMA COMBINED FINANCIAL
INFORMATION"), and (iii) statements preceded by, followed by or that include the
words "believes", "expected", "anticipates", "estimates" or similar expressions
(see "SUMMARY", "THE CONSOLIDATION--Background and Reasons for the
Consolidation", "--Opinions of Financial Advisors" and "PRO FORMA COMBINED
FINANCIAL INFORMATION"). These forward-looking statements involve certain risks
and uncertainties. Factors that may cause actual results to differ materially
from those contemplated by such forward-looking statements include, among
others, the following possibilities: (a) expected cost savings from the
Consolidation may not be fully realized or realized within the expected time
frame; (b) revenues following the Consolidation, may be lower than expected, or
deposit attrition, operating costs or consumer loss and business disruption
following the Consolidation, may be greater than expected; (c) competitive
pressures among depository and other financial institutions may increase
significantly; (d) costs or difficulties related to the integration of the
business of BCB and Heritage may be greater than expected; (e) changes in the
interest rate environment may reduce margins; (f) general economic or business
conditions, either nationally or in Pennsylvania may be less favorable than
expected resulting in, among other things, a deterioration in credit quality or
a reduced demand for credit; (g) legislative or regulatory changes may adversely
affect the business in which BCB and Heritage is engaged; and (h) changes may
occur in securities markets.
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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 opened its seventh full-service branch
in Hamburg (Berks County) on March 14, 1998 and expects to open 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.
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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 at
Pottsville/Schuylkill Haven Highway, 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
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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," 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.
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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
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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, 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."
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
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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 was received on March 9, 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
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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, 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.
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On the Effective Date, the executive officers of the Holding Company will be
as follows:
<TABLE>
<S> <C> <C>
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
</TABLE>
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."
10
<PAGE>
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
11
<PAGE>
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 compensation paid by peer companies, BCB and
Heritage estimate that the range of compensation for each of the four named
individuals will be as follows: Mr. Oswald--$225,000 to $310,000; Mr.
Kiefer--$155,000 to $215,000; Mr. McHugh--$110,000 to $150,000; and Mr.
Ketner--$110,000 to $150,000. The foregoing ranges are 15% below and above the
mean compensation paid by peer companies. 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."
12
<PAGE>
The following information is not necessarily indicative of the results of
operations of future periods or future combined financial position of the
Holding Company.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1997
---------------------
<S> <C>
BOOK VALUE PER COMMON SHARE:
Historical:
BCB....................................................................................... $ 12.71
Heritage.................................................................................. 9.35
Pro Forma:
BCB and Heritage Combined................................................................. 9.05
BCB(1).................................................................................... 12.07
Heritage(2)............................................................................... 9.50
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1997 1996 1995
--------- --------- ---------
CASH DIVIDENDS DECLARED PER COMMON SHARE:
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(5):
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(6):
Basic.............................................................................. 1.45 1.17 0.72
Diluted............................................................................ 1.43 1.17 0.72
Heritage(7):
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
13
<PAGE>
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) Earnings per share amounts have been computed in accordance with the
provisions of FASB Statement No. 128, Earnings Per Share.
(6) 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.
(7) 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.
14
<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.
BCB SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
AT OR FOR THE
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
1997 1996 1995 1994 1993
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
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 outstanding(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
</TABLE>
15
<PAGE>
<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>
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 percentage 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 percentage 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
16
<PAGE>
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.
17
<PAGE>
HERITAGE SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
INCOME STATEMENT DATA:
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 $ 0.69 $ 0.75 $ 0.73
Cash dividends................................. 0.51 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.
18
<PAGE>
PRO FORMA COMBINED SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
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>
19
<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."
20
<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.
21
<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."
PRO FORMA UNAUDITED COMBINED CONDENSED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HOLDING
COMPANY
BCB HERITAGE COMBINED
--------- --------- -----------
<S> <C> <C> <C>
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
--------- --------- -----------
--------- --------- -----------
</TABLE>
22
<PAGE>
PRO FORMA UNAUDITED COMBINED CONDENSED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HOLDING
COMPANY
BCB HERITAGE COMBINED
--------- --------- -----------
<S> <C> <C> <C>
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
--------- --------- -----------
--------- --------- -----------
</TABLE>
PRO FORMA UNAUDITED COMBINED CONDENSED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HOLDING
COMPANY
BCB HERITAGE COMBINED
--------- --------- -----------
<S> <C> <C> <C>
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
--------- --------- -----------
--------- --------- -----------
</TABLE>
23
<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 at Pottsville/Schuylkill Haven Highway, 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
24
<PAGE>
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
25
<PAGE>
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
26
<PAGE>
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.
27
<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-
28
<PAGE>
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.
29
<PAGE>
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.
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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. These
estimated synergies and cost savings consist principally of routine operating
expenses ($350,000 to $600,000), the ability to fill budgeted BCB hires with
Heritage personnel ($300,000 to $600,000) and normal employee attrition
($100,000 to $300,000)), (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.
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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.
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(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. These estimated
synergies and cost savings consist principally of routine
operating expenses ($350,000 to $600,000), the ability to fill
budgeted BCB hires with Heritage personnel ($300,000 to $600,000)
and normal employee attrition ($100,000 to $300,000). 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
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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."
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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
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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
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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.
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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.
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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.
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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
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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,
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(1) Estimates reported by Bloomberg Financial Markets.
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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.
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.
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
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(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.
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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 18, 1998 (the trading date most
proximate to the mailing of this document to shareholders), the last reported
trade for Heritage Common Stock was $21 7/8 . Consequently, the difference
between the cited theoretical value and the actual trading value as of such date
was $1.00 or 4.6% 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
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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;
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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
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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;
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(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
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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 received FRB approval on March 9, 1998. 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.
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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
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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
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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."
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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,
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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
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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:
<TABLE>
<S> <C> <C>
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
</TABLE>
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,
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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.
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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
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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
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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.
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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.
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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
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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:
<TABLE>
<S> <C> <C>
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
</TABLE>
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
compensation paid by peer companies, BCB and Heritage estimate that the range of
compensation for each of the four named individuals will be as follows: Mr.
Oswald--$225,000 to $310,000; Mr. Kiefer--$155,000 to $215,000; Mr.
McHugh--$110,000 to $150,000; and Mr. Ketner--$110,000 to $150,000. The
foregoing ranges are 15% below and above the mean compensation paid by peer
companies.
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
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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.
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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
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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.
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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.
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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.
<TABLE>
<CAPTION>
CORPORATION OF WHICH
A
DIRECTOR AND YEAR
FIRST
CLASS AND NAME ELECTED
------------------------------------------------------------------------------ ---------------------
<S> <C> <C>
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)
</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.
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.
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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.
<TABLE>
<CAPTION>
POSITION WITH
NAME AND PRESENT POSITION THE HOLDING COMPANY
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
Nelson R. Oswald,....................................... Chairman and Chief Executive Officer
Chairman, President and Chief Executive Officer of BCB
and Berks County Bank
Allen E. Kiefer,........................................ President and Chief Operating Officer
President and Chief Executive Officer of Heritage and
Heritage National Bank
Robert D. McHugh, Jr.,.................................. Executive Vice President and Chief Financial Officer
Senior Vice President and Treasurer of BCB and Berks
County Bank
Richard A. Ketner,...................................... Executive Vice President and Chief Administrative
Executive Vice President and Secretary of Heritage; Officer
Executive Vice President Retail Services and Secretary
of Heritage National Bank
</TABLE>
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
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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.
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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. BCB and Heritage expect to apply
for quotation on the Nasdaq Stock Market National Market System for the Holding
Company Common Stock. The parties expect receipt of Nasdaq approval prior to the
effective date 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.
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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, HERITAGE 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
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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.
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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.
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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."
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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.
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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
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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 corpora-
tion 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
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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.
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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
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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
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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.
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
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
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
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LOAN ORIGINATIONS
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------------------
1997 1996 1995
---------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
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
---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
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% 0.57% 36.03%
---------- ----------- ----------- ----------
---------- ----------- ----------- ----------
</TABLE>
- ------------------------
(1) Includes deferred loan fees
81
<PAGE>
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
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
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
--------- --------- ---------
<S> <C> <C> <C>
(DOLLARS IN THOUSANDS)
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>
82
<PAGE>
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.
83
<PAGE>
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
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
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.
84
<PAGE>
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,
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1997 1996 1995 1994
-------------------------- -------------------------- -------------------------- ------------------------
<CAPTION>
PERCENT PERCENT PERCENT PERCENT
OF LOANS OF LOANS OF LOANS OF LOANS
IN EACH IN EACH IN EACH IN EACH
CATEGORY CATEGORY CATEGORY CATEGORY
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>
Allocation of
allowance
for loan
losses:
Commercial.... $ 851 44.41% $ 652 42.91% $ 420 41.51% $ 692 41.59%
Mortgage...... 574 42.00% 434 43.70% 336 42.82% 298 46.11%
Consumer...... 150 8.04% 122 8.40% 110 9.92% 55 5.78%
Construction... 56 5.55% 73 4.99% 64 5.75% 62 6.52%
General
allowance... 972 720 744 330
----------- ----------- ----------- ---------
Total......... $ 2,603 $ 2,001 $ 1,674 $ 1,437
----------- ----------- ----------- ---------
----------- ----------- ----------- ---------
<CAPTION>
<S> <C> <C>
1993
------------------------
PERCENT
OF LOANS
IN EACH
CATEGORY
AMOUNT TO LOANS(1)
--------- -------------
<S> <C> <C>
Allocation of
allowance
for loan
losses:
Commercial.... $ 806 42.35%
Mortgage...... 265 45.35%
Consumer...... 50 6.10%
Construction.. 57 6.20%
General
allowance... 269
---------
Total......... $ 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.
85
<PAGE>
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
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
U.S. Treasury securities........................................... $ 991 $ 3,465 $ 5,450 $ -- $ --
U.S. Government agencies........................................... 32,981 18,000 3,757 60,724 24,253
State and Municipal................................................ 23,192 23,275 6,978 10,165 10,787
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
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Total fair value of securities..................................... $ 98,326 $ 53,489 $ 20,359 $ 71,769 $ 35,147
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
<CAPTION>
1995
---------
<S> <C>
U.S. Treasury securities........................................... $ --
U.S. Government agencies........................................... 3,002
State and Municipal................................................ 6,205
Mortgage-backed and asset-backed securities (1).................... --
Other securities (2)............................................... --
---------
Total amortized cost of securities................................. $ 9,207
---------
---------
Total fair value of securities..................................... $ 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
-----------------------------------------------------------------------------------
AFTER 10
AFTER 1 YEAR AFTER 5 YEARS YEARS
BUT BUT OR NO
WITHIN 5 YEARS WITHIN 10 YEARS MATURITY
WITHIN 1 YEAR (1)
---------------------- ---------------------- ---------------------- -----------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT
----------- --------- ----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Amortized Cost:
U.S. Treasury securities................... $ 498 7.383% $ 493 7.779% $ 0 0% $ 0
U.S. Government agencies................... 0 0 0 0 16,981 7.287 16,000
State and Municipal........................ 0 0 0 0 0 0 23,192
Mortgage-backed and asset-backed
securities............................... 0 0 0 0 0 0 33,006
Other securities........................... 5,654 6.375 0 0 0 0 1,415
----------- --------- ----- --------- ----------- --------- -----------
Total securities available for sale........ $ 6,152 6.456% $ 493 7.779% $ 16,981 7.287% $ 73,613
----------- --------- ----- --------- ----------- --------- -----------
----------- --------- ----- --------- ----------- --------- -----------
<CAPTION>
TOTAL
----------------------
YIELD AMOUNT YIELD
--------- ----------- ---------
<S> <C> <C> <C>
Amortized Cost:
U.S. Treasury securities................... 0% $ 991 7.580%
U.S. Government agencies................... 7.354 32,981 7.320
State and Municipal........................ 7.807 23,192 7.807
Mortgage-backed and asset-backed
securities............................... 5.787 33,006 5.787
Other securities........................... 7.377 7,069 6.575
--------- ----------- ---------
Total securities available for sale........ 6.794% $ 97,239 6.864%
--------- ----------- ---------
--------- ----------- ---------
</TABLE>
<TABLE>
<CAPTION>
HELD TO MATURITY
DECEMBER 31, 1997
-----------------------------------------------------------------------------------
AFTER 10
AFTER 1 YEAR AFTER 5 YEARS YEARS
BUT BUT OR NO
WITHIN 5 YEARS WITHIN 10 YEARS MATURITY
WITHIN 1 YEAR (1)
---------------------- ---------------------- ---------------------- -----------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT
----------- --------- ----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Amortized Cost:
U.S. Treasury securities.................. $ 0 0% $ 0 0% $ 0 0% $ 0
U.S. Government agencies.................. 0 0 0 0 20,481 7.396 40,243
State and Municipal....................... 365 8.845 1,704 6.609 796 8.446 7,300
Mortgage-backed and asset-backed
securities.............................. 0 0 0 0 0 0 0
Other securities.......................... 0 0 0 0 25 7.500 0
----- --------- ----------- --------- ----------- --------- -----------
Total securities held to maturity......... $ 365 8.845% $ 1,704 6.609% $ 21,302 7.435% $ 47,543
----- --------- ----------- --------- ----------- --------- -----------
----- --------- ----------- --------- ----------- --------- -----------
<CAPTION>
TOTAL
----------------------
YIELD AMOUNT YIELD
--------- ----------- ---------
<S> <C> <C> <C>
Amortized Cost:
U.S. Treasury securities.................. 0% $ 0 0%
U.S. Government agencies.................. 7.379 60,724 7.385
State and Municipal....................... 8.059 10,165 7.875
Mortgage-backed and asset-backed
securities.............................. 0 0 0
Other securities.......................... 0 25 7.500
--------- ----------- ---------
Total securities held to maturity......... 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.
86
<PAGE>
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,
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1997 1996 1995
--------------------- --------------------- ---------------------
<CAPTION>
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
------------------------------------
<S> <C>
(IN THOUSANDS)
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%.
87
<PAGE>
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
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
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
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
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>
88
<PAGE>
Maturities of long-term debt at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1998.......................................................................... $ --
1999.......................................................................... 5,000
2000.......................................................................... --
2001.......................................................................... 5,000
-------
$ 10,000
-------
-------
</TABLE>
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.
89
<PAGE>
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.
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<PAGE>
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
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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.
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<PAGE>
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.
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<PAGE>
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
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<PAGE>
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
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1996 DECEMBER 31, 1995
DECEMBER 31, 1997 ----------------------------------- ----------------------
----------------------------------- INTEREST INTEREST
AVERAGE YIELD/ AVERAGE INCOME/ YIELD/ AVERAGE INCOME/
YEARS ENDED BALANCE RATE(2) BALANCE EXPENSE(1) RATE(2) BALANCE EXPENSE(1)
- ---------------------------- --------- ----------- --------- ----------- ----------- --------- -----------
INTEREST
INCOME/
EXPENSE(1)
-----------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <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
--------- ----------- ----------- --------- ----------- --- --------- -----------
U.S. Treasury............. 2,376 167 7.03 4,168 261 6.26 5,891 382
U.S. Government
agencies................ 91,503 6,333 6.92 25,237 1,770 7.01 6,239 397
State and municipal (3)... 32,574 2,560 7.86 22,003 1,773 8.06 7,336 591
Other bonds and
securities.............. 5,477 343 6.24 1,920 119 6.20 1,177 78
--------- ----------- ----------- --------- ----------- --- --------- -----------
Total securities...... 131,930 9,403 7.13 53,328 3,923 7.36 20,643 1,448
--------- ----------- ----------- --------- ----------- --- --------- -----------
Federal funds sold........ 649 35 5.55 2,319 121 5.22 1,290 73
--------- ----------- ----------- --------- ----------- --- --------- -----------
Commercial loans (3)...... 104,044 9,098 8.74 76,196 6,758 8.87 57,443 5,307
Mortgage loans............ 100,446 7,779 7.74 78,745 5,952 7.56 66,832 5,124
Installment loans......... 18,640 1,703 9.14 15,194 1,324 8.71 9,585 864
--------- ----------- ----------- --------- ----------- --- --------- -----------
Total loans(4).......... 223,130 18,580 8.33 170,135 14,034 8.25 133,860 11,295
--------- ----------- ----------- --------- ----------- --- --------- -----------
Total interest-earning
assets.............. 359,996 28,261 7.85 233,877 18,509 7.91 165,509 13,376
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
Savings deposits............ 12,384 402 3.25 11,010 343 3.12 10,162 272
Other time deposits......... 134,596 7,744 5.75 112,498 6,210 5.52 96,129 5,391
--------- ----------- ----------- --------- ----------- --- --------- -----------
Total deposits............ 278,427 13,277 4.77 192,150 9,135 4.75 134,746 6,600
Other borrowed funds........ 22,150 1,256 5.67 5,803 303 5.22 2,736 141
Long-term borrowings........ 13,830 788 5.70 6,742 371 5.50 5,488 285
--------- ----------- ----------- --------- ----------- --- --------- -----------
Total interest-bearing
liabilities............. 314,407 15,321 4.87 204,695 9,809 4.79 142,970 7,026
----------- ----------- ----------- --- -----------
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%
----------- ---
----------- ---
<CAPTION>
<S> <C>
YIELD/
YEARS ENDED RATE(2)
- ---------------------------- -----------
<S> <C>
INTEREST-EARNING ASSETS:
Interest-bearing deposits
at banks................ 5.76%
---
U.S. Treasury............. 6.48
U.S. Government
agencies................ 6.36
State and municipal (3)... 8.06
Other bonds and
securities.............. 6.63
---
Total securities...... 7.01
---
Federal funds sold........ 5.66
---
Commercial loans (3)...... 9.24
Mortgage loans............ 7.67
Installment loans......... 9.01
---
Total loans(4).......... 8.44
---
Total interest-earning
assets.............. 8.08
Unrealized depreciation on
available for sale
securities................
Allowance for loan losses...
Non-interest earning
assets....................
Total assets............
INTEREST-BEARING
LIABILITIES:
Demand deposits, interest-
bearing................... 3.29%
Savings deposits............ 2.68
Other time deposits......... 5.61
---
Total deposits............ 4.90
Other borrowed funds........ 5.15
Long-term borrowings........ 5.19
---
Total interest-bearing
liabilities............. 4.91
---
Demand deposits,
non-interest bearing......
Other non-interest bearing
liabilities...............
Total liabilities.......
Redeemable common stock.....
Stockholders' equity........
Total liabilities,
redeemable common stock
and stockholders'
equity....................
Net interest income.........
Net interest margin(5)...... 3.84%
---
---
</TABLE>
95
<PAGE>
- ------------------------------
(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.
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<PAGE>
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,
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1997 VS 1996 1996 VS 1995
CHANGE DUE TO CHANGE DUE TO
----------------------------------- ---------------------------------
<CAPTION>
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-
97
<PAGE>
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.
98
<PAGE>
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
99
<PAGE>
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 the principal 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.
100
<PAGE>
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)
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
---------- ---------- ---------- ---------- --------- ---------- ---------- ----------
<CAPTION>
(DOLLARS IN THOUSANDS)
<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.
101
<PAGE>
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.
102
<PAGE>
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.
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<PAGE>
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.
104
<PAGE>
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 YEARSAND 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
</TABLE>
105
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION DIRECTOR OR
FOR PAST FIVE YEARSAND EXECUTIVE OFFICER
POSITION HELD WITH BCB OF BCB/
NAME AGE AND BERKS COUNTY BANK BERKS COUNTY BANK SINCE
- ---------------------------------------- --- ---------------------------------------- -----------------------
<S> <C> <C> <C>
Wesley R. Pace (1)(3)(4)(6)............. 49 Chairman of the Board of Wesrock Capital 1987/1987
Co.; President, Shanna Wash, Inc.
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.
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.
106
<PAGE>
(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.
107
<PAGE>
(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 $100,000. There were
no other executive officers for whom disclosure would have been provided but for
the fact that such individuals were not serving at the end of the 1997 fiscal
year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
------------------------------
<S> <C> <C> <C> <C> <C> <C>
ANNUAL COMPENSATION AWARDS
------------------------------------------------ ------------------------------
<CAPTION>
SECURITIES
RESTRICTED UNDER-
OTHER STOCK LYING
NAME AND SALARY BONUS ANNUAL AWARD(S) OPTIONS/
PRINCIPAL POSITION YEAR ($) ($) COMPEN- SATION ($) SARS(#)
- --------------------------------------------- --------- --------- --------- --------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Nelson R. Oswald............................. 1997 218,314(2) 118,841(3) 0 0 0
Chairman of the Board 1996 192,948 50,000 0 0 9,600
President and CEO 1995 180,000 38,048 0 0 0
Robert D. McHugh, Jr......................... 1997 125,000 45,924(4) 0 0 0
Senior Vice President 1996 112,000 35,294 0 0 9,000
and Treasurer 1995 100,000 28,474 0 0 0
Steven A. Ehrlich............................ 1997 72,577 35,229 0 0 0
Vice President 1996 66,852 16,860 0 0 3,000
Commercial Lending 1995 60,000 9,555 0 0 0
Norman E. Heilenman.......................... 1997 68,423 32,518 0 0 0
Vice President 1996 61,616 17,994 0 0 3,000
Residential Mortgage 1995 57,108 17,698 0 0 0
Lending
<CAPTION>
<S> <C> <C>
PAYOUTS
-------------
OTHER
LTIP COMPEN-
NAME AND PAYOUTS SATION
PRINCIPAL POSITION ($) ($)(1)
- --------------------------------------------- ------------- -----------
<S> <C> <C>
Nelson R. Oswald............................. 0 6,203
Chairman of the Board 0 6,138
President and CEO 0 6,231
Robert D. McHugh, Jr......................... 0 6,922
Senior Vice President 0 6,164
and Treasurer 0 3,863
Steven A. Ehrlich............................ 0 3,234
Vice President 0 2,177
Commercial Lending 0 1,565
Norman E. Heilenman.......................... 0 3,564
Vice President 0 3,583
Residential Mortgage 0 3,366
Lending
</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 $15,131 at January 2, 1997.
The following table sets forth information concerning the exercise of BCB
Options to purchase BCB Common Stock by the named executive officers during the
fiscal year ended December 31, 1997, as well as the number of securities
underlying unexercised BCB Options and the potential value of unexercised BCB
Options as of December 31, 1997. No BCB Options were granted in 1997.
108
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR, AND
FISCAL YEAR-END OPTION/SAR VALUES (1)
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
SECURITIES IN-THE-MONEY
UNDERLYING OPTIONS/SARS
OPTIONS/SARS AT FISCAL
SHARES AT FISCAL YEAR-END ($)
ACQUIRED ON VALUE YEAR-END (#) EXERCISABLE/
EXERCISE REALIZED EXERCISABLE/ UNEXERCISABLE
NAME (#) ($) (2) 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.
109
<PAGE>
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
110
<PAGE>
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.
<TABLE>
<CAPTION>
QUARTERLY
-----------------------------------
<S> <C> <C> <C>
QUARTER ENDED DIVIDEND HIGH
- ----------------------------------------------------------------------------------- ----------- --------
March 31, 1998(1).................................................................. $ .08 29 3/4
December 31, 1997.................................................................. .08 28
September 30, 1997................................................................. .08 20 1/2
June 30, 1997...................................................................... .07 18
March 31, 1997..................................................................... .07 19 5/8
December 31, 1996.................................................................. .06 15 3/4
September 30, 1996................................................................. .05 12 11/16
June 30, 1996...................................................................... .05 12 15/16
March 31, 1996..................................................................... .05 12 15/16
December 31, 1995.................................................................. .04 11 1/16
September 30, 1995................................................................. .04 10 1/8
June 30, 1995...................................................................... .04 9 3/4
March 31, 1995..................................................................... .04 9 3/4
<CAPTION>
<S> <C> <C>
QUARTER ENDED LOW
- ----------------------------------------------------------------------------------- --------
March 31, 1998(1).................................................................. 24
December 31, 1997.................................................................. 19 1/2
September 30, 1997................................................................. 15
June 30, 1997...................................................................... 14 3/4
March 31, 1997..................................................................... 14 3/4
December 31, 1996.................................................................. 12 1/16
September 30, 1996................................................................. 11 7/8
June 30, 1996...................................................................... 11 7/8
March 31, 1996..................................................................... 10 13/16
December 31, 1995.................................................................. 9 5/8
September 30, 1995................................................................. 9 5/16
June 30, 1995...................................................................... 8 3/4
March 31, 1995..................................................................... 8 1/2
</TABLE>
- ------------------------
(1) Through March 18, 1998.
111
<PAGE>
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 18, 1998, the last sale price for the BCB Common Stock was
$28 3/8 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.
<TABLE>
<CAPTION>
POSITION AND BUSINESS EXPERIENCE
NAME AGE DURING PAST 5 YEARS
- ----------------------------------- --- ----------------------------------------------------------------------
<S> <C> <C>
Allen E. Kiefer.................... 54 President and Chief Executive Officer of Heritage 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.
</TABLE>
112
<PAGE>
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 (Textile 1995*
Manufacturer)
Allen E. Kiefer................................. 54 President and Chief Executive Officer of 1983
Heritage and Heritage National Bank
Robert F. Koehler............................... 66 Retired, formerly President of Sylray, Inc. 1981
(Textile Manufacturer)
Ermano O. Agosti................................ 66 President, Hometown, IGA, Inc. (Retail Grocery 1988
Stores)
Albert L. Evans, Jr............................. 58 President, Evans Delivery Company, Inc. 1995*
Richard T. Fenstermacher........................ 55 Co-owner, Hadesty Hardware Co., Inc. (Major 1991
Appliances, Electronics and Hardware)
Richard A. Ketner............................... 43 Secretary of Heritage and Heritage National Bank 1995*
(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 and 1995
Coldwell Banker Higgins Associates
(Insurance/Real Estate)
Frederick A. Gosch.............................. 56 Chairman and Chief Financial Officer, Pflueger 1995*
Insurance Agency, Inc.
Raman V. Patel.................................. 61 Retired, formerly President, Raydyne, Inc. 1995*
(Consulting Engineers)
William J. Zimmerman............................ 52 Director, Student Affairs and Marketing, Penn 1991
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.
113
<PAGE>
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>
NO. OF SHARES AND
POSITION NATURE OF
WITH 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 33,051(6) 0.69%
Secretary
Allen E. Kiefer........................ President, Chief Executive Officer and 40,272(7) 0.84%
Director
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 Chief Financial 3,179(13) 0.07%
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.
114
<PAGE>
(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.
<TABLE>
<CAPTION>
QUARTERLY
---------------------------------
<S> <C> <C> <C>
QUARTER ENDED DIVIDEND HIGH LOW
- ------------------------------------------------------------------ ----------- --------- ---------
March 31, 1998(1)................................................. $ .14 22.00 19.75
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
</TABLE>
- ------------------------
(1) Through March 18, 1998
115
<PAGE>
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 18, 1998, the last sale price for the Heritage Common Stock
was $21 7/8 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 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."
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.
116
<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.
117
<PAGE>
FINANCIAL STATEMENTS OF BCB
INDEX
<TABLE>
<S> <C>
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-4
Consolidated Statements of Stockholders' Equity--For the years ended December 31,
1997 and 1996..................................................................... S-5
Consolidated Statements of Cash Flows--For the years ended December 31, 1997 and
1996.............................................................................. S-6
Notes to Consolidated Financial Statements.......................................... S-8
</TABLE>
S-1
<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
S-2
<PAGE>
BCB FINANCIAL SERVICES CORPORATION
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERKS COUNTY BANK
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
<S> <C> <C>
1997 1996
---------- ----------
<CAPTION>
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
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
---------- ----------
---------- ----------
</TABLE>
See Notes to Consolidated Financial Statements.
S-3
<PAGE>
BCB FINANCIAL SERVICES CORPORATION
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERKS COUNTY BANK
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
--------------------
<S> <C> <C>
1997 1996
--------- ---------
<CAPTION>
(IN THOUSANDS,
EXCEPT PER SHARE
DATA)
<S> <C> <C>
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
--------- ---------
--------- ---------
</TABLE>
See Notes to Consolidated Financial Statements.
S-4
<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
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET UNREALIZED
APPRECIATION
(DEPRECIATION)
ON SECURITIES
COMMON RETAINED AVAILABLE FOR
STOCK SURPLUS EARNINGS SALE TOTAL
----------- --------- ----------- ----------------- ---------
<CAPTION>
(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.
S-5
<PAGE>
BCB FINANCIAL SERVICES CORPORATION
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERKS COUNTY BANK
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1997 1996
----------- -----------
<S> <C> <C>
(IN THOUSANDS)
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)
----------- -----------
</TABLE>
S-6
<PAGE>
BCB FINANCIAL SERVICES CORPORATION
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERKS COUNTY BANK
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1997 1996
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
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.
S-7
<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.
S-8
<PAGE>
BCB FINANCIAL SERVICES CORPORATION
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERKS COUNTY BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
S-9
<PAGE>
BCB FINANCIAL SERVICES CORPORATION
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERKS COUNTY BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
S-10
<PAGE>
BCB FINANCIAL SERVICES CORPORATION
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERKS COUNTY BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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
----------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
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
----------- ----------- ----- ---------
----------- ----------- ----- ---------
</TABLE>
S-11
<PAGE>
BCB FINANCIAL SERVICES CORPORATION
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERKS COUNTY BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. SECURITIES (CONTINUED)
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ----------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
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.
<TABLE>
<CAPTION>
AVAILABLE FOR SALE HELD TO MATURITY
---------------------- ----------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
(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
----------- --------- ----------- ---------
----------- --------- ----------- ---------
</TABLE>
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.
S-12
<PAGE>
BCB FINANCIAL SERVICES CORPORATION
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERKS COUNTY BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES
The components of loans receivable at December 31, 1997 and 1996 were as
follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
(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
---------- ----------
---------- ----------
</TABLE>
Changes in the allowance for loan losses for the years ended December 31,
1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
(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
---------- ----------
---------- ----------
</TABLE>
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.
S-13
<PAGE>
BCB FINANCIAL SERVICES CORPORATION
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERKS COUNTY BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. PREMISES AND EQUIPMENT
Components of premises and equipment at December 31, 1997 and 1996 were as
follows:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
(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
--------- ---------
--------- ---------
</TABLE>
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):
<TABLE>
<S> <C>
1998.............................................................. $ 38,512
1999.............................................................. 53,589
2000.............................................................. 38,249
2001.............................................................. 8,033
2002.............................................................. 8,443
Thereafter........................................................ 823
---------
$ 147,649
---------
---------
</TABLE>
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%.
S-14
<PAGE>
BCB FINANCIAL SERVICES CORPORATION
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERKS COUNTY BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. OTHER BORROWED FUNDS AND LONG-TERM DEBT (CONTINUED)
Long-term debt consisted of the following at December 31, 1997 and 1996 (in
thousands):
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
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
--------- ---------
--------- ---------
</TABLE>
Maturities of long-term debt at December 31, 1997 are as follows (in
thousands):
<TABLE>
<S> <C>
1998............................................................... $ --
1999............................................................... 5,000
2000............................................................... --
2001............................................................... 5,000
---------
$ 10,000
---------
---------
</TABLE>
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):
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Current................................................................. $ 1,097 $ 364
Deferred................................................................ (229) 69
--------- ---------
$ 868 $ 433
--------- ---------
--------- ---------
</TABLE>
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):
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
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
--------- ---------
--------- ---------
</TABLE>
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).
S-15
<PAGE>
BCB FINANCIAL SERVICES CORPORATION
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERKS COUNTY BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. INCOME TAXES (CONTINUED)
Net deferred tax assets consisted of the following components as of December
31, 1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
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
--------- ---------
--------- ---------
</TABLE>
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.
S-16
<PAGE>
BCB FINANCIAL SERVICES CORPORATION
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERKS COUNTY BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. OTHER EXPENSES
The following represents the most significant categories of other expenses
for the years ended December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
(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
--------- ---------
--------- ---------
</TABLE>
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:
<TABLE>
<CAPTION>
1997 1996
---------------------- ----------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
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
--------- ----------- --------- -----------
--------- ----------- --------- -----------
</TABLE>
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.
S-17
<PAGE>
BCB FINANCIAL SERVICES CORPORATION
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERKS COUNTY BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. STOCK OPTIONS AND GRANTS (CONTINUED)
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):
<TABLE>
<S> <C>
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
---------
---------
</TABLE>
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):
<TABLE>
<S> <C>
1998................................................................. $ 252
1999................................................................. 85
2000................................................................. 61
2001................................................................. 63
2002................................................................. 65
Later years.......................................................... 396
---------
$ 922
---------
---------
</TABLE>
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.
S-18
<PAGE>
BCB FINANCIAL SERVICES CORPORATION
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERKS COUNTY BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. COMMITMENTS AND CONTINGENCIES (CONTINUED)
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):
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Commitments to extend credit............................................ $ 43,629 $ 31,141
Outstanding letters of credit........................................... 2,649 1,102
Commitments to sell loans............................................... -- --
</TABLE>
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.
S-19
<PAGE>
BCB FINANCIAL SERVICES CORPORATION
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERKS COUNTY BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK (CONTINUED)
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.
S-20
<PAGE>
BCB FINANCIAL SERVICES CORPORATION
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERKS COUNTY BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
17. REGULATORY MATTERS AND STOCKHOLDERS' EQUITY (CONTINUED)
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
--------- --------- --------- ----- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
As of December 31, 1997:
Total capital (to risk weighted assets)
<CAPTION>
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.
S-21
<PAGE>
BCB FINANCIAL SERVICES CORPORATION
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERKS COUNTY BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
S-22
<PAGE>
BCB FINANCIAL SERVICES CORPORATION
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERKS COUNTY BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
19. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
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.
S-23
<PAGE>
BCB FINANCIAL SERVICES CORPORATION
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERKS COUNTY BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
19. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
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
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
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.
S-24
<PAGE>
BCB FINANCIAL SERVICES CORPORATION
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERKS COUNTY BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
20. MERGER (CONTINUED)
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:
<TABLE>
<CAPTION>
BCB FINANCIAL
SERVICES
CORPORATION HERITAGE COMBINED
(AS REPORTED) BANCORP, INC. PRO FORMA
------------- ------------- -----------
<S> <C> <C> <C>
(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
</TABLE>
The pro forma combined results are not necessarily indicative of the
combined results of future operations.
21. BCB FINANCIAL SERVICES CORPORATION (PARENT COMPANY ONLY) FINANCIAL
INFORMATION
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
(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
--------- ---------
--------- ---------
</TABLE>
S-25
<PAGE>
BCB FINANCIAL SERVICES CORPORATION
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERKS COUNTY BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
21. BCB FINANCIAL SERVICES CORPORATION (PARENT COMPANY ONLY) FINANCIAL
INFORMATION (CONTINUED)
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
(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
--------- ---------
--------- ---------
</TABLE>
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
(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
--------- ---------
--------- ---------
</TABLE>
S-26
<PAGE>
ANNEX A
AGREEMENT AND PLAN
OF CONSOLIDATION
BETWEEN
BCB FINANCIAL SERVICES CORPORATION
AND
HERITAGE BANCORP, INC.
NOVEMBER 18, 1997
A-1
<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.
A-2
<PAGE>
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.
A-3
<PAGE>
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.
A-4
<PAGE>
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.
A-5
<PAGE>
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.
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(ii) On the Effective Date, the executive officers of the Holding
Company shall be:
<TABLE>
<S> <C> <C>
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
</TABLE>
(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
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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
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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
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<PAGE>
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
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<PAGE>
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%).
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<PAGE>
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.
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(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.
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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.
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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.
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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.
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(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
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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 2.16 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
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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.
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(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
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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.
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(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
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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.
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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
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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
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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.
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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
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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
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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).
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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
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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
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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
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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;
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(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
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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
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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
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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
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<PAGE>
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;
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<PAGE>
(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;
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<PAGE>
(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.
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<PAGE>
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
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<PAGE>
(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.
<TABLE>
<S> <C> <C>
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
</TABLE>
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<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
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<PAGE>
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,
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<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;
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<PAGE>
(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,
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<PAGE>
EXHIBIT 2
BCB STOCK OPTION AGREEMENT
[SEE ANNEX B.]
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<PAGE>
EXHIBIT 3
HERITAGE STOCK OPTION AGREEMENT
[SEE ANNEX C.]
A-48
<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 ten votes for the Agreement and the Plan and zero 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 ten votes for the Agreement and the Plan and three 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:
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<PAGE>
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
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<PAGE>
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.
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<PAGE>
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.
<TABLE>
<S> <C>
BCB FINANCIAL SERVICES CORPORATION
ATTEST
- -------------------------------------------- --------------------------------------------
Secretary NELSON R. OSWALD,
Chairman, President and Chief Executive
Officer
(SEAL)
HERITAGE BANCORP, INC.
ATTEST
- -------------------------------------------- --------------------------------------------
Secretary ALLEN E. KIEFER,
President and Chief Executive Officer
(SEAL)
</TABLE>
A-52
<PAGE>
EXHIBIT A
ARTICLES OF INCORPORATION
OF
FIRST. The name of the Corporation is Main Street Bancorp, Inc.
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
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<PAGE>
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
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<PAGE>
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
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<PAGE>
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.
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<PAGE>
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.
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<PAGE>
EXHIBIT B
BYLAWS
OF
------------------------
[SEE EXHIBIT 5.]
A-58
<PAGE>
EXHIBIT C
DIRECTORS
<TABLE>
<CAPTION>
CORPORATION OF WHICH
A
DIRECTOR AND YEAR
FIRST
CLASS AND NAME ELECTED
------------------------------------------------------------------------------ ---------------------
<S> <C> <C>
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)
</TABLE>
OFFICERS
<TABLE>
<S> <C> <C>
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
</TABLE>
A-59
<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.
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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.
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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.
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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):
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(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
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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
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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 603. 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
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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.
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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.
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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.
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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.
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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.
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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
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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:
(i) 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
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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;
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(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
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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
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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.
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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
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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.
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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.
<TABLE>
<S> <C> <C>
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
</TABLE>
B-9
<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.
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(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
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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
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<PAGE>
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
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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
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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).
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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
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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.
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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
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ANNEX D
[LOGO]
March 20, 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;
[LOGO]
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[LOGO]
(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,
[LOGO]
JANNEY MONTGOMERY SCOTT INC.
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ANNEX E
FORM OF OPINION OF MCCONNELL BUDD & DOWNES INC.
March 20, 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
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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
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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
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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 (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).
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).
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(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).
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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
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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.
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(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.
F-5
<PAGE>
(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.
(a) 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.
F-6
<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.
<TABLE>
<C> <S>
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 Opinion of Janney Montgomery Scott Incorporated (included as Annex D to
Proxy Statement/ Prospectus).
</TABLE>
II-1
<PAGE>
<TABLE>
<C> <S>
99.2 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.*
</TABLE>
- ------------------------
* 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.
II-2
<PAGE>
(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.
II-3
<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 March 18, 1998.
<TABLE>
<S> <C> <C>
BCB FINANCIAL SERVICES CORPORATION
(Registrant)
By /s/ NELSON R. OSWALD
-----------------------------------------
Nelson R. Oswald
CHAIRMAN AND CHIEF EXECUTIVE
OFFICER
</TABLE>
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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ NELSON R. OSWALD
- ------------------------------ Chairman,Chief Executive March 18, 1998
Nelson R. Oswald Officer
/s/ HAROLD C. BOSSARD*
- ------------------------------ Director March 18, 1998
Harold C. Bossard
/s/ EDWARD J. EDWARDS*
- ------------------------------ Director March 18, 1998
Edward J. Edwards
/s/ LEWIS R. FRAME, JR.*
- ------------------------------ Director March 18, 1998
Lewis R. Frame, Jr.
/s/ IVAN H. GORDON*
- ------------------------------ Director March 18, 1998
Ivan H. Gordon
/s/ JEFFREY W. HAYES*
- ------------------------------ Director March 18, 1998
Jeffrey W. Hayes
/s/ ALFRED B. MAST*
- ------------------------------ Director March 18, 1998
Alfred B. Mast
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ WESLEY R. PACE*
- ------------------------------ Director March 18, 1998
Wesley R. Pace
/s/ RANDALL S. WEEBER*
- ------------------------------ Director March 18, 1998
Randall S. Weeber
/s/ FLOYD S. WEBER*
- ------------------------------ Director March 18, 1998
Floyd S. Weber
/s/ ROBERT D. MCHUGH, JR.*
- ------------------------------ Chief Financial Officer March 18, 1998
Robert D. McHugh, Jr.
/s/ DONNA L. RICKERT*
- ------------------------------ Chief Accounting, March 18, 1998
Donna L. Rickert Officer
</TABLE>
- ------------------------
* Executed under power of attorney
II-5
<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 March 18, 1998.
<TABLE>
<S> <C> <C>
HERITAGE BANCORP, INC.
---------------------------------------------
(REGISTRANT)
BY: /S/ ALLEN E. KIEFER*
-----------------------------------------
Allen E. Kiefer
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------------------ ------------------------------------ -------------------
<C> <S> <C>
/s/ ALLEN E. KIEFER*
------------------------------------------- President Chief Executive Officer March 18, 1998
Allen E. Kiefer and Director
/s/ ERMANO O. AGOSTI*
------------------------------------------- Director March 18, 1998
Ermano O. Agosti
/s/ RICHARD D. BIEVER*
------------------------------------------- Director March 18, 1998
Richard D. Biever
/s/ ALBERT L. EVANS, JR.*
------------------------------------------- Director March 18, 1998
Albert L. Evans, Jr.
/s/ RICHARD T. FENSTERMACHER*
------------------------------------------- Director March 18, 1998
Richard T. Fenstermacher
/s/ FREDERICK A. GOSCH*
------------------------------------------- Director March 18, 1998
Frederick A. Gosch
/s/ JOSEPH P. SCHLITZER*
------------------------------------------- Director March 18, 1998
Joseph P. Schlitzer
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------------------ ------------------------------------ -------------------
<C> <S> <C>
/s/ RICHARD A. KETNER*
------------------------------------------- Director March 18, 1998
Richard A. Ketner
/s/ ROBERT F. KOEHLER*
------------------------------------------- Director March 18, 1998
Robert F. Koehler
------------------------------------------- Director March 18, 1998
Joanne C. McCloskey
/s/ RAMAN V. PATEL*
------------------------------------------- Director March 18, 1998
Raman V. Patel
/s/ WILLIAM J. ZIMMERMAN*
------------------------------------------- Director March 18, 1998
William J. Zimmerman
/s/ DAVID L. SCOTT Chief Financial
------------------------------------------- Officer (Principal March 18, 1998
David L. Scott Accounting Officer)
</TABLE>
- ------------------------
* Executed under power of attorney
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
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 Opinion of Janney Montgomery Scott Incorporated (included as Annex D to Proxy Statement/ Prospectus).
99.2 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.*
</TABLE>
- ------------------------
* Previously filed.
II-8
<PAGE>
Exhibit 5
Opinion of Stevens & Lee
Board of Directors
BCB Financial Services Corporation
Heritage Bancorp, Inc.
Re: Registration Statement on Form S-4
(SEC File No. 333-44697)
Gentlemen:
In connection with the proposed statutory Consolidation (the
"Consolidation") by BCB Financial Services Corporation ("BCB") and Heritage
Bancorp, Inc. ("Heritage") into a new holding company (the "Holding Company")
and the issuance of up to 9,965,849 shares of the Holding Company's common
stock, par value $1.00 per share (the "Common Stock"), covered by the joint
Registration Statement on Form S-4 (No. 333-44697) of BCB and Heritage (the
"Registration Statement") we have reviewed the following:
1. the Articles of Incorporation of the Holding Company;
2. the Bylaws of the Holding Company;
3. proposed Articles of Consolidation to be filed in the Pennsylvania
Department of State in connection with the Consolidation;
4. the Registration Statement;
5. Resolutions of the Board of Directors of BCB dated November 18, 1997,
approving the Agreement (as defined in Registration Statement);
6. Resolutions of the Board of Directors of Heritage dated November
18, 1997 approving the Agreement; and
7. copies of the certificates representing shares of the Common Stock.
Based upon our review of such documents it is our opinion that:
1. Upon filing Articles of Consolidation in the Department of State of
the Commonwealth of Pennsylvania in connection with the Consolidation, the
Holding Company will be duly incorporated under the laws of the Commonwealth
of Pennsylvania and will be validly existing and in good standing under the
laws of such Commonwealth.
<PAGE>
Board of Directors
March 6, 1998
Page 2
2. Upon filing Articles of Consolidation in the Department of State of
the Commonwealth of Pennsylvania in connection with the Consolidation, the
9,965,849 shares of Common Stock covered by the Registration Statement will
have been duly authorized and when issued in exchange for the common stock of
Heritage and the common stock of BCB pursuant to the terms described in the
Registration Statement, will be legally issued by the Holding Company and
fully paid and nonassessable.
We consent to the filing of this opinion as an exhibit to the Registration
Statement, and to the reference to us under the heading "Legal Matters" in the
related prospectus/proxy statement. In giving this consent, we do not thereby
admit that we come within the category of persons whose consent is required
under Section 7 of the Securities Act of 1933, as amended, or the Rules and
Regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
STEVENS & LEE
<PAGE>
EXHIBIT 23.1
CONSENTS OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement (Amendment
No. 2 to Form S-4) of our report, dated January 30, 1998, relating to the
consolidated financial statements of BCB Financial Services Corporation and
its wholly-owned subsidiary, Berks County Bank. We also consent to the
reference to our Firm under the caption "Experts" in the Joint Proxy
Statement/Prospectus.
BEARD & COMPANY, INC.
Reading, Pennsylvania
March 18, 1998
We hereby consent to the incorporation by reference in this Registration
Statement (Amendment No. 2 to Form S-4) of our report, dated January 28,
1998, relating to the consolidated financial statements of Heritage Bancorp,
Inc. and subsidiary included in its Annual Report (Form 10-K) for the year
ended December 31, 1997. We also consent to the reference to our Firm under
the caption "Experts" in the Joint Proxy Statement/Prospectus.
BEARD & COMPANY, INC.
Reading, Pennsylvania
March 18, 1998
<PAGE>
EXHIBIT 23.4
March 19, 1998
Consent of Janney Montgomery Scott Inc.
We hereby consent to the use of our opinion letter to the Board of Directors of
BCB Financial Services Corporation and to the references to our firm in the
Proxy Statement/Prospectus which forms a part of the Registration Statement on
Form S-4 relating to the consolidation of BCB Financial Services Corporation and
Heritage Bancorp, Inc.
In giving this consent, we do not admit that we come within the category of
persons whose consent is required under Section 7 of the Securities Act of 1933,
as amended, or the rules and regulations of the Securities and Exchange
Commission promulgated thereunder.
JANNEY MONTGOMERY SCOTT INC.
<PAGE>
EXHIBIT 23.5
CONSENT OF FINANCIAL ADVISOR
We hereby consent to the inclusion of the Opinion of McConnell, Budd &
Downes, Inc. in the Form S-4 Registration Statement of BCB Financial Services
Corporation ("BCB") and Heritage Bancorp, Inc. ("Heritage") to be filed with the
Securities and Exchange Commission in connection with the proposed Consolidation
of BCB and Heritage to form a new holding company ("Holding Company") to be
named, and to the references to the work completed by our firm as Financial
Advisor to Heritage in the text of the related Joint Proxy Statement/Prospectus.
In giving such consent, we do not thereby admit that we come within the category
of persons whose consent is required under Section 7 of the Securities Act of
1933 or the rules and regulations of the Securities and Exchange Commission.
McConnell, Budd & Downes, Inc.
March 19, 1998
